John R. Bauer, Guest Contributor
When a stylist leaves a salon to work for another salon or to open her own, is she permitted to take the salon’s client list? Client contact information? Client preferences? Or are these “trade secrets” that belong to the salon? Lawsuits between salons and stylists (and other salon employees) over these issues are very common. The legal rules that apply to these cases are more or less the same in every state, however the outcomes vary from case to case primarily because the facts of each case are different. What are the legal rules and how can you (regardless if you are a salon owner or stylist) make certain you are complying with them?
“Trade secrets” are protectable in courts. This means that courts in every state routinely issue orders that prohibit former employees and others who learn a company’s trade secrets from disclosing or using those secrets without authorization. Courts also order former employees and others who disclose or use trade secrets without authorization to pay damages to the company whose trade secrets were wrongfully used.
What Constitutes a “Trade Secret”?
A trade secret is confidential information that has value to the owner because it is not known to the owner’s competitors, and which the owner has taken reasonable measures to protect. Is a salon’s client information a trade secret? Client information may constitute a trade secret if the salon owner can prove three things. First, the salon owner must prove the client information is secret. That is, the client information must not be generally known outside of the salon or easily discoverable by someone outside the salon (e.g., a competitor). Videotaping clients walking in and out of the salon and hiring a private investigator to identify each customer may be possible, but it does not mean that the client list is easily discoverable. Second, the salon owner must prove the client information has economic value in the sense that the owner uses the information to service and retain the clients on the list, and also that a competitor could use the list to solicit the clients. Third, the salon owner must demonstrate that it took “reasonable measures” to protect the secrecy of the client list. Reasonable measures could include the following: requiring that all employees sign non-disclosure agreements promising not to disclose the client information; marking cards or documents containing client information “confidential;” limiting physical, electronic and on-line access to client information to those salon employees with a need-to-know; and disclosing the client information only to third parties (such as printers) that have agreed to keep the information confidential. A salon that fails to employ measures like these will find courts unsympathetic when the salon sues to preclude a former stylist or employee from using or disclosing pilfered client information.
Disclosing Trade Secrets
Using or disclosing a salon’s trade secrets without authorization is known as “misappropriation of trade secrets.” There are two ways in which one can misappropriate trade secrets. First, disclosure or use of trade secrets in violation of an “obligation of confidentiality” constitutes misappropriation. The obligation not to disclose or use trade secrets may arise from a contract, e.g., a non-disclosure or confidentiality agreement. Or the obligation may arise from what is called “common law.” In every state, employees have a common law obligation not to disclose or use their employer’s trade secrets without authorization and the obligation continues even after employment ends. Accordingly, a former salon employee who discloses or uses the salon’s client information – assuming the information constitutes a trade secret – may be liable for misappropriation of trade secrets regardless whether the employee signed a non-disclosure agreement with the salon.
Second, one who uses (and perhaps even receives) trade secrets that were obtained through “improper means” may be liable for misappropriation. “Improper means” can include obtaining trade secrets from someone known to have an obligation not to disclose those secrets. Accordingly, a salon that uses client information it obtained from a stylist who wrongfully took the information from a salon where she worked previously could be liable for trade secret misappropriation.
Misappropriation of Information
What are the penalties for misappropriating a salon’s client information, assuming the salon can prove the information constitutes a trade secret? A stylist or salon that misappropriates the client information of another salon may be subject to an “injunction,” an order from a court precluding the stylist or salon from using the client information in anyway. Also, a stylist or salon that is found liable for misappropriation may be ordered to pay damages to the salon whose trade secrets were misappropriated. Damages can include the victim salon’s lost profits, meaning the profits the salon lost as a result of losing clients. Salons that misappropriate can be ordered to disgorge the profits they earned as a result of misappropriation, i.e., the profits they earned from clients they gained as a result of the misappropriation. Finally, in some instances, stylists or salons that misappropriate the client information of another salon may be required to reimburse the salon for the attorney’s fees the salon incurred in litigation to enforce its rights.
Keeping Yourself and Your Business Protected
For salon owners, the lesson is to guard your client information and all your trade secrets. Have employees sign non-disclosure agreements (NDAs) and take measures to make certain that your client information is only accessible to those who need to know it and are constrained by NDAs. If a stylist leaves, remind her of her obligations not to disclose or use your client information. For stylists, be careful not to use client information that does not belong to you. The mere fact that you have serviced a client does not mean that client’s information belongs to you and you may use it at your next salon. Do not risk being sued; consult an attorney before you act.
About the Author
John R. Bauer is a partner at the law firm Birnbaum & Godkin, LLP in Boston, Massachusetts (www.birnbaumgodkin.com). He represents clients in business and intellectual property lawsuits, including suits concerning the enforcement of noncompetition agreements. John can be reached at firstname.lastname@example.org.
This article was written is by an industry contributor and does not necessarily reflect the position or opinions of the Professional Beauty Association (PBA). To submit a request to contribute an article, click here.