Defending Non-Compete Contracts
The impact of having a successful stylist or therapist abruptly announce her departure for greener pastures can be catastrophic. In the best-case scenario, there is suddenly a gaping hole in the team and clients are queuing up for services; worst case, she takes her clients and even tempts others on the team to join her.
If the new salon is far enough away, it’s less likely she’ll steal clients and colleagues. Putting aside the sense of outrage about the investment wasted on improving her skills, the difficulties are only temporary. She can be replaced. But when the new salon is just a couple of blocks away or even just across the road, the only protection we have are our non-compete contracts. And how many businesses go to the expense, inconvenience and stress of defending a non-compete agreement?
Ten years ago we had two incidents where team members decided to move on to a chair rental. We took both to court and won.
Our success was due to my father Larry’s decision 15 years earlier to rip up the contract we’d had for years and write a new one, one that was more reasonable and easier to persuade a judge to uphold.
There are three major differences. The revised contract is much more transparent and unequivocal. It’s concise and isn’t written in legal double-speak that can confound anyone. Second, we stipulate that departing stylists are not allowed to contact their clients personally or (a more recent addition) by social media to inform them of their departure or to say where they are going. And, finally, we also reduced the distance. When Larry and my mother, Lisa, set up in business it was quite reasonable to insist on a departing service provider being restricted from working in a salon within a six-mile radius of any Design 1 for 2 years. But now, with multiple locations, it could be argued our contract effectively barred any ex-Design 1 team member from working in any salon anywhere, as we’ve just about got the whole area covered. Instead, our recruits now sign a contract that stipulates a six-mile radius from the Design 1 location they actually work in.
As we introduced the new contract, we also formalized induction so a whole section is dedicated to a clear and detailed explanation of what new team members must sign up to if they want to be part of Design 1. We also make it explicit, in a non-scary, non-threatening way, that we will defend our position in court without exception.
The reasonableness of the contract, plus our ability to show how we communicate with our people in the induction process won us our day in court. Both times, the judge held up the contract regarding the distance and the departing employee had to move to a location beyond the six-mile radius. Each incident cost between $10-15,000 to defend, but it was money well spent. It did not bring our departing team members back, but it did give us protection. And, more importantly, it confirmed to everyone else on the team that we will defend our businesses. They will think more carefully about leaving when they can’t go to another local salon or assume they can take their clients with them.