In Washington state, legislators have proposed bills to restrict the use of non-compete agreements, and even ban them in some instances.
One bill, proposed by Rep. Matt Manweller (R-Ellensburg), intended to make non-competition agreements for low-wage positions unenforceable (initially banning non-compete requirements for hair salon and manicurist employees, drywall applicators, musicians and fast-food workers), but wasn’t brought up for a vote in committee and subsequently was considered “dead” under the Legislature’s procedural rules. Another, proposed by Rep. Derek Stanford (D-Bothell), intends to make the agreements completely unenforceable in the state, while maintaining the enforceability of non-solicitation agreements and confidentiality agreements. Stanford’s proposition instigated a Twitter war between two tech moguls, and passed out of the House Labor & Workplace Committee on Tuesday by a 4-2 vote. Currently, it’s headed to a full House vote.
The GovTech article raises a great point about California’s lack of non-competes and their booming tech industry, but who cares about their tech industry? Not me. I care about us, and where we’re concerned, non-competes shouldn’t be used. Many judges agree with me on this point (examples here, here, here, and here).
Should Rep. Stanford’s bill pass, non-compete agreements in Washington will be considered unreasonable and unenforceable if the employee is:
- temporary or seasonal
- terminated without just cause or “laid off” by the employer
- restricted from competing for more than one year after termination of employment
- is not an executive employee, or
- the agreement is between an entity engaging an independent contractor and an independent contractor.
Does this mean that a salon owner can suddenly consider their employees “executive employees” to secure the validity of their NCA’s?
Nope. Stanford’s bill clearly defines what constitutes an executive employee, effectively sealing that potential loophole shut.
Despite its name, a non-compete cannot be used exclusively to reduce or eliminate competition. They’re designed to protect confidential company assets to keep them from being used by a current or future competitor. They’re for defending legitimate business interests; not for denying an ex-employee’s right to work or for hindering the market.
For a non-compete to be enforced, not only must the document be reasonable and specific, but the employer has to prove that a.) the company has proprietary intellectual property or trade secrets, and b.) the employee had access to that proprietary information. To be awarded damages, they’ll have to prove that the employee a.) used that proprietary information, and b.) that the employee’s use of that information harmed the business.
Salon owners are unlikely to be capable of proving either claim.
Many salon owners are acutely aware of that fact, but are also aware that most beauty professionals aren’t informed enough about the law to know better, which is why you see so many of these bogus agreements in the industry.
Salon non-competes, instead of being presented as a shield against the theft of legitimate business assets, are used as a tool to intimidate and control employees.
I can state with absolute certainty that I know of exactly three salons who might be able to convince a judge that their salon has proprietary secrets or IP–but that judge would have to be a very nice judge with very pro-business inclinations, hearing their case on a very good day.
In rare cases where NCA’s are enforced, the salon owners who prevail are often victimized by ex-employees in very clear, demonstrably provable (and often pretty damn egregious) ways. We’re talking about cases where the ex-employee takes aggressive, malicious steps to harm the salon owner’s operations (stealing client lists and openly soliciting, coordinating a premeditated employee mutiny, launching a smear campaign against the salon owner’s business, opening a salon directly across the street, and outright operating with a clear intent to systematically destroy the ex-employer).
Not only do I recommend against having these agreements (instead promoting the use of fair non-solicitation and data theft protection clauses), I highly discourage salon owners from attempting to enforce them. These suits end up costing way more money than they’re worth.
The reward rarely justifies the risk. Even when you win, you lose.
You don’t have to take my word for it though, Matthew Stoloff, Esq., an attorney in New Jersey writes on his blog: “Unless the small business definitely has trade secrets or proprietary information that could potentially be worth millions of dollars, it is almost always a terrible idea for a small business owner to litigate a former employee’s breach of the non-compete agreement.”
I also encourage salon professionals who are concerned about being sued or are being threatened by an ex-employer for violation of a non-compete to ask an attorney about moving for a preemptive strike (basically calling the owner’s bluff, suing them first, and attempting to obtain a declaratory judgement on the validity of the non-compete). You don’t have to take my word on that, either (and I advise that you don’t, since I’m not a lawyer, and certainly not your lawyer).
Generally, salon owners design non-compete agreements for one single, specific reason: to protect the salon’s client contact data from being used in a competing business. The purpose is entirely understandable, but non-competition agreements are not the best way to accomplish that purpose.
A non-solicitation agreement would sufficiently accomplish the same goal, and is more likely to be enforced in court.
Non-solicitations prohibit employees from soliciting employees or customers of the business. They don’t try to keep ex-employees from working. They don’t try to keep ex-employees from engaging in independent trade. They’re straightforward, reasonable, and far easier to enforce.
If you’re an employer, consider exchanging your NCA’s with NSA’s. (Non-competes have been going out of favor all over the country for several years now, and will likely not be permissible anywhere for much longer.) Remember, unless you’re an attorney with an appropriate specialization, you should never, ever attempt to write your own contracts. Steer clear of templates also. Pay the money to have the job done right and done well so that it will effectively protect your business.
I also highly suggest reading Attorney Stoloff’s articles, specifically this one on the independent contractor classification, this one about two nail salon owners involved in a non-compete enforcement battle, and this one about the illegality of employer retaliation when an employee reports FLSA violations.
Do you have any crazy non-compete stories? Share them in the comments!