Why Salon Owners Use Non-Compete Agreements

A salon’s most valuable asset is its client database. We spend years building it, investing both time and money into its growth. As salon owners, adding to this book is a huge part of our job. It’s one of our core responsibilities. The salon’s success (and everybody’s paychecks) depends on it.

As salon owners, we have a duty to our clients to protect their contact information.

In the past, many salon owners required employees to sign non-compete agreements, assuming that the agreements would not only protect their client information but would also prevent their employees from working for or becoming their competition. 

The vast majority of the contracts I’ve reviewed over the course of my consulting career were not professionally written and would never hold up in court. Most were signed by independent contractors who were not actual employees, so the contract served as nothing more than proof that the salon owner was misclassifying their workers and trying to exert control with the threat of legal action. In the overwhelming majority of cases I’ve been involved in, the salon owner who wrote their own non-compete obviously did not understand that the agreement needed to be specific and reasonable to stand a chance at being enforceable. 

A contract prohibiting a salon professional from working “at any beauty-related business anywhere in the state for a period of 10 years” isn’t reasonable.

In addition to being a poor strategy for securing client data, non-competes foster resentment. Professionals don’t trust employers whose first move is to prohibit them from working anywhere else. A good deal of professionals sign them anyway, knowing they aren’t likely to stand up in court. It’s past time for all of us to stop playing this game.

Taking Data Protection Seriously

In an era where personal information is valuable and people are scared to share their email or phone number with every business that asks for it, each name on your client list is a small victory of confidence and good faith. In general, people with any level of tech-savvy are worried that anything they sign up for will lead to spam texts and scam calls. When clients are willing to share their info with you, you must treat it as a sacred trust. To keep that trust, you need to make sure that you are following proper security protocols when it comes to protecting your client list.

Any information a client provides to the business belongs to the business, and as the business owner, it is your job to keep that information secure.

Data theft prohibitions provide a clear and enforceable solution. They align with existing confidentiality and intellectual property laws, making them much easier to defend.

You’ll need to find an attorney, preferably one who specializes in employment law. They will ensure your agreements are legally sound, enforceable, and tailored to comply with your state laws. Once you’ve found someone qualified, explain that you require both a data theft protection agreement and a non-solicitation agreement.

Prohibiting Data Theft

A data theft protection agreement (also known as a data security agreement, data protection agreement, or data security agreement) will prohibit employees from stealing confidential client information. Before meeting with your attorney, get your needs and preferences on paper. This will help them understand the purpose of the agreement and hopefully reduce the amount of consulting required before they begin composing the draft.

Define what constitutes data theft. Your agreement should explicitly prohibit the following actions regarding the salon’s client database:

• Downloading
• Copying
• Photographing
• Transferring
• Printing
• Accessing for Personal Use
• Sharing 
• Altering with Malicious Intent

Provide notice of intent to prosecute violators. Make the consequences clear up-front. Any violation of the policy will result in disciplinary action, including termination of employment and prosecution for data theft. 

Require a signature. The agreement requires its own separate acknowledgment (“By signing, employees agree to comply…” yada yada, you know how it goes) and its own date and signature fields. Don’t merely stuff it into your employee handbook. Make sure to get that separate acknowledgment of receipt. 

Prohibiting Solicitation

With the data theft prohibition, you’ve made it clear that you consider information theft a crime and that you’ll exercise your legal rights to the fullest—now go a tiny bit further. Ask your trusted attorney to also write a non-solicitation agreement.

IN ADDITION TO PROHIBITING DATA THEFT, PROHIBIT CLIENT AND EMPLOYEE SOLICITATION.

We’re running professional businesses. Again: clients have entrusted you with their contact information. Nothing looks more unprofessional than a disgruntled former employee emailing everyone on your list, or—god forbid—making phone call after phone call to “inform” clients that they no longer work for you. And nothing feels worse than an employee secretly convincing half of your employees that they’d be “better off” working at the new salon they’re opening right down the street. 

A non-solicitation agreement prohibits any employee from attempting to lure the salon’s clients and employees from your business.

Define what constitutes solicitation. Just as with the data theft prohibition, this agreement should first define solicitation. Generally, solicitation refers to “any attempt to encourage, entice, or request clients or employees to leave the salon or do business with a competitor.” (Make the attorney who writes this for you work for their money by ensuring that the terms are in alignment with any guidelines in your jurisdiction.) 

Prohibitive conduct should include:

• Using any confidential information, including client contact information, to solicit business, and
• Encouraging or inducing any employee to join a competing business.

Acknowledge the employee’s obligation to keep proprietary information confidential. By signing, the employee is affirming that they are obligated to keep client lists and all contact details confidential and to never use such information for the purpose of solicitation.

Outline the consequences. Have your attorney guide you here. Legal remedies vary based on state laws and judicial interpretations.

Protecting Your Assets

These two agreements secure your legitimate business assets without unnecessarily restricting a worker’s ability to participate in the workforce. So long as the professional has agreed not to steal client data or solicit clients, you shouldn’t care if they take a job at the salon across the street.

Ethical salon owners do not hold industry professionals or clients hostage.

If you want to know how to handle the clients without looking sloppy or petty after a popular, established professional leaves, read my article: Who Do the Clients Belong To?

How to Secure Your Salon’s Client Database

Your client database is your salon’s most critical asset—protect it like it’s your social security number.

Control access. The management software you’re using should come with some kind of usergroup permissions controls. Generally, these systems allow you to categorize users by access level, ensuring that employees have access only to the information they absolutely need to have access to. 

• Salon professionals only require access to their schedule, which should show the client’s name and the service they’re booked for. If the software allows you to control report access, you may allow them to access their personal performance reports (but not those of any other employee). Professionals should never have access to client contact information or the ability to access/download the client database.
• Receptionists only require access to the schedule and client phone numbers. They should not have access to client email or home addresses, nor should they have the ability to access/download the client database.
• Salon managers require access to the majority of the software’s features, particularly employee scheduling and reports. They may require access to the salon’s client database, but they should never have access to features that allow them to download databases or manipulate administrative settings.
• Only salon owners require full admin access. As the salon owner, you should be the only user capable of accessing everything. Nobody else should have your password. Every time you leave a device, you must ensure to log out, requiring the next user to log in.

Getting Serious About Tech

If you’re like many of the clients I consult for who are only now moving from cash boxes and huge desk calendars to digital card readers and sleek tablets, you might be feeling overwhelmed by the software options available and how to configure them. 

Don’t feel bad—you aren’t the only salon owner who can barely operate their own email, let alone a sophisticated salon management software program. 

As a career salon manager and a salon owner myself, I’m extremely informed about and experienced with the majority of the industry’s leading systems. Book a consulting appointment today and I’ll be happy to help you find the solution that’s best for your individual business. I am not affiliated with any of the salon software companies (despite how hard all of them have tried over the last fifteen years), so all of my opinions and endorsements are fully based on my personal experience.

Exciting things are happening in February, and if you’re an aspiring nail salon owner or a new nail salon owner, you need to be present. Join me and the rest of the Nail Tech Reality Check team at The Conference at The Renaissance Suites Hotel in Chicago.

Explore your options and craft your business plans as we guide you through the major pitfalls of salon ownership: staffing and compensation, compliance, service pricing, marketing, client relations and more.

• Learn practical strategies and how to implement them immediately.
• Protect your investment against costly violations of federal and state laws.
• Become an exemplary salon owner, one who’s legal, ethical and profitable.

Attendance is limited so you must apply to attend.

Those of you who have been around a while know that I’m a compulsive planner and perfectionist–and I’m not prone to hyperbole. I’m not exaggerating when I say that this event is unlike anything else. The Conference is extremely structured and focused on the needs of the attendees. This event (and each conference I organize in the future) will cater to a specific group of professionals, so all materials, activities, and course content are relevant to every attendee. Additionally, prior to the conference I will spend time with you, learning about your business and individual needs so the team and I can ensure those needs are met. (Hence the application process.)

To ensure everyone gets the individual attention and assistance they require, only 20 businesses will be accepted. Since we announced this event to Nail Tech Reality Check members, applications are already rolling in, so if you’re interested in going, don’t wait to submit yours! Applications will be reviewed and accepted in the order they’re received.

If you have any questions, email them to education@nailtechrealitycheck. To learn more about the event and to apply, click here.

I hope to see you there!

A training agreement is a contract between the owner of a salon and a worker, where the owner agrees to provide training (or to pay for training) for the worker. The terms of the agreement are generally written to ensure that the salon owner sees a return on her training investment. These contracts typically give a specified date or length of employment in order to “repay” the trainee’s debt to the owner. If this contract is broken for any reason, the employee is usually required to repay money to the owner.

For example, a clause of this nature might state something like, “Employee agrees to work for Chop Shopz Nail Studio for a period no less than two (2) years. If Employee is terminated or resigns from Chop Shopz for any reason, Employee will be required to reimburse the owner of Chop Shopz two thousand dollars ($2,000) within seven (7) business days.”

A lot of times, these contracts also contain binding arbitration clauses as well. Which, as we’ve discussed, in this post you should never, ever, EVER sign.

To clarify, business owners generally cannot charge their employees for standard employment training, which covers things like how to answer the phone, how to wipe down the mirrors, salon service protocols, or how to take inventory of backbar color. Those are business-specific operational procedures that business owners typically cannot charge for. It is considered the employer’s responsibility to provide instruction to those employees on how to perform those business-specific tasks to their standards.

Training agreements pertain to professional training and development, which covers things like advanced coloring techniques, new trend cuts, and other industry-specific skills that are not typically taught in schools or at basic levels. For this, salon owners absolutely can charge (and absolutely should), but they have to go about it the right way.

Stop writing your own contracts.

The problem with work agreements is that they’re never clearly-defined and many aren’t enforceable because the terms aren’t legal.

• The “training fees” are usually over-inflated, arbitrary numbers, with no rhyme, reason, or practical method of justification.
• Salon owners fail to properly document training time and many of them fail to provide the training at all, instead using their “trainees” as receptionists, assistants, or cleaning staff.
• The wage deductions made to cover these “training expenses” often doesn’t take into account applicable minimum wage requirements, which then causes an even bigger issue for the salon owner. (Many states do not allow wage deductions of any kind that aren’t court ordered–and even those are strictly regulated.

As an alternative to training agreements, consider offering professional training services separately.

It is not illegal to require a staff member to have undergone advanced training as a prerequisite for employment. For example, I can require all job applicants to provide proof of e-file certification through Kupa to ensure the safety of my salon’s clients. It is reasonable to hold your job applicants to a higher standard. You have the right as well to require that potential employees complete advanced training prior to their employment and you have the right to charge for that specialized training. However, you do not have a right to hold anyone in debt bondage, and many of the self-written agreements I have seen skirt that very questionable line.

Owners, it is understandable that you want to ensure you see a return on that training investment. After all, you’ve donated your time, your skill, and your expertise–all of which have real monetary value. However, you need to consider the Thirteenth Amendment, which states, “Neither slavery nor servitude, except as punishment for a crime whereof the party shall have been duly convicted, shall exist within the United States, or anyplace subject to their jurisdiction.”

Contractually obligating any professional to remain under your employ for any period of time (or face legal or financial consequences for not doing so) may be considered unconstitutional. The Thirteenth Amendment prohibits the holding of a person in a condition of slavery, involuntary servitude, or debt bondage of any kind. The term “involuntary servitude” means a condition of servitude in which the victim is forced to work for the defendant by the use of threat of physical restraint, physical injury, or by the use or threat of coercion through law or the legal process.

When you threaten an employee with legal action and hefty fines for exiting employment, you are creating an atmosphere of compulsory service. 

Conditional servitude by which the servitor is compelled to labor against his will in liquidation of some debt or obligation, either real or pretended, is “debt-bondage.” Whenever a person requires another person to make a pledge of their labor or services as security for the repayment of a debt or other obligation, that pledge may violate that person’s civil rights.

Tread carefully, owners. Modern day slavery is not something you want to be found guilty of.

So, how can salon owners ensure that they receive fair compensation for their training expertise? Offer the training separately to potential new hires and charge for them accordingly. This also allows you to feel out a potential new hire before you agree to provide them with employment.

For example, as an educator, I provide training to licensees and students. They seek me out for the training and compensate me for it. They understand exactly what they’re receiving for their money and for the duration of that training period, they are essentially my customer. At the end of the course, I provide them with a detailed skill evaluation so they know where they’re excelling and where they may need improvement. I give them a certificate to show that they’ve put forth effort into furthering their skills and that I worked with them personally.

If I like them, I write them a letter of recommendation free of charge. If I really like them, I offer them a job.

I’ve seen them work and I’ve worked with them. By the end of their program, I know whether or not they’re reliable, how they respond to constructive criticism, how willing they are to accept direction, and how fast they learn new skills. I’ve been able to evaluate them over the course of their training and I was paid for it. 

This system benefits both me and the potential new hire. The trainee has something tangible to show for her time spent in advanced training. If I choose to hire the trainee, I do not have to worry about taking a loss if she is unhappy working at my salon. I don’t have to deal with taking her to small claims court to try and recoup the training costs. If she takes my employment opportunity, it will be at-will–and she’s already been trained in my methods. Everyone wins.

Set your professional training prices. Account for every hour spent in training and every penny spent on supplies and charge accordingly. If all goes well, offer the position. If it doesn’t, you are under no obligation to do so.

Tear up those work agreements once and for all.

They have no place in our business, especially when there are less messy alternatives to accomplish your purposes. In addition to being questionably legal at best, it is poor management. When you essentially turn your employees into indentured servants, morale suffers. Don’t do it. We’re better than that.

Industry professionals, when you sign a work agreement, you become a peon in a very literal way. A “peon” is a slave indebted to a master. Stop signing work agreements.

• If an employer wants you to complete their professional training as prerequisite for employment, ask them to set a price for that training and pay for it up front. If the owner is legitimate and truly interested in turning you into a better professional (not using you as a servant for six months and charging you for the privilege), they will most likely prefer to have you pay for their expertise at once instead of indenturing you to them for two or more years.
• Make sure that you are clear on what you will be getting for your money and get it all in writing. If the owner violates that contract by failing or refusing to deliver what was promised, you will have the means to sue them in civil court to recoup your losses.
• If you are compensating someone for providing training, you are their employer during that training period. This means that you call the shots. They are on your dime. You are paying to be trained in advanced techniques; not fetch their color, wash their towels, answer their phones, or sweep up their hair. Do not be afraid to correct an trainer who forgets exactly what your role is when you’re paying them for training.

Be smart about the documents you’re writing and those you’re signing. Please hire attorneys for guidance. This “act first, worry about the consequences later” style isn’t benefiting any of you in this industry.

Let me rephrase that: it doesn’t just “cross” a line, it tramples through it, spits on it, lights it on fire, and dares it to retaliate.

Non-compete agreements typically constitute an “inappropriate degree of control” over self-employed professionals.

Federal and state agencies are intent on exposing and punishing employers who improperly classify employees as independent contractors. Don’t put yourself at risk.

On the federal level, there is a focus on misclassified workers. Congressional leaders are now demanding that the Department of Labor focus on investigating and punishing employers misclassifying workers and that the DOL coordinate these efforts with the Internal Revenue Service.

The IRS and the Department of Justice have initiated criminal investigations accusing business owners of using independent contractors to evade taxes intentionally and to launder money.

Numerous jurisdictions have initiated crackdowns against certain cash-based businesses and industries that have proven themselves to be a chronic problem. (Salons fall into both categories.) As a result, new laws and regulations have passed, and there’s no shortage of proposed legislation holding businesses and owners civilly and criminally responsible for misclassifying workers.

Courts are increasingly hostile to employers’ use of the independent contractor designation.

There are very few justifiable reasons to utilize an independent contractor designation in our industry. Just don’t do it. Too few of you understand it.

A non-compete agreement signed by a so-called “independent contractor” likely won’t be valid at all. A non-compete is something an employee signs, not a “self-employed” business owner. As a general rule, you cannot restrict an independent contractor’s right to work freely. By classifying someone as an independent contractor and having them sign a non-compete, you’re violating your own contract.

“Can’t I sue the independent contractor for violating the agreement since they signed it, even though the contract probably isn’t completely legal?”

Just because someone signs something doesn’t mean that the agreement will be held up in court. That contract you made them sign might actually lead to an enforcement authority determining you to be the contractor’s employer, which means they could be protected by the same laws that protect all employees. When the hammer comes down, it could be coming down on you; not them.

SUING SOMEONE FOR VIOLATING AN ILLEGAL CONTRACT IS LIKE CALLING THE POLICE TO ARREST SOMEONE FOR STEALING YOUR ILLEGAL DRUGS.

Sure, that guy stole your meth, but your ass is going to jail for having it to begin with.

What happens when an independent contractor is sued for a non-compete violation?

Suing an independent contractor for a non-compete violation could (and likely would) lead to a counter-complaint, where your “independent contractor” (read: misclassified employee) will come back at you for misclassifying them. You could then be held responsible for unpaid wages and back taxes, and held accountable for violating federal employment law and any applicable state labor laws that pertain to the situation.

Don’t classify any salon employee as an independent contractor.

When things go sour, you will be the one that suffers. The amount of money you save by evading wage and tax obligations is not at all worth it.

Please understand that each state has different guidelines they use when determining employment status and nearly all of them (with the exception of California) are less stringent than the federal government’s. Therefore, it is entirely possible for a stylist to be determined to be an IC by the state but an employee according to the federal guidelines. In any case, many agencies jointly prosecute, so you’ll have to answer to federal and state authorities (state tax/labor, and federal tax/labor officials).

For more information on why IC’s do not belong in our salons, read this post. If you test your so-called “independent contractors” against those IRS guidelines, you’ll see very plainly that they are rarely being used correctly except where proper renters are concerned.

If you want to learn more about typical salon contracts, including what constitutes a legal arrangement take my course, Know Your Rights: Contracts.

An arbitration clause requires the parties involved to resolve a dispute through an arbitration process. Arbitration is an out-of-court proceeding in which a neutral third party called an “arbitrator” hears evidence and makes a ruling. Arbitration is the most commonly used method of alternative dispute resolution, and you’ll find an arbitration clause in the fine print of all kinds of contracts these days, including salon employment contracts. Arbitration can be non-binding as well (meaning that you can appeal it and challenge it in court) but this has recently become the exception rather than the rule. The majority of arbitration contract clauses are binding, which means they typically cannot be appealed at all.

Many companies use arbitration clauses to keep their employees or the people that enjoy their services from bringing them to court. The objectivity of the arbitrator is questionable at best in many cases. Many national arbitration groups actively market their services to companies, casting serious doubts on their objectivity. In our case (as salon employees), we don’t particularly have to worry about this bias when employed by a private or small-scale employer. However, when working for a much larger corporate chain, the objectivity of an arbitrator may be a concern.

So what do these clauses look like? Here is an example of a simple arbitration clause from Nolo.com:
Arbitration. All claims and disputes arising under or relating to this Agreement are to be settled by binding arbitration in the state of [insert state in which parties agree to arbitrate] or another location mutually agreeable to the parties. An award of arbitration may be confirmed in a court of competent jurisdiction.

Here is a more wordy example:
Arbitration. All claims and disputes arising under or relating to this Agreement are to be settled by binding arbitration in the state of [insert state in which parties agree to arbitrate] or another location mutually agreeable to the parties. The arbitration shall be conducted on a confidential basis pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Any decision or award as a result of any such arbitration proceeding shall be in writing and shall provide an explanation for all conclusions of law and fact and shall include the assessment of costs, expenses, and reasonable attorneys’ fees. Any such arbitration shall be conducted by an arbitrator experienced in [insert industry or legal experience required for arbitrator] and shall include a written record of the arbitration hearing. The parties reserve the right to object to any individual who shall be employed by or affiliated with a competing organization or entity. An award of arbitration may be confirmed in a court of competent jurisdiction.

The important thing to remember is that these clauses have the potential to completely eliminate your constitutional right to a trail. Do not sign them.

Arbitration clauses only benefit companies. They are not designed to benefit workers or consumers at all.

A friend of mine and I were speaking about binding arbitration laws when she checked her cell phone contract and realized there was one in the fine print. She said, “Well, it’s no big deal. It’s just my cell phone. I’ll just cancel it if something goes wrong and take the loss. What could happen with a cell phone, right?”

Lots of things could happen. They’re incredibly unlikely to happen, but your phone model could emit dangerous radiation, giving you a rare ear canal cancer. Maybe it will spontaneously combust and blow off your arm? Nobody knows what could happen, which is why these companies use binding arbitration clauses to begin with. What we do know (and this is because it’s sitting in front of us in black and white on the contract) is that if anything does happen, you will likely be required to comply with the decision an arbitrator makes in a private agreement. The decision you get may not be fair or rational, and there may not be anything you could do to appeal it (unless you can prove the arbitrator was biased which is insanely difficult).

Companies often defend these arbitration clauses saying that they keep the civil courts from getting “clogged” and that they “save money.” At one point, it was slightly cheaper to arbitrate than litigate, but that’s no longer the case. The actual core reasons that companies prefer arbitration to litigation are:

• The arbitrator is often biased in favor of the company (since they tend to deal with the same companies over and over again and will only be dealing with you once), whereas juries often side with consumers instead of big businesses (so in a way, juries are biased against big companies).
• Arbitration keeps the company from having to deal with the PR fallout of a scandalous lawsuit.
• Arbitration clauses almost always prohibit class action. This means that if you and ten thousand other people are shafted by Bank of America, you cannot band together as a united front against them. Individuals often do not have the resources or time to recognize or prove the existence of fraudulent practices. Companies know this. They don’t want you to form a mob because mobs have the ability to bring them to task.
• Arbitration prohibits public records. This means that (unlike court proceedings and court records), arbitration clauses require that the proceedings be kept confidential.

In 2002, the Supreme Court agreed with the Equal Employment Opportunity Commission’s contention that employment arbitration clauses could not prohibit the EEOC from filing an action itself against an employer for civil rights violations. Since the EEOC had not signed an arbitration agreement with any employer, the Court decided it was free to pursue claims against employers on behalf of an employee who had. However, you should not rely on the EEOC to defend your interests when preventative alternatives exist.

Take responsibility for your decisions and do not sign these agreements to begin with.

Okay, so now you understand what “arbitration” is and why it’s bad to sign an agreement that contains an arbitration clause as a consumer, but let’s get into specific examples related to our industry. (If you really want to learn more about how incredibly ridiculous and terrible mandatory arbitration clauses are, read this article on Public Citizen. What you discover will shock you.)

It is never a good idea to put any judgement that could potentially affect your long-term welfare into the hands of a single arbitrator without the possibility of appeal.

If you are presented with this clause in an employment contract, refuse it. Ask that it be amended to a mediation clause which requires both parties to attempt to come to a private resolution in mediation before filing suit in court. This method has the benefits of arbitration (less hostile than court, generally far more affordable, and almost always much faster) and none of the drawbacks (high expense, potentially biased neutral party, no right to appeal).

The goal of mediation is to reach a mutually acceptable arrangement to avoid litigation.

It is always better to come to an arrangement on your own terms than to accept what a judge or litigator hands you (unless the deal the opposing council is offering is absolute crap, in that case always go with the judge).

In mediation, you and your attorney make a deal with the company and their legal team that you both agree on. If you don’t agree, you litigate.

Nobody decides for you in mediation.

You retain that control unless you determine that there is no way you and the company will come to a satisfactory arrangement. If you think you could get a better deal in court, then you still have the right to go for it.

Breach of Contract

A breach occurs when a party to an agreement fails to perform any term of a contract, written or oral, without a legitimate legal excuse.

For example, if a salon owner required an employee to sign a non-compete agreement restricting that employee from working for competing businesses within a one-mile radius for two years after separation from the salon and the employee accepted a position at a salon a half mile away within two weeks of their resignation–that employee would be breaching their agreement with their previous employer and the employer would likely pursue that employee for that breach.

Proving a Breach of Contract

This is where it gets tricky. Any time you attempt to take legal action against someone, you will eventually need to provide proof that a.) a valid contract existed in the first place, and b.) the alleged violator actually violated it.

If your contract is vague, improperly written, or unwritten, it may be difficult or impossible to enforce.

I highly advise that your contracts be written by an attorney, clearly worded, and extremely specific. The legal language in an employment contract is critical to ensuring it is lawful and binding. Otherwise, all bets are off. Oral agreements are for amateurs. Get serious about your business and get everything in writing.

Justifiable Breach

Affirmative Defenses do not contest the primary claims or facts (the person admits they breached the contract), but asserts mitigating facts or circumstances that invalidate the breach. Basically, “Yeah, I breached the contract, but it doesn’t matter because…”

For example, let’s pretend you’re a seventeen-year-old assistant manager at a salon. You sign a non-compete agreement and violate it a few months later when you resign from your position to take another job at a competing salon. This agreement is reasonable and would be enforceable, but it’s not legally binding because you’re a minor and therefore don’t have the capacity to enter into a contractual agreement. The agreement can’t stand, even though you did violate it.

Let’s fast forward a year and pretend you’re eighteen-years-old and you breach the same agreement. This time, you’re old enough to be held to the agreement, but unfortunately, this salon owner wrote the contract herself. It includes a bunch of unfair conditions and clauses (for example, a requirement that you pay her $10,000 upon termination or resignation). Your attorney makes the claim that the contract is unconscionable, may actually constitute indentured servitude, and it is therefore likely illegal unenforceable. You violated the agreement, but it doesn’t stand.

Estoppels protect one party from being harmed by another party’s voluntary conduct. Overall, estoppels are pretty complex, but as they pertain to contracts, generally an estoppel will keep one party from suing the other from a breach, allowing either party to violate the agreement without fear of penalty or retaliation from the other.

Contracts made under Duress may not stand, and neither will those where one party has Undue Influence over another. Duress constitutes an unlawful pressure exerted upon someone to coerce them to sign an agreement they otherwise wouldn’t sign. A person may have undue influence over someone when they have a special trust with them that they exploit (this trust distinguishes duress from undue influence).

An example: A salon owner intentional misclassifies an employee, doesn’t compensate them appropriately, and unlawfully deducts wages from the employee’s paycheck, putting them into a dire financial situation. The employee quits and is now defaulting on their bills and rent and is facing a potential eviction. The employee demand that the ex-employer provide their last paycheck. The ex-employer makes the release of that final paycheck conditional upon the employee signing an agreement waiving their right to sue that ex-employer for misclassification and wage theft. Should the employee sign that agreement out of desperation, they may be able to claim they signed under duress. (Although, whether or not that agreement would be enforceable at all is highly debatable based on the content and circumstance alone.)

Fraudulent Inducement occurs when someone persuades another to make a decision based on trickery or deceit. If you enter into a contract, relying on a false statement, that contract may be voidable.

Real life example: A consulting client of mine agreed to purchase a salon after the previous owner claimed there were no pending legal actions against the business and that she had been operating in compliance with all applicable state and federal employment laws. This turned out not to be the case. In this instance, the buyer was able to breach the sale contract because her decision to sign it was based on an outright lie.

These are just a few of the many defenses someone could use to justify a breach of contract, however, the laws vary from state to state and from case to case, so before you make the decision to voluntarily breach an agreement, you need to consult with an attorney.

Damages Explained

When a contract is breached, one or both parties may seek payment of damages from the other. Damages come in many different forms.

Compensatory damages are usually implemented when a person loses income due to another person’s failure to uphold their end of the contract.

For example, let’s say a salon owner entered into a contractual agreement with a major distributor to ship a huge product order to their salon for a massive Black Friday sale that they spent enormous sums of money promoting. The contract specifically stated that the order needed to be delivered by Wednesday, at the absolute latest. However, over the holiday weekend, the distributor dropped the ball and didn’t ship the order until the morning of Black Friday. The salon owner has lost their advertising investment, the faith of the customers who expected to be able to purchase those products on Black Friday, and the profit from the sales they would have made if the products had been delivered in accordance with the terms of the contract. They could, theoretically, pursue the distributor for compensatory damages.

Employers often seek compensatory damages for loss of profits due to breaches of non-compete agreements or non-solicitation agreements. However, they will be required to prove the breach occurred and that the breach caused actual monetary loss.

Punitive damages are monetary punishments. They’re rarely awarded in business contract settings, so please stop asking me about them in your comments and emails. (I get it, you’re pissed. You want to hit your ex-employee or ex-employer right in the wallet. I feel for you, but seriously, stop being childish. Go pay an attorney and waste their time with your spiteful bullshit.)

Nominal damages are minimal monetary damages that reflect a legal recognition that a person’s rights have been violated through a breach of contract, but can’t prove that the wronged party has suffered an actual loss. Nominal damages may include court costs and attorney’s fees, but typically they are small, symbolic sums.

Let’s use the same example with the ball-dropping distributor. This time, instead of specifying in the contract when the product needs to be delivered and why it’s critical that it be delivered on time, the owner simply states they expect delivery by Tuesday evening and the distributor agrees to those terms. However, this time around, the shipment isn’t sent until Tuesday morning and doesn’t arrive until early Wednesday morning. This owner theoretically could bring the distributor to court for a technical breach of contract, but because the delay didn’t really affect her business or cause a loss of income, the most she can hope for are nominal damages (maybe $15 plus filing fees). Nominal damages are token damages.

Liquidated Damages are typically written into contracts to establish a predetermined sum that must be paid if a party to the agreement breaches it. According to the Legal Dictionary, damages can be liquidated in a contract only if:

1. the injury is either “uncertain” or “difficult to quantify,”
2. the amount is reasonable and considers the actual or anticipated harm caused by the breach, the difficulty of proving the loss, and the difficulty of finding another, adequate remedy,
3. the damages are structured to function as damages, not as a penalty (punitive).

Should the liquidated damages not meet those criteria, the clause will be void.

For example, let’s pretend an aspiring salon owner enters into an agreement with a contractor who agrees to build a pedicure platform by the salon’s scheduled opening date. However, delays result in the platform not being constructed on time, forcing the owner to push back the grand opening. The contract holds the contracting firm liable for the actual losses the salon owner incurs each day the salon isn’t operational. These damages aren’t a penalty (punishment), they’re actual estimated losses the salon owner is suffering that she would otherwise not be had the contractor hit the deadlines outlined in the contract.

Avoiding a Breach

Never sign anything you don’t agree with, regardless of how unenforceable you believe it to be.

State laws vary widely and contract law is incredibly complex. How much research you’ve done is irrelevant. Whether or not you personally believe the agreement to be enforceable is also irrelevant. Never sign an agreement you don’t plan to abide. End of story.

If you sign something, hold up your end of the deal.

Never assume anything or violate any contract until you’ve spoken to an attorney. Proof trumps hearsay. Always.

Punishing a Breach

If you believe someone has violated the terms of an agreement, contact an attorney immediately. Remember, you will be required to prove the breach occurred and that can be both difficult and complicated.

No matter what, litigation is expensive.

When you speak with an attorney, you will have to decide whether it’s worth it to pursue the person who violated the contract. A responsible attorney will advise caution and will explain to you how incredibly costly litigation can become. They’ll suggest alternative ways to resolve the dispute and may advise you not to proceed at all. Unethical attorneys will urge you forward, won’t communicate the risks or expense, and will downplay your odds of losing. They’ll often utilize aggressive intimidation tactics with little (or no) legal merit, happily racking up billable hours.

Obviously, it’s best to find an attorney who looks out for your best interests; not one whose sole motivation is to squeeze you dry.

In the event of a termination or resignation, oftentimes both the service provider and the salon owner scramble to gather the clients for themselves. Who do these clients belong to? What can you do to protect yourself? Continue reading to find out.

Salon owners can encourage client loyalty by:

• having an attorney write an ironclad employment contract and employee handbook,
• consistently delivering amazing customer service by hiring stellar support staff (receptionists and assistants),
• keeping the salon environment inviting and accommodating (beautiful atmosphere, complimentary snacks & beverages),
• aggressively marketing (newsletters, advertising, hosting highly publicized high-profile events like charity cut-a-thons),
• keeping employees trained and educated. Clients even if their staff member leaves or is terminated, your remaining staff members are more than capable of delivering the same quality of work they’ve been accustomed to)

All of these things make clients want to be a part of your business. Keep in mind though, that it may not be enough. Most clients will follow their service provider to the end of the earth. Let’s face it, a really good service provider (stylists in particular) can be very difficult to find.

But what do you put in your contract? How do you word it to protect your business without being unreasonable or driving away potential employees? It’s simple: be reasonable.

Keep in mind that a professional’s established clientele is their livelihood. They worked hard to bring in business and to retain that business. They’re not going to forfeit their rights to contact those clients, nor should they. Many salon owners post job offers with the statement, “Must have clientele.” If the employees are bringing clients with them to your business, you have no right to claim those clients for yourself. To do so would be unethical.

Your concern should be with protecting the clients your business has brought in and the future clients that are earned through your own marketing efforts, not the acquisition of clients that were never yours to begin with.

So, write a clause that’s fair to both of you. The terms of my non-solicitation agreement are:

“Employees with a clientele must provide all client contact information to prior to their start date on Attachment A. These clients will be flagged in our system as belonging to the employee. During the course of your employment with Unvarnished, Unvarnished will add these clients to our promotional mailing lists. Upon resignation or termination, all clients will be notified of your departure. All Attachment A clients will then be dropped from our mailing lists after this initial notice. 

Should these clients choose to remain customers at Unvarnished, they will become salon clients again and will rejoin our mailing lists, but will continue to be exempted from the terms of our non-solicitation agreement.

All other clients obtained during the course of your employment at Unvarnished are property of Unvarnished. Employees may not take any client’s contact information for any reason and are absolutely prohibited from contacting or marketing to these clients in the event of termination or resignation.”

This clause is fair to my business, the employee, and most importantly, the clients. It’s my personal belief that the clients deserve to be given their preferred professional’s contact information if they ask for it. Refusing to give the client the information they ask for will cause them to lose respect for you and the way you do business. They definitely won’t appreciate it. Additionally, you’re likely to lose them if you lie to them.

Take the high road and give your clients the information they request.

You may lose the client, but you’ll have their appreciation and the appreciation of the ex-employee. Don’t burn bridges. You don’t want to be seen as stingy. Some of the departing clients may not like the ex-employee’s new place of business and may choose to return to your business. Separate with them on positive terms so they feel welcome to return.

It’s wrong to market to clients that do not belong to you, regardless of which side of the business you’re on. If a professional joins my team and exposes my business to 50 or 100 of her clients, I should be grateful. I express that gratitude by making sure the contact information for those clients is either marked or stored separately from the salon’s clients and respecting the fact that those clients are not mine. Those clients will be telling their friends about my business and I may gain more exposure as a result of that. I didn’t build their book for them.

They worked hard to build their clientele and it’s not our place to claim it as our own.

This agreement also protects my interests. Once the professional has signed the contract, they agree that clients obtained during the course of their employment belong to the salon. They waive the right to contact those clients. Salon owners (myself included) spend a good deal of money on advertising, so it is only fair that we protect that investment.

As a business owner, you should be encouraging client loyalty through your own actions, not by locking employees into a contract that strips them of the book they worked so hard to build.

Professionals can encourage client loyalty by:

• providing superior service.
• ensuring that their skills are up to date by taking continuing education courses and learning skills that other service providers in the salon are not trained in (for example, an esthetician can gain a certification in eyelash extensions or permanent makeup).
• maintaining a professional portfolio website (pro tip: use your name as the URL). This makes it incredibly easy for clients to find you if you are fired or resign from your position. Your website should be the first thing that appears when people Google your name.
• Dress and behave professionally at all times.
• Deliver consistent services.

If you’re in the process of obtaining employment somewhere and the salon owner wants you to sign a non-solicitation clause, evaluate it thoroughly. Make sure it is very specific and that it is fair to you. If you’re unable to fully understand it, call an attorney, explain the situation, and have them evaluate it.

Some professionals don’t like to sign a non-solicitation clause under any circumstances and if you’re not comfortable signing it, don’t do it.

Never completely surrender your clientele to anyone.

However, be understanding of the salon owner’s desire to protect their business as well. If the owner is spending their resources on bringing clients in the door or if the business is in a high-profile location that attracts a lot of traffic, you need to understand that those clients belong to the business, not you. Yes, that includes referral business. (For instance, a walk-in client comes in, loves your work and sends a friend to you. Both of those clients belong to the business, even though it was your superior work that drew the referral.)

Not all owners are awesome, considerate people. It is rare to find an owner that will honor an agreement to provide your forwarding contact information to clients that inquire. For this reason, it is important to keep an online portfolio and let clients know that it exists. If something happens and they want to follow you, they have the ability to find you without ever having to contact the owner.

A non-compete is an agreement on the part of the employee to not enter into or start a similar profession or trade in competition against the owner.

Generally, these agreements are bound by distance (for example, a non-compete might only be limited to a 5 or 10 mile radius of the business address). Salon owners create these clauses mainly to protect their client lists, believing that if a professional quits or is fired, the clients will not follow them if they are forced to work too far from the owner’s location.

The states vary in their laws regarding the enforceability of non-competes, but often, unreasonable contracts will be seen as such and will not stand, especially if the salon owner chose to write the document themselves instead of having a qualified attorney do it for them.

If you are considering employment at a salon that requires you to sign a non-compete or if you are planning on having your staff sign non-competes, continue reading for more information.

Generally, a non-compete:
1.) must be reasonable,
2.) must be extremely detailed,
3.) can only apply to employees, NOT booth renters or independent contractors (if you’re not paying their employment taxes–they’re self employed)

No matter what, a non-compete must conform to the laws in your jurisdiction regarding non-competes.

Defining Distance & Dates

Be considerate of your employee when drafting your non-compete. A non-compete that states: “Employees agree not to work in any beauty industry profession in [CITY] for the rest of their lives,” is not reasonable for several reasons.

• The “beauty industry” covers many different professions,
• The entire city is too broad of an area, and
• The rest of the employee’s life is too long.

Those non-compete terms make it seem as if the employer is trying to restrict that employee from working in any beauty-related field for the rest of their lives unless they work in another city. A judge will very likely declare that to be unenforceable.

Write an agreement that you wouldn’t have a problem signing if you were the employee.

In our industry, a reasonable distance is a 1-3 mile radius from the location of the salon at which they were employed. (If you own a franchise or run multiple locations, it’s not wise to set terms that include those locations that the employee did not work at.)

A reasonable time period during which the employee may not compete is 6 months to 1 year. Any longer than that, and you’re likely going to have a really difficult time enforcing the non-compete if you have to.

The conditions of the non-compete need to be spelled out explicitly, leaving no room for interpretation. If you hired someone as a stylist, you can write in the clause that they cannot take employment as a stylist in the radius you specify, but you probably should not state that they cannot work as a cosmetologist in the radius. Let’s say your stylist leaves you and takes a job next door working as a nail tech. A judge is not likely to enforce the non-compete because cosmetology is too broad of a field. The stylist, in her new position as a manicurist, is not competing with your hair salon business in that situation.

Alternatives to Non-Compete Agreements

A non-compete is not the best way to protect your salon’s clients, in my opinion. I have repeatedly seen these agreements struck down, regardless of how reasonable and specific they are. Data Theft Protection and Non-Solicitation Agreements are far more specific, don’t restrict the worker’s ability to earn a living after separating from your business, and protect what really matters (the salon’s client records).

Appropriate Applications of Non-Compete Agreements

I consider non-compete agreements to be necessary and appropriate for employees in executive management positions. These employees are privy to internal company secrets that other employees normally are not. They know your vendors, your product formulas, and the intimate details of your business operations. If anyone were capable of leaving your salon and establishing a business designed to compete directly with yours (armed with the information they gained during their employment with your business), it’s them.

In my role as a manager, I was routinely expected to sign non-compete agreements, and did so without complaint or argument. Management employees often have proprietary information that gives them a serious competitive advantage, should they choose to leave your business and establish their own, so hire an attorney to properly write a binding, restrictive NCA to keep them from using that information against you.

FAQ

“I applied to a salon but the owner wants me to sign her non-compete! Should I?”
I get this question a lot. The simple answer is, “It depends.”

Don’t agree to unreasonable employment terms out of desperation and do not be overly optimistic when entering an employment agreement. If you don’t feel comfortable signing, you can negotiate the terms.

Ask yourself:
1.) Are the terms reasonable?
2.) Will I be able to comply with the terms of the agreement?
3.) Am I 100% comfortable signing this?
4.) Is the contract appropriate with regards to how I’m being classified? (booth renter, independent contractor, employee)

Remember, if you are a booth renter or freelancing independent contractor, you’re a business owner yourself. You are INDEPENDENT. A non-compete restricts competition and strips you of your independence, so typically, it’s not an appropriate document for your classification. You’re not the owner’s employee.

If the contract “feels wrong,” it probably is.

If there are any term you don’t feel right about agreeing to, mention it and attempt to renegotiate it. If the owner is unwilling to compromise, walk away.