Non-Compete Agreements for Salons & Spas... Yes or no?
Some salon/spa owners swear by non-compete agreements...
Some want nothing to do with them...
Many just aren't sure if they are right for their company - or if they can stand up in court.
This Monday Morning Wake-Up will help you decide or possibly rethink your current non-compete agreement.
Pro's for Non-Compete Agreements
- Protect your salon/spa's proprietary and confidential information: This includes client lists, client files, client service data, including color formulas and treatments. This also includes training and skill certification programs, policy and operations manuals. Essentially, any information or documented knowledge created by your company that supports your brand and competitive advantage.
- Protect your investment in developing and growing employees: Cosmetology school gets them a license. In order to create real career opportunities, salons and spas must invest time and money developing new talent. A non-compete agreement can include provisions for employees to reimburse the company for the value of that training should they leave within a specific (and realistic) period of time.
- Serves as a deterrent: By signing a non-compete agreement, the intent is that employees will think twice about leaving and avoid the legal consequences.
- Non-solicitation of clients and staff: A non-compete agreement can include a provision to restrict former employees from contacting and/or marketing to clients they serviced while employed at your salon/spa. The provision can extend to prevent the employee from soliciting other employees to leave and join them.
- Go far enough away: A non-compete agreement can include a provision that prevents an employee from working within a specific mile radius of the company. This provision should be realistic based on your marketplace. For example, a judge will rule in favor of the employee if your non-compete radius is excessive and restricts the employee's right to work. One to five miles is realistic. Twenty miles is not.
- The bottom line: Owners implement non-compete agreements to prevent or limit the damage of employees leaving with "their" clients.
Con's against Non-Compete Agreements
- New hire buzz kill: No matter how logical and well understood they are, non-compete agreements can rub potential and existing employees the wrong way. Just like signing a marriage pre-nup, a non-compete agreement defines the consequences should the employee end his or her employment … or get fired. The "sign this if you want to work here" condition could cause a qualified new hire to decline the offer.
- Implementation with existing employees: So, you decide it's time to protect your company from being ravaged by departing employees and present a non-compete agreement that all employees must sign. It's a bold move and you must be prepared for one or more employees to refuse to sign. Now you're stuck in a power play. If you allow some employees not to sign, a judge could rule in favor of the employee because of the unfairness that you allowed some employees to stay without signing.
- Changing the nature of employment: If you decide to implement non-compete agreements with existing staff, you are "changing the nature of employment." This means they were originally hired without a non-compete … and now they must sign one to stay. Employees can sign, eventually leave … and challenge the fairness of having to sign a non-compete for doing the same job. A promotion to a new role in the company or a raise … in conjunction with signing a non-compete can add a degree of fairness to the requirement to sign.
- If you don't enforce it: An employee leaves and willfully violates one or more of the provisions of your non-compete. You decide not to enforce the non-compete agreement with this employee. No matter how valid your reason is for not enforcing it with this former employee … you just put the future validity of all non-compete agreements into question. An employee's attorney can argue that your history of not enforcing non-compete agreements with some employees and not others is biased to this employee. Rule: Don't implement non-compete agreements if you are not committed to enforcing them.
- Don't get your non-compete agreement on Facebook: "Can anyone share their non-complete with me?" We see this question on Facebook all the time … and it's outrageously foolish. It's just as foolish to download a generic non-compete agreement from any internet source. If you want a non-compete agreement that has the best chance of being upheld in your state … have it prepared by an attorney that specializes in labor law.
- Only a judge can decide if your non-compete agreement will protect you: The one absolute about non-compete agreements is that they are open to judicial interpretation. Just because you hear owner’s talk about how their non-compete stood up in court … doesn't mean yours will … especially if the provisions and restrictions are viewed as unfair to the employee.
- Clients of the dearly departed may follow anyway: If a service provider's success at your salon/spa is based on building "their" clientele … a non-compete cannot prevent a client from going to a competing salon/spa or independent booth or suite. Social media, especially Facebook and Instagram, give employees direct access to "their" clients. A non-compete agreement cannot fix what was already compromised.
Please consider this …
There are two primary reasons to implement a non-compete in a salon/spa.
- To protect the client list and prevent the departing service provider(s) from soliciting clients serviced while employed at your salon.
- To protect your investment in training and education.
The problem with protecting your client list and prevent soliciting is that the traditional salon/spa model is about "building client followings." If your business approach is to track individual request rates and reward individual clientele building (through higher commissions/prices) … you're putting a hell of a lot of pressure on your non-compete agreements to protect your business.
In so many ways, it is self-defeating to "train" clients to be loyal to a service provider and expect them to be more loyal and remain a client of your business.
I always joke that you're better off having a non-complete with clients so they won't go anywhere else. But if you think about it … it's not so far fetched … or funny.
- I bet there are at least a dozen customer service systems in your salon/spa that need work, fixing or to be turned on.
- Team service is where it's at when it comes to client retention. Not building a salon/spa full of clients that were trained to be loyal to individuals.
Here's my challenge to you: Start thinking outside the "building columns on the appointment book" box. Great teams of extraordinarily skilled service providers, servicing clients that are loyal to your salon/spa, are a hell of a lot more secure than a non-complete agreement. And yes, I would still recommend the use of a non-compete agreement … but as back up — not frontline defense.
Just think about it.