WHOSE GOOD WILL IS IT?

In Massachusetts, and elsewhere, employee noncompetition agreements may be enforceable to protect an employer’s good will. However, a recent Massachusetts case provides a reminder that in some industries, including the beauty industry, good will may belong to the employees who provide customer services rather than to employers. Unfortunately, however, even in the beauty industry, there is no consensus among Massachusetts judges whether good will belongs to employees or employers, and the case law does not provide much guidance.

In Elizabeth Grady Face First, Inc. v. Garabadian et al., MICV2016-799 (Mass.Super.Ct. March 25, 2016), a skin care salon sued and moved to preliminarily enjoin two aestheticians/massage therapists formerly employed by the salon from continuing to work for a nearby salon in breach of their noncompetition agreements. The court denied the motion for preliminary injunction on various grounds, most significantly because enforcement of the noncompetition agreements was not necessary to protect the salon’s legitimate business interests. First, the court found that the plaintiff salon failed to demonstrate that its “skin care service techniques, client management procedures and business methods” are proprietary or confidential, so as to constitute legitimate business interests warranting enforcement of the noncompetition agreements. The court did not address whether the salon’s customer list and customer contacts constitute confidential information, however the court noted that in the four months since the employees left the salon, no salon customers had left to do business with the defendants. Second, the court found that enforcement of the agreements was not necessary to protect the salon’s good will. The court indicated it would have reached this conclusion even if there had been evidence that plaintiff’s clients had migrated to the defendants. “To the contrary, all such evidence would show is that certain customers feel sufficient personal loyalty to their massage therapist and/or skin care provider to warrant traveling a greater distance to access their services. [The plaintiff’s] facilities, products, promotions and the like remain fully available to such customers . . . ; but if the customers choose to avail themselves of the particular services being offered by the defendants, then the conclusion the Court is left to draw is that good will that exists in this business lies in favor of the employees.” In short, the good will belonged to the employees, not the salon, and therefore enforcement of the noncompetition agreements was not necessary to protect the salon’s legitimate business interests.

The court cited a 2007 case, Lunt v. Campbell, 23 Mass.L.Rptr. 145, 2007 WL 2935864 (Mass.Super.Ct. Sept. 24, 2007), in which the court denied a salon’s motion to preliminarily enforce its noncompetition agreements with two hairdressers the salon previously employed. In that case, the court found that one of the stylists used client contact information she presumably obtained while employed by the salon, but the court also stated, “it is not apparent that mere names and telephone numbers of customers with whom [the stylist] was acquainted constitute confidential information belonging to [the salon].” Moreover, the court held it was not apparent whether good will with the salon’s clients belongs to the salon or the hairdressers. “Hairdressers are not fungible; each employs individual skills and techniques that may, or may not, meet the needs and preferences of an individual client. Location, ambiance, business hours, and other factors may also influence a client’s choice but at least on the present record, it is not apparent that the good will of the clients these defendants have serviced necessarily belongs to [the salon], rather than to the defendants.”

Lunt v. Campbell was also cited in a 2012 case, Invidia, LLC v. DiFonzo, 30 Mass.L.Rptr. 390, 2012 WL 5576406 (Mass.Super.Ct. Oct. 22, 2012), denying a salon’s motion to preliminary enjoin a hair stylist formerly employed by the salon from working at a nearby salon in breach of a noncompetition agreement. The court held that the salon failed to demonstrate it likely would succeed in showing that the agreement is enforceable to protect the salon’s good will. “The nature of a hair stylist’s relationships with her customers is such that it can be difficult to determine whose goodwill is being created as she pleases those customers enough to convince them to return to the salon for future visits. Given the nature of this industry, the question of whether this particular non-competition provision protects the employer’s goodwill is a difficult one, as to which [the salon’s] theory may or may not ultimately carry the day.”

In contrast to each of these decisions, in a 2012 decision, Porfilo Spa, Inc. v. A.W.S., Inc., WOCV2012-00987 (Mass.Super.Ct. May 30, 2012), the court preliminarily enjoined three hair stylists from working for a salon that competed with the salon for which each of the stylists previously worked and with which each had a noncompetition agreement. The court held that enforcement of the stylist’s noncompetition agreements was necessary to protect the salon’s confidential information and good will. As to the former, the court wrote, “[t]he defendants gained knowledge of plaintiff’s customers and its pricing policies during their employment with plaintiff, and such information can be the type of confidential information that an employer is permitted to protect through noncompetes.” The court also held that protection of good will warranted enforcement of the noncompetition agreements. “[The salon] anticipated that skilled and personable hairdressers would generate goodwill. It sought to foster goodwill through customer relations training and to protect that goodwill through the covenants not to compete. The court finds that the parties anticipated and understood that the defendants would generate goodwill through their diligence, skills, and customer relations, and that in doing so they were acting on behalf of [the salon].” The court made no reference to Lunt v. Campbell.

Similarly, in Zona Corp. v. McKinnon, 28 Mass.L.Rptr. 233, 2011 WL 1663094 (Mass.Super.Ct. March 14, 2011), the court enjoined the defendant from offering hair styling services in seven towns located in southeastern Massachusetts identified in the stylist’s noncompetition agreement with the salon for which he previously worked. The court held that enforcement of the agreement protected the salon’s good will. “Here, . . . the restrictions implicate ‘good will [that] had been developed by [the plaintiff] in the careful operation of its business, which it was entitled to protect.’” Again, the court did not cite Lunt v. Campbell.

There are no obvious factual distinctions between the two cases just discussed where courts preliminarily enforced stylist noncompetition agreements and the three cases where the courts refused to do so, largely on the grounds that the salon failed to prove enforcement was necessary to protect a legitimate business interest. Unfortunately, stylists and salons, like employees and employers in many industries, have little guidance when faced with questions concerning the enforceability of their noncompetition agreements. The outcome of a preliminary injunction motion in a noncompete case in the beauty industry, and others, will turn not simply on facts and law, but also the judge to whom the case is assigned.