Are Harry Potter books the best-sellers of all time? This worried our recent book group meeting. No one had dared select the latest, but Harry still came up.
Hairdresser Karin said her clients talked about him for days. She wished she could earn the same at hairdressing. Instead, she said, she has sleepless nights worrying that a stylist could leave and take her customers with them.
Her latest idea is to tie them up legally, like the Harry P rights. Karin has a hairdressing system she invented. She earns more per customer, with more customers per day, than her competitors can achieve.
Karin wants to put restraint of trade clauses in her employment contracts, to stop staff working in Wellington for six months if they leave. She says after six months her customers will forget their previous stylist, and stay put.
Once again I had bad news. The law sees such clauses as harsh and they are not easy to enforce.
Restraints of trade which stop an employee working elsewhere are often overturned in court. To be allowed at all they must be shown to be necessary and reasonable. In addition, the employer has to pay for the restraint of trade. For an existing employee, this often means a cash payment. For a new employee, offer and acceptance of work for remuneration can be enough.
Karin was not put off. When, she asked, could she make her employees subject to restraints of trade? The law says the restraint:
- Must be necessary to protect her proprietary interest or a trade secret such as confidential information or trade connections. Karin could protect her special system; but not the general skills her staff have learned from her.
- Can only cover the type of work that uses the trade secret or proprietary interest. Karin cannot restrain her stylists from working in other occupations. She could restrain them from working as stylists in hairdressing salons, or perhaps managing salons, but not from selling products or providing other beauty services.
- Is limited strictly to its wording. The wording of Karin’s restraint must ensure it prohibits the person from working as an employee, and also from owning or being involved in any material way in a competing business.
- Has to cover a reasonable area or location. While Karin wants to stop a stylist working anywhere in Wellington, that would probably be too wide in her case. She can only protect her customer catchment area – the area where her salon is, and the surrounding district for about 20 minutes’ driving time.
- Must be for a reasonable length of time. This is usually three to six months, depending upon the industry.
- Is usually only allowable for senior employees. Relatively junior or inexperienced employees lack special knowledge or customer following.
She also has other options:
- Her employment agreements for new employees could prohibit them from soliciting customers for a specified period (such as six months) after their employment with her ends.
- Her employees cannot take customer lists with them when they leave. If they do, she could sue them for her lost profits.
- She could have a relatively long notice period in her employment agreements, with the right to insist that the employee stay home during the notice period. She would have to pay the employee during the notice period, but they could not work elsewhere until the notice ran out.
Karin is still not happy. When I had a trim last week, she told me she has started a story about a hairdresser witch from Naenae. I feel a copyright claim coming on.
By Penelope Ryder-Lewis, first published in The Dominion Post