Some economists argue such agreements handicap workers, remove leverage
By Koby Levin
Joplin Globe
CARTHAGE, Mo. (AP) — Glendy Lopez didn’t think she could do Friday mornings, but said her boss insisted. So instead of Friday afternoons at Dr. Fly’s Salon in Carthage, Lopez would have to work mornings at their Joplin location.
“That is your schedule from here on out girl. I have some baby sitters I can give you their numbers,” her boss, Robyn Paul, owner of Dr. Fly’s, informed her in a text message.
But Lopez, then a 22-year-old recent graduate of cosmetology school, said she couldn’t afford a baby sitter, and her mother wasn’t available for child care on Friday mornings.
The situation escalated, and while Lopez and Paul offer differing accounts as to whether Lopez quit or was fired, ultimately Lopez said she found herself out of a job earlier this year.
A single mother with a 2-year-old son, Lopez began looking for work. Last month, she settled on The Hive, a salon in Carthage that rents space to independent stylists for $300 a month.
“I had to in order to eat,” Lopez told the Globe recently.
But soon after starting work at another salon, she received another text message from her former boss. Paul was pursuing a lawsuit for violating a non-compete agreement that forbade Lopez from working for any
competitors within 5 miles of Dr. Fly’s salons in Joplin or Carthage for three months after leaving the business.
Although they are sometimes thought of as being the purview of large corporations and highly paid keepers of trade secrets, non-compete agreements are also common in many other businesses, including
salons.
The Joplin Globe reports that one national survey found that nearly one in five stylists has a non-compete agreement that limits their options if they decide to leave their job — higher than for many other sectors of the U.S. economy. Many other industries have been impacted, too, including food service and restaurant workers.
Kelly Hartley, owner of The Hive, who is also named as a defendant in the suit, believes such agreements have no place in the salon industry.
“She’s not using any trade secrets to color somebody’s hair,” Hartley said of Lopez, adding that Lopez is now a contractor, not an employee. “There’s nothing that she has brought over that has given my salon the edge.”
Paul referred the Globe’s questions to Raymond Salva, her attorney, who said she is only trying to protect her specialized styling techniques, business practices and client base.
“This is about protecting her investment,” he said. “It’s not to create ill will or keep anybody from making a living. It’s only 5 miles, and it’s only for 90 days.”
In her response to the lawsuit, Lopez denies even signing the agreement.
According to the disputed agreement — a copy of which is included in the lawsuit — “Dr. Fly’s has made significant up-front investments into the training, retention and development of its current employees and workforce which represent a significant commercial advantage over Dr. Fly’s competitors and their services and such employees offer Dr. Fly’s services directly to its customers, resulting in the creation of goodwill on the part of Dr. Fly’s.”
The agreement also notes that the non-compete agreement is in exchange for that training and customer base.
Paul’s filings also indicate that they sent Lopez a cease-and-desist letter after learning she had gone to work at The Hive in February, and claims the new employer “knew or should have known” that hiring Lopez would violate the non-compete agreement.
Lopez is not the first former employee who Paul has pursued in court, arguing that her stylists gain “specialized methods” and customer lists from Dr. Fly’s, making them unfair competitors, according to two court filings.
Non-compete agreements are common among high-end salons, according to Michael Gray, a partner with Gray, Plant and Mooty in Minneapolis.
He said he has enforced between 75 and 100 of these agreements in Minnesota, helped salon owners draft them, and written articles offering legal guidance to salon owners. He also said that he is not familiar with this case, and was not asked to comment on it, and noted that the laws governing such agreements vary from state to state.
A one-year restriction and 5-mile limits are common in the industry, he said.
Many times, the salon is hiring a stylist directly out of school, with no experience and no clients, and the business invests time, energy and money into training.
“To allow that stylist to leave and potentially take those people with them is damaging economically,” he said during a telephone interview. “It’s just no fair to the salon owner. They have an interest in protecting that goodwill and customer base.”
The relationship between stylists and customers is a close one, and, in his experience, most people when they leave the salon want to take their customers with them, but he said that is not fair to the salon owner.
“They are the customers of the salon, not the stylist,” Gray said.
“The stylists only see it from their perspective,” he added.
As non-compete agreements have proliferated, so have lawsuits. In 2016, American Ramp sued a former design engineer to protect what it said was its “valuable, confidential and proprietary information and trade secrets.” Last year, Alert One Pest Control sued a technician in Jasper County in order to protect what it called “confidential information.” That non-compete agreement prohibited the technician from working for any customer of the company for two years and within 90 miles.
Temporary restraining issues were issued against the employees in both cases.
Along with the proliferation has come increased criticism, with some economists arguing that non-compete agreements handicap workers, removing from them leverage they could otherwise use to negotiate better pay and more favorable hours and working conditions.
Lopez and others who are asked to sign the agreements say it puts them in an unfair bargaining position, preventing them from moving on and using their education to earn a living.
And observers of the U.S. labor market worry that the contracts have contributed to decades of stagnant wages.
“When workers are legally prevented from accepting competitors’ offers, those workers have less leverage in wage negotiations and fewer opportunities to develop their careers,” the U.S. Treasury Department concluded in an analysis of non-compete agreements in 2016.
Evan Starr, a management professor at the University of Maryland, surveyed U.S. businesses nationwide about the use of non-competes, uncovering their prevalence in service industries.
His research suggests that the agreements work well for the highly paid, highly educated workers for whom they were originally designed. They allow employees to negotiate higher salaries while allowing corporations to protect trade secrets and other sensitive information.
But when employees aren’t prepared to go toe-to-toe with employers, they can be left powerless.
“The concern is that low-wage workers don’t have the resources to fight a legal battle,” Starr said.
In a study of the salon industry, Michael Lipsitz, an economics professor at Miami University in Ohio, found that hairstylists were more likely to sign non-compete agreements when jobs were scarce.
The contracts gave employers a stronger bargaining position, he said, as in negotiations over a wage increase. But Lipsitz found that these benefits were outweighed by the costs borne by salon employees.
“The reason the employer would want to use a non-compete is pretty clear,” he said, “but on the other side of things, these are relatively low-wage workers who are bearing really high costs.”
‘Traps people’
Monica Baugh graduated from cosmetology school at 20 years old with the dream of opening her own salon. Dr. Fly’s was her first employer. After she signed on, she says she was confused when a co-worker asked if she had signed a non-compete.
“I said, ‘I don’t know,’” she recalled. “I signed some papers . I was very surprised.”
Later, after a disagreement with Paul, she walked out of her job — and into legal trouble.
When she found work at a nearby salon, Paul took her to court for violating their non-compete agreement. The suit claimed that Baugh was competing with Dr. Fly’s using customer lists she built while working for the salon.
That suit seemed well-grounded in Missouri law. While some states have outlawed the agreements altogether, such as California, Missouri allows non-competes that cover trade secrets, customer lists and customer relationships. The law exempts some clerks and secretaries, but no one else.
Still, Paul’s complaints against Lopez and Baugh are surprising to Charles Genisio, a Joplin lawyer who has litigated on both sides of local non-compete cases. Apprised of the Dr. Fly’s non-compete agreements, he said large employers typically bring the cases against high-level employees in an effort to protect trade secrets. He questioned whether the same conditions are present in the salon industry.
“They say they’ve got customer lists and trade secrets,” he said. “Really?”
In many cases, the core of a hairdresser’s customers is family and friends, says Sharon Clements, owner of New Dimensions School of Hair Design in Joplin. She says non-compete agreements are a bad fit for an industry that relies on readily available labor.
In 27 years running the school, Clements has watched the rise of non-compete agreements, and has concluded that they don’t have a place in the high-turnover salon business.
“A lot of people coming in to see the stylists are their friends and family,” she added. “That’s why it’s not fair. My friends and family are mine, they’re not your clients.”
Baugh agrees, but she couldn’t pay for a lawyer to make that case in court.
Unable to afford a trial with restrictions on working in her field, she settled the suit last October.
“It just traps people, and it’s not fair,” Baugh said.
