How much does it cost to dye your hair? A home kit usually costs between $20 and $40. Some salons charge up to $200. In the heart of Yorkville, however, dye-jobs are big business. Salon trade-secrets consisting of client lists and client colour cards (a formula describing a customer’s dye colour preference) are apparently worth $6.4 million.
Mary Louise Abrahamse, the plaintiff and owner of Glo Salon and Spa in Yorkville, is suing eight former staffers who now work at rival salon Gliss, for $6.4 million in damages. Abrahamse claims the staffers ruined her business by poaching clients and their “colour cards,” which contained client specific hair dye formulas as well as client addresses and phone numbers.
Employee / employer relationships are symbiotic. An employee contributes to the business of the employer for remuneration while gaining valuable experiences. While an employee works on the business, they acquire new knowledge, skills, abilities, and relationships which make them more marketable. Compensation is commensurate to the value an employee contributes to the business, and the freedom of an employee to pursue economic advantages through mobility of employment is an important component of the capitalist market.
But, what knowledge, skills, abilities, and relationship belong to the employee and what must remain with the former employer? Many employees are required to sign non-competition agreements as a condition of employment. Barring the existence of contractual provisions, what rules should govern and what is fair?
There are a long line of cases that hold that there is an implied term of employment such that any employee who learns of or discovers an invention or discovery becomes a trustee of the same for their employer and remains a trustee after they has left that employment. This, however, does not prevent that employee from using any experience or skill gained during their previous employment in their new employ. The rational for this is that employees sell their ability to work to the employer, but the employer owns the product of that labour because they are providing the tools to the employees. The difficult task is determining where to draw the line dividing the transferable experience and skills from the discovery or inventions which must remain with the employer.
In the case of Yorkville stylists, they acquire many assets as they progress through their career. They develop relationships of trust with clients, they improve their hair cutting skills, and they foster their artistic talents. They also improve their ability, to hone in on the dye colour a client wants. Once the dye formula is determined, this becomes part of the stylist’s collective knowledge.
If a line were to be drawn, the assets a stylist should be allowed to transfer and use in new employment include client relationships, skills, and abilities. Certain knowledge, however, may not be transferable. If this knowledge were captured in writing, formulas, etc. and specific to client’s business, then generally this should remain with the employer.
In the present case, there are two knowledge based assets the stylists have allegedly transferred from their old employer to their new one:
1) Customer colour cards / dye formulas; and
2) Customer contact information
Customer Colour Cards / Dye Formulas
Are the stylists entitled to the customer colour cards they developed while working with Glo? It is unlikely an employee would be entitled to this knowledge. Though it was a discovery made by the stylist, it occurred while they were employed. Notwithstanding, stylists should be free to develop the hair colour formulas independently at the new employer. A number of cases have held that where an ex-employee, using only the skill and knowledge from his/her previous employment, by trial and error or experimentation, comes upon the secret after leaving that employment, he/she is free to use and exploit such secret knowledge (see Platt v. Lange Canada Inc. (1973), 18 C.P.R. (2d) 144 (Que. C.A.)).
As such, if the employee were to derive the same knowledge of the client dye formulas for the competitor based on their skills and abilities, then that should be allowed. The difficulty with “dye jobs” is that most clients want to maintain their exact colour or only want to dye their roots. There is little room (and patience), for experimentation. It is said that a client has a strong allegiance to their hair stylist. Is this allegiance as strong when a client’s hair dye formula remains with the stylist’s previous employer?
One of the other interesting facts of this case is that the formulas developed by the stylists may not be as secret as the plaintiff claims. Some clients are given their hair dye formulas. This could have an important impact on liability since an employee’s obligation to maintain secrecy remains only so long as the secret remains secret (see R.L. Crain Ltd. v. Ashton, [1949] O.R. 303 (H.C.), affd [1950] O.R. 62 (C.A.))
Customer names / lists
Cases have held that a former employee may not solicit any customer whose name is contained on a list which the employee has taken from the employer, or even a list committed to memory rather than physically taken or copied. However, this rule appears to be industry specific. Some cases have held that custom of the trade does not establish a legal obligation in itself but it can establish what the expectations of the parties were as to the nature of the information and use to which it could be put.
Contrasting the manufacturing industry to the hair styling industry, it is apparent that different rules need to apply. In the case of a manufactured products, many individuals are involved in making, marketing, promoting and selling products to customers. It follows that the customer list is the property of the employer, not the employee. In the case of hair stylists, however, the service provided is very relationship oriented. One hair stylist develops a relationship of trust with one client. That hair stylist has very specialized knowledge of that client. The relationship is such that a client goes to a specific salon because that hair stylist is working from that salon. Another way of looking at it is asking whether the client would want to know if their hair stylist no longer operates out of a salon. If the answer is yes, then the customer information is more likely the property of the hair stylist.
The employer / employee relationship between salons and hair stylists is an interesting dynamic due to the very nature of the services provided to the client. It has been said that employers should treat their employees like their best customers. In the hair styling business, nothing could be more important given that employee mobility is high, client allegiance is not to the salon but to the stylist, and the legal barriers provide little deterrence for stylists and clients to switch salons.