Management Practices

Protecting Your Greatest Asset with a Non-Compete Agreement

Stacey Soble | November 9, 2015 | 10:17 AM

Non-compete agreements are essential to maintaining a successful business. Customers frequently remain loyal to their stylists, not the salon. Crafting legally binding, non-compete agreements protects your company's most valuable asset: the customer.

What is a non-compete agreement? Briefly, the goal of the non-compete is to protect the employer's proprietary rights such as trade confidential information, customer bases, and capital investments (i.e. employees). The non-compete accomplishes this goal by restricting a former employee's future employment options. Specifically, the non-agreement can prevent a former employee from:


  1. Working for a certain time period
  2. Working in a specific geographical radius
  3. Soliciting former clients and/or co-workers 
  4. Disclosing confidential information, etc.

Take this simplified hypothetical: A stylist leaves your employment after five years of working for you. The stylist has built up a considerable client base, and she wants to open her own salon. A non-compete agreement ensures that the stylist cannot use your client list to solicit clients, nor solicit your current employees to come work for her. Also, the non-compete agreement can prevent the former employee from working in a geographic area (i.e. 4 mile radius) and from working for a certain time period (i.e. 1 year). Without a non-compete agreement, the stylist could immediately begin to compete for your client base and business. Lack of a non-compete agreement, leaves your business assets vulnerable.

When creating a non-compete agreement, a lawyer's expertise is essential. Creating a non-compete agreement is not simple. Although a non-compete agreement can cover a variety factors, the law has requirements. Specifically, for a valid non-compete agreement, the law requires that the non-compete agreement provides:

  1. A good business reason
  2. A benefit to the signatory employee
  3. Reasonable terms.

As to number one, the law requires your business to provide a good reason for the non-compete agreement. For example, using the non-compete agreement as a mechanism to punish a departing employee is not valid. Valid reasons can include, but are not limited to, protecting trade secrets, confidential information, and customer bases.

As to number two, the non-compete agreement must provide a benefit to the employee. Usually, making a job offer contingent on the employee signing the non-compete agreement satisfies this requirement. However, because an employee's circumstances can vary, the employee's benefit is not always obvious. Consult an attorney if you are unsure what benefit your non-compete agreement provides the employee.

As to the last point of reasonable terms, courts will not enforce a non-compete agreement that is unreasonable (i.e. too restricting). Because there is inherent tension between a former employee's right to earn a living and an employer's right to protect its business, the courts will not enforce a contract that unreasonably deters or restricts a former employee's right to earn a living. State's differ on what are reasonable terms for a non-compete agreement (California, for example, may not enforce any form of a non-compete). The main take-away: In order to ensure that your non-compete agreement is legally enforceable, contact an attorney to make sure your non-compete contains reasonable terms and restrictions.

To wrap it up, a non-compete agreement provides tangible, economic benefits to your business. But, creating and enforcing a non-compete agreement is tricky. In order to protect your business's assets, make sure you receive the appropriate professional advice for a non-compete agreement.   

Matthew Walsh is a Chicago-based senior partner at Hinshaw & Culbertson LLP, a full-service national law firm with more than 500 lawyers. He represents hair care industry clients—and businesses around the country—in litigated and other legal matters, including business, employment and product-related disputes, and in contract negotiations.

More from Management Practices

Management Practices
Management Practices

Taking the Sting Out of Turnover

January 2, 2019

Turnover in the hair salon industry is not news. It happens and will continue to be a concern to all salon owners. What is of importance is how you deal with owning and managing a successful salon knowing stylists that you have trained, promoted and encouraged, will leave.

Management Practices
Management Practices

Dos and Don’ts When Communicating with Upset Guests

July 31, 2018

They say the key to every great relationship is communication – and handling a guest complaint is no different. It’s not ideal to have to communicate with an upset guest, yet we’ve all been there and it’s likely we’ll be there again someday. Here are the dos and don’ts to keep in mind to help you successfully communicate with upset guests.

Load More