Non-Compete Agreements: They Can Work
June 2nd, 2008 • Posted by SpaBoom Staff • Permalink
One of the biggest concerns I hear about from spa and salon owners and managers, is the fear of key therapists or technicians walking away with the "book of business." I've talked with key therapists and technicians at many spas and salons, and it's clear: These people believe any client they work on is "their customer," they are free to take "their customers" away from the salon and spa they work for, and they don't believe non-compete agreements are enforceable.
I just cringe for the spa and salon owner, 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 — they will leave you in an instant if they think the grass is greener elsewhere.
Aside from being completely wrong on all accounts, these therapists and technicians have little knowledge or respect for the difficulty and sheer effort it takes to open, run and successfully manage a profitable spa and salon. It's the salon and spa 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 spa and salon.
How can you prevent former employees from stealing your clients? 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, with teeth) 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 salon and spa
- Define "Client" and "Client List," and make it clear they are owned by your salon and spa 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 SPA AND SALON, or in such other business competitive with YOUR SPA AND SALON,") may not solicit, interfere with, or entice away any clients (or employees) of your salon and spa, for a reasonable period of time (i.e. 1 year)
- Indicate that employees (with language above) after their employment ends at your salon and spa, 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 therapists or technicians 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 a therapist or technician 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?
• Trackback • Posted in Spa Business Management
Great timing and post as I grow my small massage business we are constantly hiring new therapists and this blog post was just the "kick" I needed to get a non-compete agreement in place now. I think that as a small business owner you can get to a point where you are a little too trusting and need something in writing to protect yourself.
Good information. I don't have employees, but have Independent Contractors. Would this be applicable? I do supply most of their clients, but the therapists come and go as they please, make their own hours, and pay a room rental rate for the work they do.
On another note, there's a company called Massage Envy that is opening all across the country. They offer massages at an incredibly discounted rate if you become a member. Membership is $49 per month and thereafter an hour's massage is $39. This rate is very difficult to compete with. Do you have any suggestions?
Don't worry about Massage Envy. Is Saks Fifth Avenue worried if Wal-Mart moves in the neighborhood??? Just make your salon the best it can be, and you will develope and grow.
Quality will always win! People looking for a "cheap" massage will get exactly what they pay for. I tried similar discount specials and the customers it attracted were not repeat clients. It was just people looking for a bargain. Clients who appreciate professional and educated therapists, will pay extra for the knowledge.
Hi Cynde and Carol — thanks so, so much for those words. I've been around for 12 years in the same place, and have a very solid client base. Saks Fifth Avenue here we come!!! Nancy
Although I don't disagree with a spa owner protecting themselves, understand that for every therapist that you say is "working for themselves and there is zero loyalty," there is a spa owner who is doing exactly the same thing. Not all therapists are selfish and short-sighted, just as all spa owners aren't fair in their business practices. For every "thieving" therapist there is a small business owner trying to get the most work for the cheapest price. That's business. Just look at the massage envy model that has been discussed. The point is, if you treat all therapists with disdain and with the expectation that they are going to leave for greener pastures in a second, then it will be impossible for you to create a loyal employee base. Loyalty works both ways. Let me ask this question… how many spa owners used to work at another spa, left to build their own and brought customers with them? I'm not saying non-compete agreements may not have a place in this industry, but the fact is that there are bad therapists and bad spa owners. I tend to think both are the minority.
I totally agree with Cynde. I once had a client (when I first opened my private practice) call me and asked me if I had any intro offers like Massage Envy. Because I was just starting out I offered him a discounted rate…
Well, he came in like he was cracked out on stimulants, couldn't stand still, barged into my office and wanted to know why there weren't candles, wanted to change the music to silence, etc. Then once I took his intake and left the room — I came back from the bathroom only to find him dressed and in the waiting room. He said he couldn't relax enough from his basketball practice and he felt bad for taking up my time… but could he prepay for the next session to make it up to me? (of course I didn't accept).
But, the whole point of the story being — People that are looking for cheap massages and deals are not in my 7 years of experience respectful of us, the art of massage, or our time. You don't want those clients.
So Nancy — don't worry! People will continue coming to your spa…
Thanks Pam — you guys are great. I feel much better about the upcoming 'invasion of the body snatchers'!!!
Nancy and everyone else, there's a rather long discussion about Massage Envy in our blog that you might be interested in.
Larry.
Uh, yeah, I won't go over there if I were you because it reads like one of "J.R. Tolkein's" books! People get way too analytical over everything it seems these days.
Just do a great job — enjoy your work, enjoy your customers, reward your employees just like any other business and you will do fine. I tell my employees when I hire them that it is their job to keep clients coming back, be punctual, friendly, give a great service that's beyond your clients expectations and you'll do great. Now, in return I tell them it is my job to keep them happy here with a great working environment, flexible schedules, fun and of course a good pay scale. And, if they find something better — good luck! I should have kept them happier or maybe they need to be on their own a bit and see how independence is — either way it's all ok. Your good customers stay with you because of you!!!
I agree with everyone about Massage Envy. Although, and I'm not defending them, they have done the dirty work with building a multi-location, multi-market business model for our industry. We have a similar business model and we succeed, by and far, when we sit back and wait for Massage Envy to burn through the best of their therapists. We're therapist owned and operated and, well, that's what makes us better. Massage Envy's management doesn't know a lick about anything when it comes to a day in the life of a good massage therapist and they should join forces with the massage schools so they'll have an ample supply of naive massage therapists to underpay, over work and disrespect all the way throughout.
BTW — Massage Envy was just sold to a company that sells organic, holistic products… can't remember the name right now. So, things change again! The person who launched it just cashed out!!!
Wait a Minute… Let's look at this from the other side of the coin…
THE THERAPISTS ARE THE CORNERSTONE OF YOUR BUSINESS. THEY CARE ABOUT PEOPLE. IF IT WEREN'T FOR THE GOOD ONES, YOU WOULDN'T HAVE CLIENTS WALKING IN THE DOOR. 95% OF the GOOD SPAS ARE CREATED BY "WORD OF MOUTH." By telling the client that "oh, you must try all of the therapists," and trying to create a level playing field is horse hockey. Yeah, they might try all of them, but they are not going to come back if they can't request the therapist that they like. The client connects with the therapist, and massage is just one of those things that you (the spa owner) will never be able to control. Sorry.
Neither do MOST therapists feel that they "own" their clients. The therapist has a report with the client that we the spa owners will never have… non-compete agreements in this arena are just silly, unenforceable, and downright dumb on the part of the spa owner. The returns on a "win" are less than what it would cost you to sue the therapist anyway… especially if they can't work anymore, and the clients you asked to testify would be mortified to be associated with you anymore anyway, and you've now also lost the client, their return business, and their referrals. Is it really worth it?
If a therapist is happy, the client is happy, and the spa owner is guaranteed a good return on his investment; then he's happy!
That's why the most successful spa owners were (and still are) therapists themselves, and those of you who are, are torn with the concept of implementing a "non-compete" agreement and are unsure of the prospect and how it will affect your current therapists. Yes, this WILL create a feeling of distrust by the spa owner in the eyes of the therapist. Yes, unfortunately, there are those few therapists who hold their abilities "hostage" with the owner. HOWEVER, if they do, let them go elsewhere. Why would you want a therapist like that in the building anyway? If this happens (listen to this concept). go immediately to the phone and call all of the returning customers that the therapist has scheduled on the books first and then call all of the others that the therapist worked on and tell the client the truth. Give them the option instead of the therapist calling and whining to the client. The client will usually chose the truth. Unless the therapist brought you the client in the first place, the customer will usually respect this and return to find another therapist in your establishment that is a "good fit" for them.
If you're a good employer and treat your therapists well, you won't need a "non-compete" agreement or a "reward" system.
No matter how hard you try, if you're a bad employer, it trickles all the way down to the front desk personnel, and the clients eventually go elsewhere anyway. Not only will your clientele turnover rate be higher, you will automatically have a higher turnover rate for therapists, and especially the really good ones.
They are the MOST valuable asset of your business, and unfortunately, some spa owners only think of the bottom line — not the well-being of their employees or customers.
Post Script to really think about: Yes, you may also get lucky and get a good therapist at the massage chain that you envy so much, but it's ONLY with those therapists who don't have the confidence to know that their trade/massage ability is worth more than $15 per hour. This establishment (and it's really sad) isn't taking a higher percentage of the market by lowballing the price of a massage to the customer at all. THEY ARE LOWBALLING THE VALUE OF ALL THERAPISTS AND THE WORK THAT THEY DO.
You are SO right on Cindy. Particularly about lowballing the value of all therapists and the work they do. By charging less, they are devaluing all massage.
I worked nearly 4 years at a large midwestern day spa with 85 employees. Without good management/owners who treat staff with respect and flexibility… your business will falter. We had a no solicitation agreement only, not a non-compete. This is fair. In our town many spas/salons have a geographic non-compete and it is totally unfair. Remember, most repeat customers return to the service provider — hair-nails, massage or face. They do not go back to be with the owner or managers.
This is a business where human beings TOUCH other human beings in very intimate ways. Therapists are the talent, the stars if you will… not the products on the shelves. Most owners don't understand this and thus treat staff like immigrant labor.
Many owners also forget this is AMERICA where we have FREEDOM of Choice to take our business where ever we please. A spa cannot tell me I cannot follow my stylist or therapist… if my therapist has a website and I find out where she is, that spa owner has no right to harass my stylist or therapist because they now work somewhere else. If I was an attorney and not a massage therapist I would FIGHT non-compete agreements in all the courts of the land as they violate right to work and right to choose were to spend ones consumer dollars. If a therapist quits and takes customers it is because the spa owner FAILED to treat them like valued professionals, failed to pay them enough or offer creative retention bonuses or plans.
RE: Massage Envy… I got a massage there once and it was a poor quality speed massage… they called it an hour, but I was only on the table for 40 minutes and the rest of my hours was spent filling out their too many forms. All the good therapist I know who did work there have since left. When I worked at the big spa my commission was 50% which is decent and that rate made the good therapists not want to leave… so for 2 years we had NO turnover in the massage department of 18 therapists, until some Wall Street private equity group bought the spa and then ran it like a Supercuts joint and lowered the pay scale, 95% of all therapists left within a year and now the place is struggling to stay open. So much for the Wall Street business model.
Many times non-compete agreements turn out not to be worth the paper they're written on. They also serve to alienate customers who would prefer to stick with a particular therapist. I have 14 people on staff in my clinic, and I would never impose a non-compete on them. #1, I don't have any turnover; I treat my staff very well and pay them what they're worth and I don't have any concern about them leaving. #2, if someone did leave, and a client or clients wanted to follow them, it would not endear me in any way to the client to try and force them to stick with my business.
I believe there are enough aching bodies and stressed-out people to go around. Competition is healthy for everyone and the economy in general. I don't care if Massage Envy moves in next door. There will be a certain amount of people who will go there for the cheap experience–but I believe the vast majority would stick with us because of our excellent therapists, high standards of personal service, and atmosphere.
Cynde Says:
Hire me. I'll show You the quality! I work in Massage Envy! Not quality, Dear Cynde, marketing, marketing, marketing.
And we have therapists who do "own" they clients. Are they good? Who cares? People like them. Is Your Doctor good? How do you know? You just like him!
i still have not decided if they are right or wrong but non compete agreements are here to stay.
Does anyone have a sample of a non-compete agreement that they can share?
Some people go to Massage Envy because that is all they can afford. Look at our economy today. It has nothing to do with the therapist or the the business. I am sure they would like to continue the massages but cannot afford the high end places. It is just like the hair styling industry — go to Great Clips or go to a high end place. I have done both and have gotten bad (and good) haircuts at both types of places. However as an senior citizen I have to watch what I spend.
My thoughts are varied on the concept of the non-compete agreement. I think that the reason most massage therapists become therapists is to help people, not to steal a business' client list. If the therapist is not able to work with a particular client who has FINALLY found a therapist that can help them (because they have left one business for another) then who is really getting hurt? Is this about wellness or is it about money?
It's the client who needs to benefit from what the massage therapist has to offer. No-one should be able to deny them that right.
If a therapist leaves one location for another it may have to do with any number of variables. If the clients want to follow that therapist, so be it. That is their right. I would hope that the therapist would not steal the business away from an employer. But isn't it the therapist that keeps those clients coming in the first place? The client can go to another therapist at that location if the reason they return is because they like the spa.
There is no ownership here. No-one owns a client, and no one should have the right to deny the client the right to go to whomever they wish. Remember, the business owner doesn't own the client any more than the massage therapist.
So, in thinking about a non-compete agreement, if an employer wants you, the massage therapist to sign a non-compete agreement, have them agree to pay you a salary for Exclusivity. Ask for an exclusive contract with them where they will pay you $xxx.xxx regardless of how many clients come into the spa.
Then you can get an idea of what kind of employer you're interviewing with and can make a decision if it's the right job for you.
What's good for the goose just might be better for the gander.
I really don't like non-compete agreements. I have been working in the beauty industry for many years, and customers pick who they want to go to. What are you going to tell your clients? "I am going to work for myself, but I signed an agreement so I cant help you for a year." This is a free country, I thought, and I believe in the freedom of choice.
Wow! I cannot tell you how many therapists have solicited my business outside of the business where I have gone for treatment. Almost every single time. I enjoy the other perspective very much. Thank you for addressing this issue. I already had a Business Degree before starting Massage Therapy instruction and I never really thought about this issue from this point of view. It is accurate and a huge ethical obligation to understand the effort and dedication shown on the owner's behalf. I will never forget to remember it from this point on.
There is a difference when the client brings it up, however, I believe that the vast majority of the time, the therapist does solicite it. We need to do our own PR on our own dime.
Thank you.
Hi, I'm an esthetician and am currently being warned by my ex-employe/salon owner to cease working at the current spa I've been employed at for 2 weeks. According to her non-compete agreement, I am within the 15 mile zone of her salon. For the past 6 years of my life, I've been a widow and raising my son on my own. I left the industry for 6 months to start a business of my own and had to return since economic times. Upon return, I was with her. I resigned the contract in November and ran into conflicts with her managerial a styles and her unwillingness to work with my sons school schedule. After being shoved back and forth several times, I came to the conclusion I was going to place my two week. The day of submitting my two weeks I was told to pack and leave. I called all of the clients who had followed me from my other salon to cancel and how I was treated after being faithful to my ex-salon. Coincidently, the same day I stopped by my previous salon to pick up paper work from the past incident and was offered a position by its new owner. I accepted it knowing of the non-compete agreement.
The truth of the matter is she fired me. 2nd, she did exactly what she's telling me not to do is solicit the other salon's clients who followed me from the other salon. As commissioned based employees, she also took our Sundays twice a month and began working us for marketing 6 to 8 hrs non-pay for the salon. 3rd, her unwillingness to work with my schedule for my number one concern to quit… as a single woman raising and sole provider for a household, I make it always clear and upfront prior to my employment that my son's schedule is my priority. Not only did she take all my days off for mandatory meetings but began scheduling them at 7:45 a.m. before school started. At the end, she proved her authority over me by stating, "Ultimately, I'm your boss and you have to do as I say."
Prior to working for her salon, I've been in the area for 3 years and built my clients there as my previous employer did not have a non-compete. How does she expect me to survive as a head of household and and caring for a child? Salon owners need to empathize and be caring as well!
Do you feel that non-competes could be argued as monopolistic! It sure seems that they would! Sam Walton preached that competition was a great thing and really encouraged it. It is the very reason we have P&L's to look at in the first place.
I think it's silly to have this. I if your business is good, you should encourage antrpanuers. It shows the therapist that being good at what you do is important, and by having this following of customers shows customers what is important to us (therapists), that being, them (client) Who better to work for you than someone who wants to open their own business, they want to be good. That's the benefit. I personally, would only hire someone looking to be self-employed, they have the desire to be the best.