In Washington state, legislators have proposed bills to restrict the use of non-compete agreements, and even ban them in some instances.
One bill, proposed by Rep. Matt Manweller (R-Ellensburg), intended to make non-competition agreements for low-wage positions unenforceable (initially banning non-compete requirements for hair salon and manicurist employees, drywall applicators, musicians and fast-food workers), but wasn’t brought up for a vote in committee and subsequently was considered “dead” under the Legislature’s procedural rules. Another, proposed by Rep. Derek Stanford (D-Bothell), intends to make the agreements completely unenforceable in the state, while maintaining the enforceability of non-solicitation agreements and confidentiality agreements. Stanford’s proposition instigated a Twitter war between two tech moguls, and passed out of the House Labor & Workplace Committee on Tuesday by a 4-2 vote. Currently, it’s headed to a full House vote.
The GovTech article raises a great point about California’s lack of non-competes and their booming tech industry, but who cares about their tech industry? Not me. I care about us, and where we’re concerned, non-competes shouldn’t be used. Many judges agree with me on this point (examples here, here, here, and here).
Should Rep. Stanford’s bill pass, non-compete agreements in Washington will be considered unreasonable and unenforceable if the employee is:
- temporary or seasonal
- terminated without just cause or “laid off” by the employer
- restricted from competing for more than one year after termination of employment
- is not an executive employee, or
- the agreement is between an entity engaging an independent contractor and an independent contractor.
Does this mean that a salon owner can suddenly consider their employees “executive employees” to secure the validity of their NCA’s?
Nope. Stanford’s bill clearly defines what constitutes an executive employee, effectively sealing that potential loophole shut.
Despite its name, a non-compete cannot be used exclusively to reduce or eliminate competition. They’re designed to protect confidential company assets to keep them from being used by a current or future competitor. They’re for defending legitimate business interests; not for denying an ex-employee’s right to work or for hindering the market.
For a non-compete to be enforced, not only must the document be reasonable and specific, but the employer has to prove that a.) the company has proprietary intellectual property or trade secrets, and b.) the employee had access to that proprietary information. To be awarded damages, they’ll have to prove that the employee a.) used that proprietary information, and b.) that the employee’s use of that information harmed the business.
Salon owners are unlikely to be capable of proving either claim.
Many salon owners are acutely aware of that fact, but are also aware that most beauty professionals aren’t informed enough about the law to know better, which is why you see so many of these bogus agreements in the industry.
Salon non-competes, instead of being presented as a shield against the theft of legitimate business assets, are used as a tool to intimidate and control employees.
I can state with absolute certainty that I know of exactly three salons who might be able to convince a judge that their salon has proprietary secrets or IP–but that judge would have to be a very nice judge with very pro-business inclinations, hearing their case on a very good day.
In rare cases where NCA’s are enforced, the salon owners who prevail are often victimized by ex-employees in very clear, demonstrably provable (and often pretty damn egregious) ways. We’re talking about cases where the ex-employee takes aggressive, malicious steps to harm the salon owner’s operations (stealing client lists and openly soliciting, coordinating a premeditated employee mutiny, launching a smear campaign against the salon owner’s business, opening a salon directly across the street, and outright operating with a clear intent to systematically destroy the ex-employer).
Not only do I recommend against having these agreements (instead promoting the use of fair non-solicitation and data theft protection clauses), I highly discourage salon owners from attempting to enforce them. These suits end up costing way more money than they’re worth.
The reward rarely justifies the risk. Even when you win, you lose.
You don’t have to take my word for it though, Matthew Stoloff, Esq., an attorney in New Jersey writes on his blog: “Unless the small business definitely has trade secrets or proprietary information that could potentially be worth millions of dollars, it is almost always a terrible idea for a small business owner to litigate a former employee’s breach of the non-compete agreement.”
I also encourage salon professionals who are concerned about being sued or are being threatened by an ex-employer for violation of a non-compete to ask an attorney about moving for a preemptive strike (basically calling the owner’s bluff, suing them first, and attempting to obtain a declaratory judgement on the validity of the non-compete). You don’t have to take my word on that, either (and I advise that you don’t, since I’m not a lawyer, and certainly not your lawyer).
Generally, salon owners design non-compete agreements for one single, specific reason: to protect the salon’s client contact data from being used in a competing business. The purpose is entirely understandable, but non-competition agreements are not the best way to accomplish that purpose.
A non-solicitation agreement would sufficiently accomplish the same goal, and is more likely to be enforced in court.
Non-solicitations prohibit employees from soliciting employees or customers of the business. They don’t try to keep ex-employees from working. They don’t try to keep ex-employees from engaging in independent trade. They’re straightforward, reasonable, and far easier to enforce.
If you’re an employer, consider exchanging your NCA’s with NSA’s. (Non-competes have been going out of favor all over the country for several years now, and will likely not be permissible anywhere for much longer.) Remember, unless you’re an attorney with an appropriate specialization, you should never, ever attempt to write your own contracts. Steer clear of templates also. Pay the money to have the job done right and done well so that it will effectively protect your business.
I also highly suggest reading Attorney Stoloff’s articles, specifically this one on the independent contractor classification, this one about two nail salon owners involved in a non-compete enforcement battle, and this one about the illegality of employer retaliation when an employee reports FLSA violations.
Do you have any crazy non-compete stories? Share them in the comments!
I love non-compete contracts. So many people, who I have lost touch with, contact me after they leave salons because they are worried about the non-compete they signed. We chat, we catch up, we talk about old times, and share many laughs. We do not have to spend a lot of time talking about the non-compete, because nine times out of ten a first year law student can tear through it like toilet paper… And even with that rare tenth case, when they might be holding a non-compete that appears bulletproof, I get to assure them that the cost of litigation is so high their former employer probably can’t afford to enforce it. There is a downside to these conversations… My old friends usually cannot stay on the phone too long, because they have to call all their clients, to inform them of their new location. Not one has left her clients behind, and not one signed a NSA so each was well within her rights to do so.
I get a lot of that too. We have laughs. Then, there are the employers who contact me. “What can I do to keep her from contacting the clients?!” Did she sign a non-solicitation? No? Then, well, nothing. I get sad for them, but only a little. Mostly I wish they’d take their businesses more seriously and seek education and counsel before their shit hits their proverbial fan.
I knew a husband & wife hairstylist couple who left a salon to go work at another just a few miles away. The owner took them to court over a non-compete agreement which stated they could not work within a 30 mile radius.
The judge ruled in the couples favor because the contract was not enforceable & this was way back in the 80’s. I really don’t know how the salon owner thought it could be enforced because this was a small town of a few thousand people that maybe spanned 3 miles wide. They’d have had to drive thru 10 small towns & vast amounts of countryside to reach a 30 mile radius.
Consequently when this same couple eventually opened their own 3 story day spa, they made sure it was a fun, hip & happening place to work, with no non-compete contracts. People wanted to work there because it was a great environment & they could thrive, not because they felt threatened or intimidated by the owners.
You wonder why some owners can’t grasp this concept?
I was ignorant, innocent and naïve when I signed a noncompete/non-solicitation with a massage practice. I had been a massage therapist in a different state for over 10 years and never heard of a noncompete so when I was asked to sign one, I just signed it.
After working for the massage practice for 2 1/2 years, I’ve decided to really embrace my entrepreneurial spirit and move 13 miles from the massage practice. Two days later, I received a cease and desist letter from the massage practice attorney. They are threatening to sue me for breach of contract.
The original contract that I signed said that I would not be a direct competition within 30 miles of their location or for Jonge deemed that too unreasonable that the distance would be 10 miles. I figured that 13 miles was more than fair and reasonable.
Now I have been trapped to not feel safe to open a private practice 13 miles from the location & remain unemployed for the next year.
Help. I am located in Raleigh, North Carolina.
You’ll have to talk to an attorney about your specific situation. I’m inclined to agree with you–the 30-mile radius is absurd. However, the first thing you’ll be confronted with by opposing counsel is, “If you thought the contract terms were unreasonable to begin with, why did you sign?” If you come back with, “Well, I didn’t know what I was signing,” they’ll absolutely slaughter you. Ultimately, it’s your responsibility to read your contracts and negotiate away anything you don’t feel comfortable with. I think you stand a decent chance of having a judge determine the contract is unreasonable, but prepare to be thoroughly humiliated should you decide to bring it to court.
I have non competes that protect our client list there emails and personal information etc. it’s iron clad. When a new stylist is hired they write down their client list they came with and that’s what they leave with upon termination or resignation of employment. We have a two year term and a 15 mile radius. If a stylist leaves in a honest way and doesn’t steal from our database we could care less where or what they do but when they maliciously steal what’s not there’s we take them to court and we have won both times and they had to shutdown there studios. Is it worth it financially nope but based on principle and ethics absolutely it is. Also per your other article . Our pay system guarantees each stylist 8.05 an hour fl min wage plus there tips and or commission sliding scale starting at 40 to 50 percent plus 10 percent of product sales if they hit commission status they are then only figured commission on the profit of total service sales. We Back out cost of chemical services. Example color etc. it is broken down my the gram by the ounce etc… For that particular service. Then there commission is figured out. This is 100 percent legal. In any sales job and let’s be clear stylist are in sales and service only a busines that wants to lose money pays on the gross. All or most commissioned sales jobs pay this way unless there getting salary plus commission. I do everything in our salon according to the fair labor laws etc…bottom line these hair schools continue to steal these kids money painting a glamorous business that there going to make a great living in with very little effort and when they enter a salon 8/10 fail and are out of the business in less than a year. I had an employee who started with nothing busted his ass and cleared 72k in his third year but the fact is with tips most make 12-15 the attitude of the average stylist sucks and thinks the owners take it all and lines there pockets. Truth is the profit is extremely small for the work you put into it. I’m a good owner who care for our employees and who does everything to help them be successful . But most want to sit back and collect free money on our dime with as little effort as possible. Again most not all or let me be more specific the millennials !!!!!
Your situation is unique. I’ve never seen a non-compete for beauty professionals upheld with so long a term and so wide a radius, which is why I recommend non-solicitation clauses and data theft clauses instead. They’re more likely to be upheld and more appropriate for the salon. There’s nothing unreasonable about keeping stylists from contacting and soliciting clients, or keeping them from stealing client databases. If those two clauses are present, it doesn’t matter where they work upon separation of employment.