I just cringe for these business owners, who have such individuals in their employ. Sure, they are busy, but make no mistake about it — they are working for themselves and there is zero loyalty — these employees will leave you in an instant if they think the grass is greener elsewhere.
Aside from being completely wrong on all accounts, these employees have little knowledge or respect for the difficulty and sheer effort it takes to open, run and successfully manage a profitable salon or spa business. It’s the business owner that invests in marketing and signs the advertising contracts. It’s that same owner who doesn’t sleep at night, trying to figure out how to keep the lights on, the clients coming through the door and the paychecks issued. Client loyalty is key to the success — and long-term viability — of any business.
How can you prevent employees from stealing your clients if they decide to leave? The answer is, a well-crafted non-compete and non-solicitation agreement. The laws vary from state-to-state, jurisdiction-to-jurisdiction. There are ways to write bad (i.e. unenforceable) agreements, and there are ways to write great (i.e. enforceable) agreements. The best way to obtain a great agreement, is to hire a local attorney familiar with such matters — the money you spend writing such an agreement will pay for itself in dividends.
Do you even have agreements in place with your employees? If not, you have no excuse! Start now! Don’t give courts reasons to invalidate your agreement. Make it fair and reasonable. This means take ownership of what is yours — the client — and don’t unduly restrict your employees from being gainfully employed elsewhere. Avoid:
- Geographic restrictions - even limited ones can pose problems
- Blanket restrictions - everyone has a right to work, so don’t prohibit someone from earning a livelihood
- Unlimited restrictions - always reasonably time-bound the restriction (i.e. 1 year)
- Non-solicitation only - everyone tries to get around this, by creating the circumstances where “I didn’t solicit them, they called me!”
Punitive damages - courts seldom award punitive damages, especially for employee contracts; so they just help to instill the belief that your non-solicitation agreement is egregious, unfair and unbalanced
Every good non-compete agreement should, at a minimum:
- Define Confidentiality and require employees to honor the confidential information of your business
- Define “Client” and “Client List,” and make it clear they are owned by company and are to remain Confidential and Trade Secret
- Indicate that employees (including “whether as an individual for its own account, or for or with any other person, firm, corporation, partnership, joint venture, association, or other entity whatsoever, which is or intends to be engaged in the same line of business as YOUR COMPANY, or in such other business competitive with YOUR COMPANY,”) may not solicit, interfere with, or entice away any clients (or employees) of your company, for a reasonable period of time (i.e. 1 year)
- Indicate that employees (with language above) after their employment ends at your company, may not service, or perform services for, any Client, for a reasonable period of time (i.e. 1 year)
- Require employees to acknowledge that the restrictions will not create an undue hardship, not prevent them from competing in an independent business, and agree they are subject to a restraining order and/or injunction if they violate the agreement
- Require “reasonable enforcement costs and expenses” to be paid by employee, if they violate the agreement
- Contain the standard clauses of severability, survival, waiver of breach and assignment
Note that if you are presented with employees who are bringing their own clients, and you want to acknowledge the clients they bring, my advice is to create an “attachment” that has the actual names of the clients you want to exclude from the agreement. The employee should specifically indicate who such individuals are.
If you have an employee who doesn’t want to sign such an agreement, then you have some interesting information: They intend to steal clients from you the minute the relationship doesn’t work for them. Do you really want such employees in your organization?
