What the FTC Non-Compete ban means for salon owners and hairstylists
This past week the FTC issued a final rule banning non competes, which have been a very controversial topic in the beauty industry for years. So today I wanted to share the details of what you need to know from both a stylist perspective and a salon owner perspective to protect yourself moving forward. Before we get started I should clarify that I am not a lawyer so this is not legal advice, but believe it or not, I listen to legal commentary for fun because I’m a nerd so this is something I’m very interested in and I’ve done a ton of research so that you don’t have to. I’m only going to be sharing from the perspective of the beauty industry today because there are a lot of other nuances to this rule that are beyond the focus of this podcast, and I’m going to share some misconceptions that have been buzzing around the internet because this is still a developing situation and a lot of the commentary I’ve seen isn’t taking that into account.
If you don’t already know, non competes are contracts that a lot of salon owners would require their employees to sign. The specific terms of each contract would vary, some of them would be more extreme than others, but essentially they would stipulate that after a stylist leaves a salon for any reason, they wouldn’t be allowed to work with a competitor or start a competing business for a certain amount time within a set area. Sometimes this would mean they couldn’t work at another salon within a smaller radius like 5 miles of the salon they were leaving, or other times it would mean they couldn’t be a stylist anywhere within the same city or county for a set length of time. These were generally put in place to protect commission salon owners from loosing clientele when a stylist would leave to either work at another salon or go independent. There are also scenarios of brands issuing these to their stage artists, influencers, and educators but that is a way deeper nuanced topic than what my main focus of this conversation is today.
The enforceability of these would vary from state to state, some states allowed them while others didn’t, but I do know that there were some salons that still had stylists sign these policies regardless of how enforceable they were as a fear tactic to try to get them to stay. Regardless, the Final Rule is scheduled to go into effect 120 days following its publication in the Federal Register— essentially setting its “Effective Date”— which is expected to happen soon. However, substantial legal challenges may result in delay or invalidation of the Final Rule before the Effective Date which means this is still an evolving situation and nothing is 100% final yet. At least two lawsuits have already been filed seeking to invalidate the Final Rule, including one by the U.S. Chamber of Commerce. Those challenges will include requests for injunctive relief seeking to delay the effectiveness of the Final Rule while its validity is litigated, but it is too early to determine whether these challenges will be successful or how long all of this will take.
In the meantime, I do believe it’s important to have these conversations about what these changes could lead to and my overall perspective on the topic. To be completely honest I have never been a fan of these contracts because they always seemed to come from a scarcity mindset. Maybe I’m biased because early in my career I work at a salon who had one of these policies in place, but it always felt like they were more focused on how to force their stylists to stay than they were creating an environment that they genuinely wouldn’t want to leave. If this ban goes into effect, this can in theory free a lot of stylists from being stuck in a toxic work situation. They will finally be able to confidently move onto a better work environment without the fear of their previous employer taking legal action against them.
I’ve always been of the mindset that a salon cannot own a clientele, and clients are free to see whatever stylist they want. The majority of clients are seeing their stylist because they’ve built a bond with that specific person, and they naturally have less attachment to the salon that stylist works in. Especially in today’s world of social media, it’s easier than ever for clients to find where a stylist has moved to if they want to follow them to their new location.
However, I can understand from a salon owner perspective how heartbreaking it is to pour energy and education into a new stylist or assistant, only for them to leave before you made that return on your time and financial investment. Although I know for a fact there are some Toxic AF salon owners out there, I genuinely hope that the majority of them entered into this leadership role with good intentions at heart. As a salon owner myself, I have never met anyone who was fully prepared for the emotional rollercoaster of salon ownership and the complexities of balancing what is best for individual stylists that work in the salon while maintaining what is best for the team of stylists and the business as a whole. I always operate my business from the intentions of helping my individual stylists find their personal success, but there is a line sometimes where I can’t just do what is best for one person because their actions can also impact the others stylists in the salon and how the business is able to support everyone as a whole. With that in mind I expect a lot of owners to seek out new ways of protecting their businesses that are not only more effective but also a lot more fair to the stylists they hire.
There are two policies I believe will become even more popular after this change goes into effect, Non-Solicit Agreements and Training Reimbursements. And as I’m breaking these down I want to remind you once again that I’m not a lawyer so you should always hire one to help you form contracts that are legal and enforceable in your personal business but by sharing these I hope to give you knowledge on what your potential options are as a business owner and hopefully allow stylists to understand their rights as employees as well. Something I think a lot of stylists don’t realize is that business contracts are negotiable. You should always read everything you sign, especially employment contracts, and even have your own lawyer review them before agreeing, but it’s not uncommon for employees to requests revisions and negotiate their contracts before finalizing employment terms if it’s something that you don’t feel comfortable with.
Starting with Non-Solicit Agreements, these prevent stylists from soliciting past and present clients, and sometimes even employees, from a salon to follow them to their new business—although the enforceability of that second element can be a little shadier. It’s important to note: this does NOT mean that clients can’t seek out their previous stylist and follow them on their own—or that a stylist would have to turn a past client away at their new location—but it does mean that stylists can’t directly message clients to ask them to come to their new business. For example, if you leave a commission salon to open your own booth rent salon, you’re allowed to make a post on social media announcing you’re new location, how excited you are for this next chapter of your career, and if you have booths available for other stylists to rent. If a client or past coworker follows you on Instagram and they just so happen to see that post, you’re not soliciting them since it is a generally announcement post. But verbiage and intention is important here, what you cannot do is send a DM to that specific client about your new location or directly reach out to those coworkers to ask them to come work at your new salon. Basically everyone has free will to support whatever business they want, or work at whatever salon they prefer, but you cannot explicitly poach clients or stylists to follow you. As with any legal contracts, these clauses can be written a lot of different ways. If they are too broad to step into non-compete territory they might not be enforceable, but overall as a stylist behind the chair I wouldn’t be as concerned about agreeing to one of these, taking into consideration the terms of the agreement, since you’re still protected to market your business. As a side note, I know these can also come up in brand contracts if you’re an educator or influencer for a company, and those have a lot more nuances you should definitely consult with a professional about.
Now the second option, and that one I find the most interesting and can be enforced fairly for all parties involved, are Training Reimbursement Clauses. These are put in place generally to protect employers from hiring an employee, investing time and money into training them, and then the stylist just leaving after they finish their training. These contract will usually specify what training an employer will be providing to the stylist and the monetary value of that training. An extremely key element of these clauses is for the monetary value of these “liquidated damages”—which is what they are usually referred to in court— to be reasonable. There are also some other check boxes for this to hold up in court such as the training needs to be voluntary, the employee must be compensated for their time in the training, the training must not be directly related to being able to preform their job, and that the employee isn’t perform any productive work during that time.
Based on my understanding of this—and again I am not a lawyer so all of my sources are cited below—the main example I can think of in relation to the beauty industry would be if you were a salon owner who had an employee wanting to become certified in extensions. Let’s say the training costs $6000 but you are willing to pay for this expense because you know how valuable it would be to add a stylist to offer this service in your salon. You could have a contract stating that you will pay for this training and even cover the stylists hourly wage while taking the class, but if the stylists decides to leave the salon within 1 year of getting their certification they would be required to pay back a portion of the costs back to their employer upon their exit.
So to keep numbers hypothetical and simple lets say that the salon owner invested $6k in training plus the additional hourly wages of the stylist the salon paid them while getting certified, they could then request something like $4800 back if they left within the first year of receiving their certification but that number would slowly decrease over time by $400 each month until they owed nothing if they chose to leave at the end of the year. So if they left after just 10 months, instead of the full year, they would only owe $800 of the $4800 penalty. You can see that the time frame is a reasonable amount of time for the salon to recoup their investment, they are not requesting the full $6k plus wages back as the penalty, and the stylist is getting a major training that can help them in their career long term.
An employer cannot over inflate the value of the training and they cannot lock an employee in for an unreasonably long amount of time because the court is going to really look at those details before considering upholding something like this. The salon owner also cannot legally deduct any portion of this penalty from an employees last paycheck without written consent and even then they must still comply with minimum wage laws. There are requirements on what that written authorization must look like. The penalties for failure to observe the rules under the N.C Wage and Hour Act and Federal Labor Standards Act can be substantial. Both laws provide for damages in the amount of double the illegally withheld amounts, plus attorney’s fees to the employee.
I’ve said it multiple times, but I really want to CMA and remind you to always consult an attorney before creating, signing, or enforcing any contracts. That’s the only reliable way to understand your rights and what its legally allowed. Just because you saw someone else put a certain policy in place or enforce something a certain way doesn’t mean that is the legal standard of running your business, because I know I witnessed many fraudulent business practices early in my career that would not hold up if I had the knowledge then that I do today.
From my perspective, we have policies in place to protect ourselves but the goals is to set up your business in a way that you hopefully don’t have to ever use them, that rule applies to everything from cancellation policies to employment contracts. If your stylists are feeling seen and heard, they will hopefully feel comfortable to talk to you about any issues they are having in your salon and find a mutual understanding of what options are available to remedy the situation moving forward. Every salon owners wants to prevent turnover of employees, but the odds of a stylist staying with your business forever is unfortunately slim to nonexistent. People’s lives change, they get married, they move, they have kids, their goals change, and their needs change. But if a salon owner can create a culture that is genuinely supportive of their individual stylists success and stylists can trust their owners enough to have their best interest at heart, hopefully when these seasons of change happen we can part ways on a positive note rather than the stereo typically fall out that we often hear about in the beauty industry.
Whether you’re a stylist or salon owner, I would love to know what your thoughts are on this non-compete ban, as well as the Non-solicitation and Training Reimbursement clauses I discussed in this episode. Do you think these options are fair when the terms are more reasonable and narrowly tailored, or do you feel like these are still predatory practices the beauty industry. You can follow @smalltownstylistpodcast on Instagram and send me a DM with your own perspective on this subject.
-Casey Taylor
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