Defend a Non-Compete Agreement
One on One with Attorney Mike Gray
Your star stylist-you hired her out of cosmetology school, trained her, educated her on products, supported her advanced education, marketed her, managed her and helped grow her book. How does she thank you? By quitting and leaving you calculating how many of your employees she'll take with her.
Attorney Mike Gray
Whether that former employee is opening up a shop across the street or was lured away by your neighborhood competitor, it's a scenario that could have been prevented if you had a non-compete agreement in place. Since the 1980s, Mike Gray, an attorney with the Minneapolis-based firm Gray, Plant & Mooty, has defended about 40 salon non-compete agreements. He recently spoke with SALON TODAY about how to set up and defend a non-compete, and why they are more important than ever:
ST: What's the key to setting up an agreement that can be successfully enforced?
MG: First, you need to know your state law. There are several states where non-compete agreements are not allowed except under certain instances as employment issues. Then, the agreement establishes the length of time and the geographic distance where an employee can't perform services after leaving your salon.
The key is in not getting greedy. If the court thinks the employer is getting too greedy, they'll throw out the agreement. Generally, the courts will uphold agreements that are based on a reasonableness standard.
For example, some salons try to set up agreements that bar employees from setting up in a location for two years. I generally recommend a one-year period. That's about seven or eight client visit cycles-long enough for clients to get acquainted with a new stylist.
The other parameter is geographic scope. I usually recommend not more than five miles. But I'll talk with the salon owners, and ask them to use their software to establish how close 80 percent of their nearest clients live. In a rural area that can be further than five miles; in an area like Manhattan it would be a lot less. The key is data-the court expects the employer to articulate why they chose a certain geographic area.
ST: When should you get an employee to sign an agreement?
MG: It needs to be signed at the time that employment starts, when you hire them. I advise salon owners to let candidates know they require a non-compete agreement and present it with the offer letter. Do it in writing-tell them that if they accept the job, it's expected they sign the agreement. Make sure they sign and date it-there have been many cases where the employee alleges that the agreement was presented several days after they started and then the agreement is unenforceable.
ST: Is there any way to get existing employees to sign an agreement?
MG: Each state is a little different, but it is possible to do it when you give an employee an advancement-either a considerable raise or the addition of a new benefit. For example, if you were promoting a stylist to assistant manager.
ST: How can salons set up a non-compete agreement?
Additional questions about non-compete agreements? You can contact Mike Gray at [email protected] or 612-632-3078.
MG: You should contact an employment lawyer in the state where you are located. Or contact someone like me, who is familiar with agreements in a number of states. It's important that it's someone who specializes in employment law-don't be tempted to use the attorney who helped you negotiate your lease. When it comes to defending your first case, it's important to win. If you don't, then all your other existing agreements won't be enforceable.
ST: How do salons enforce the agreement?
MG: Generallly, an owner will find out an employee is leaving through gossip- either a client will tell them or they'll find out through Twitter or Facebook. They'll contact me and I'll send a cease and desist letter to the home address of the employee warning them they are in violation of their contract, remind them of the terms of the contract and tell them they must return any confidential information and cease from soliciting clients. I also will send a copy of that letter to the owner who is trying to hire them, and if there is some indication that the new employer knew about the contract, I'll include language that infers they knew and will be held liable for raiding my client's salon.
In about 50 percent of the cases, the cease and desist letter does the job. If it doesn't, then I'll ask the court for an injunction to enforce the non-compete portions of their contract through a temporary restraining order. Each state is different, but the basic rules are the same. It's usually not a lengthy litigation, and about 95 percent of the time, that's the end of the case because the employee typically doesn't have the resources to fight it.
ST: When interviewing a job candidate, should salons ask if they worked under a non-compete at their former jobs?
MG: There are two schools of thought on this. There are some who believe in the âdon't ask them then you don't know' belief. But, I think it's better to know and to ask candidate if they had an agreement. If the answer is âyes,' and if the time and the geography falls within the agreement's boundaries, then tell them you can't hire them. If you expect other employers to honor your non-compete agreement then you need to honor theirs.
ST: What is a confidentiality provision?
MG: That's the other side of this. A non-compete needs to go hand in hand with the confidentiality provision that states the employee understands the clients' contact information and color and perm records are confidential and the property of the salon. Too many salons are lax about protecting that information, but most software is sophisticated enough to give employees access to the information they need to do their job without being able to print it out or take it with them. It's even more important today with the advent of e-mail, Twitter and Facebook.
ST: Why are these agreements even more important in tough economic times?
MG: Part of what happens when salons are hurting is they look at the cost of litigation-and it can be thousands of dollars-and they decide not to set up non-competes or not defend them.
But what they don't do is the cost-benefit analysis of not doing them. They don't think of the value of the customer relationship and the long-term economic loss when they lose those clients, their retail sales and the future referrals of those clients. And, if you have an employee leave under an agreement and you don't enforce or don't win the case, it's a message to other employees and you risk a mass exodus. That's why it's so important to win the first case. It's really good to defend and win a non-compete every two or three years-then the rest of your employees fall in line. When you do a cost-benefit analysis, it always comes out in favor of taking action on a non-compete.