A federal court in Alexandria, Virginia enforced a non-compete clause against a former employee of Hair Club for Men in Tysons Corner who stole 25 clients and set up a competing hair replacement business. Hair Club for Men, LLC v. Ehson, et. al., No. 1:16-cv-236 (E.D.Va. Aug. 31, 2016). However, the Court found Hair Club’s non-solicitation clause unenforceable.
The defendant former employee worked for Hair Club from 2011 to July 2014, when she resigned and went to work for Illusion Day Spa, a competing salon she opened about 15 miles away from where she worked in Tysons Corner. Hair Club alleged that, while employed, Defendant learned unique hair replacement techniques developed by Hair Club and was granted access to highly confidential information about Hair Club clients. While still employed at Hair Club, Defendant contacted 27 clients and told them about her competing services. She persuaded 25 of them to leave Hair Club for Illusion, where she offered hair replacement services for as much as 83% less than Hair Club.
While employed with Hair Club, Defendant signed a “Confidentiality, Non-Solicitation, and Non-Compete Agreement” (“Agreement’) which provided that, upon termination of employment, she would not engage in the hair replacement business within 20 miles of any Hair Club for a period of two years. The Agreement also provided that she would not solicit any Hair Club customers following termination.
Hair Club brought suit for violation of the Agreement, as well as common law claims. Although Virginia law generally disfavors non-competition agreements, the Court enforced Hair Club’s non-compete, reasoning that Hair Club had a legitimate interest in protecting customer contacts that it had invested time and money into building. The Court noted that the non-compete was narrowly tailored so that it limited employees only from working in the hair replacement business within a 20 mile radius of a Hair Club location. Departing employees were free to provide other types of hair styling or salon services, and they could provide hair replacement services outside the proscribed radius. Although the Agreement did preclude Defendant from working in “any capacity” within the hair replacement business, it did not foreclose working for a hair styling salon providing a broader range of services. The Court noted that Defendants exposure to proprietary information and clients justified the restrictions and made the Agreement “no greater than necessary to serve Hair Club’s legitimate interests.”
Unfortunately for Hair Club, the Court did not view the non-solicitation agreement as favorably. The Agreement precluded Defendant from soliciting business related to “any customer of customers of Hair Club” or “dealing with” any persons who were customers of Hair Club in the two years prior to Defendant’s resignation. It was not limited to customers with whom Defendant had direct contact, and thereby placed the burden on Defendant to know all of Hair Club’s customers, even if Defendant had never serviced them. While the Court found that a restriction on soliciting Hair Club customers could be reasonable as a means to protect customer contacts, a ban on “dealing with” any customers was too broad as it would foreclose a former employee from providing non-hair replacement services to these persons.
The Hair Club for Men decision underscores the importance of narrowly drafting non-competition and non-solicitation agreements, especially in Virginia. Additionally, in Virginia, unlike Maryland, courts will not “blue pencil” an agreement in order to make it enforceable. While courts often look for ways to strike down a restrictive covenant, a narrowly tailored agreement that is reasonable in scope and duration – like the non-compete clause used by Hair Club – can be enforced.
On a side note, those of us old enough to remember this 1986 Hair Club commercial question whether the client lists are really proprietary. After all, they had the President of Hair Club on TV telling us: “Remember, I’m not only the Hair Club President, but I’m also a client.”