Part II of “The Restricting Covenant” Series: Barbers and Beauty Shops

By Lawrence J. Del Rossi

This is the second article in a continuing series, “The Restricting Covenant.” In this article, I discuss a topic that is near and dear to me – my hair and my long-time relationship with my barber.  I have used the same barber to cut my hair since high school, even after moving many miles away.  I sit in his chair, he cuts my hair with expert precision, and I am a satisfied customer.  This got me to think about one of the most basic reasons why employers want to impose non-compete and non-solicitation obligations on their employees – the value and strength of a long-term customer relationship.  Courts have long recognized that protecting customer relationships is a legitimate protectable business interest that can support the enforcement of a restrictive covenant if it satisfies standards of “reasonableness.”  So if my barber was to leave his current location, could his employer enforce a post-employment covenant that would prohibit him from cutting my hair?  Yikes!

The Art of Barbering

The barber’s trade has a long history, dating back to Ancient Egypt.  Many states require a barber to have a license in order to practice barbering professionally.  There are quite a few cases throughout the country that discuss the enforceability of restrictive covenants in the context of barbers, barbershops, hair stylists, hair, nail and beauty salons, and beauty shops.  Many of these decisions involve the sale of an entire business, not just the transition of one employee to a competitor.  Courts generally tend to be more willing to enforce broader restrictions in the sale of a business context.

One interesting case in my home state of New Jersey that involves barbers and non-competes is Dellacorte v. Gentile, 98 N.J. Eq. 194 (1925). The plaintiff-barber Victor Dellacorte obtained a preliminary injunction to stop the defendant-barber Jean Gentile from directly competing against him in Summit, New Jersey.

In 1922, Gentile sold his barbershop, including “fixtures and goodwill,” to Paula Tally for $2,500.  The bill of sale had the following non-compete:

The party . . . agrees that he will not, directly or indirectly, either as employer or employee, engage in any branch of the barber business within a radius of one mile from No. 13 Maple Street, Summit, New Jersey, for a period of five years from the date hereof.

As discussed below, the key phrase was “any branch of the barber business.” Thereafter, Tally sold the business, including the non-compete, to Dellacorte.

A few years later (during the restricted period), Gentile opened a “beauty parlor” about 250 feet (in the restricted territory) from Dellacorte’s (formerly Gentile’s) barbershop.  Gentile argued that his new shop did not compete with Dellacorte because it “cut and bobbed ladies and children’s hair,” and was “in no sense a branch of the barber business.”  To bolster this argument, Gentile’s attorney cited the Latin root of the word “barber” (“barba,” meaning “beard”), and provided the court with “opinions of the courts in some of the Western states, to the effect that a beauty shop is not a barbershop, and that hair bobbing is not barbering.”  The court was not persuaded.

Barber’s Hair Bobbing Activities Cut it Too Close to His Competitor

After examining several different authorities, including the Standard Dictionary’s definition of “barber,” the judge found that “the bobbing of ladies’ hair is a distinct and important part of the business of a modern barber shop, as much as, or more than, was cupping a branch of that business in ancient times.”  The judge observed that it was “not uncommon today to see members of the female sex occupying chairs in barber shops having their hair bobbed in an effort to keep pace with the ever-changing styles.”  The judge then discussed “Samson and Delilah” and the “Holy Writ,” but I will leave those portions of the court’s opinion for you to read yourself.

The court focused on Gentile’s activities before he sold his business.  Gentile’s barbershop had engaged in the bobbing of women’s hair for several years before he sold his business.  Accordingly, this line of work “must have been in the minds of the parties when the covenant was entered into.”  The court also looked at Gentile’s conduct leading up to the opening of his new competing shop.  Gentile had tried unsuccessfully to purchase a release from the covenant, and therefore it was “quite apparent to [the judge] that this defendant went into the new business with his eyes open, and has no right to now complain if the successor of his vendee insists upon compliance with the covenant solemnly entered into.”  Based on these facts, the court enjoined Gentile from engaging in any branch of the barber business within the restricted territory pending a final hearing.

Courts Will Look Beyond Labels and Examine Actual Job Functions

Fortunately, for me (and my hair), my barber owns his own barbershop and does not have to worry about non-competes.  However, if he were to hire an apprentice, or merge with another barbershop, he would need to consider the pros and cons of having them sign a non-compete or some other form of restrictive covenant.  Not only is the Dellacorte decision an interesting case about the history of barbers and barbering, it highlights the searching view that some courts will undertake to determine whether someone should be enjoined from working based on a non-compete agreement.  Courts will look behind the “labels” and examine the person’s actual job functions to determine whether a business is truly engaged in unlawful competition.  The judge in Dellacorte, for example, did not take Gentile’s representation at face value that “bobbing ladies’ and children’s hair” was not “a branch of the barber business.”  Instead, he reviewed extraneous sources regarding the meaning of “barbers.”  He also relied on his own experience and observations at barbershops.  He looked at the parties’ conduct before and after the sale of the barbershop.  Did Dellacorte get the benefit of the bargain on the non-compete?  The judge did not think so.  Could Gentile earn a living in his trade outside of the restricted territory?  The judge thought he could.  The balancing of the equities, which is an unpredictable and nebulous concept of “fairness,” favored Dellacorte.

The Dellacorte decision also highlights the critical importance of focusing on the language used in the non-compete itself to determine its scope.  For example, if Gentile’s covenant had contained only the words “barber business,” as opposed to “any branch of the barber business,” would the court have stopped him from operating a “beauty parlor”?  Would it have been more helpful if Gentile had defined “the barber business” in the bill of sale?  While the duration of the restriction and the geographic scope are usually straightforward, the description of the prohibited activity can generate much dispute and litigation.  When drafting non-compete agreements, give careful attention to the description of the activity-based restrictions.

The goal of this Series is to provide a brief overview and some interesting insights and practical pointers when dealing with unique issues that might arise in the context of restrictive covenants and a particular occupation or industry.  It is not intended to provide and should not be construed as providing legal advice.  Each situation is different, and if legal advice is needed, you should seek the services of a qualified attorney who is knowledgeable and experienced in this area of the law to address your specific issues or needs.  Stay tuned for future articles in this Series, which will discuss the restrictive covenant landscape for other occupations and industries, including brokers, bankers, broadcasters, and more.

Click here to view all of the posts in “The Restricting Covenant” series.

Part I of “The Restricting Covenant” Series: Psychologists and Psychiatrists

By Lawrence J. Del Rossi

Restrictive covenants are private agreements that restrict an individual’s business activities within a specific geographic area for a period of time, in return for wages, access to information, or some other type of tangible benefit. Like the spots of a leopard, they come in all shapes and sizes.  Their enforceability varies from state to state, from occupation to occupation, and from industry to industry.  Many states have quirky or arcane rules or regulations tailored to specific occupations.  Some industries have specific rules and practices that dictate the parties’ course of dealing and determine the “reasonableness” of the restrictions.  Some employers prefer non-competes, while others prefer non-solicitations or non-disclosures, or some combination of each.  In any event, before agreeing to be restricted, or before asking someone to be restricted, this legal landscape should be explored and understood because litigation in this area of the law can be financially and emotionally draining.  This article discusses restrictive covenants and psychologists and psychiatrists.[1]

An Offer You Can’t Refuse  

As anyone who has watched the HBO series The Sopranos observed, Dr. Jennifer Melfi, a psychiatrist, occupied a unique position of trust and confidence with her patient, Tony Soprano.  Dr. Melfi was a sole practitioner with no other partners, so she probably did not have to worry about non-competes.  But what if she had just graduated from medical school, found a dream job with a well-established psychiatry practice in her home state of New Jersey, and was asked to sign an employment agreement that contained “non-compete” and “non-solicitation” provisions that restricted her from engaging in psychiatry, or from having any contact with patients, within twenty miles of her office, for two years after she left that practice?  What are Dr. Melfi’s options?  Should she accept, reject or negotiate a new deal?  What would be the financial and ethical impact to her and the patients?

New Jersey Regulations Prohibit Non-Competes for Licensed Psychologists

There is good news for Dr. Melfi, at least if she decides to stay in New Jersey.  She does not have to walk away from the deal.  Her post-employment restrictions most likely would not be enforceable because of New Jersey Administrative Code Section 13:42–10.16, a provision of the rules adopted by the State Board of Psychological Examiners, which reads:  “A licensee shall not enter into any business agreement that interferes with or restricts the ability of a client to see or continue to see his or her therapist of choice.”

In 2005, a New Jersey Appellate Court, in Comprehensive Psychology System, P.C. v. Prince, held that the State Board of Psychological Examiners adopted a regulation that restricted licensed psychologists from entering into non-competes.  In addition to this regulation, the court found that “the nature of the practice of psychology” and “the uniquely personal patient-psychologist relationship forbid any restrictions which might interfere with an ongoing course of treatment.”  The court did not elaborate on the particulars of this “unique personal relationship”, or compare or contrast it to a patient’s relationship with other types of doctors, social workers or therapists.  And interestingly, if the State Board of Psychological Examiners had not adopted this specific regulation, New Jersey courts, following the Supreme Court’s decisions in Community Hosp. Grp., Inc. v. Moore (2005), and Pierson v. Medical Health Ctrs., PA (2005), might have enforced some or all (New Jersey is a “blue-pencil” state) of Dr. Prince’s restrictions if they were otherwise found reasonable to protect a legitimate business interest of her employer (e.g., training, customer relationships, confidential information), not injurious to the public, and did not impose an undue hardship on her.  Future articles in this Series will address restrictive covenants and health care providers in other fields of medicine.

One issue that frequently arises when doctors leave a practice is whether they can contact patients to notify them of their departure and new whereabouts. Often times, the employment agreement will not address this issue directly.  The court in Comprehensive Psychology System, P.C. explained that, “a psychologist who changes his office location, voluntarily or involuntarily, has a duty to inform patients of the change and the new location and phone number.”  Otherwise, in the court’s view, the psychologist would “abandon” his obligations to the patient.  The plaintiff argued that it could have informed “its” patients of Dr. Prince’s departure, and the geographic restrictions were reasonable because Dr. Prince could have treated his patients outside of the restricted area.  However, the court was not persuaded by these arguments and leaned heavily on the “critical patient-psychologist and . . . the right of the patient to continued treatment from that psychologist.”

Other Jurisdictions Might or Might Not Enforce Non-Competes for Psychologists or Psychiatrists  

Dr. Melfi would likely fare the same if her job offer were from a practice in California, Colorado, Delaware, Massachusetts or Tennessee, where either the state legislatures or the courts in those states have prohibited, or significantly curtailed, restrictive covenants in physician employment contracts.  These states find persuasive the American Medical Association Council on Ethical and Judicial Affairs, Op. E-9.02 (1998), which provides: “Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services.  The Council of Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement.  Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician.”

However, if Dr. Melfi’s job offer was from a psychiatry practice located just across the Hudson River in “Johnny Sack” territory, her restrictions might be enforced completely or in part.  For example, in Metropolitan Medical Group, P.C. v. Eaton (1989), a corporation that provided medical, psychiatric and psychological treatment for private patients sued Dr. Eaton, a licensed psychologist, for violating a one-year non-compete that prohibited her from rendering clinical or psychological services within 20 miles of Regent Hospital in New York County.  Although the employer did not successfully obtain a preliminary injunction (because it failed to show irreparable harm), the court nevertheless allowed the employer to proceed with the case against Dr. Eaton for monetary damages.  The court appeared to strike a balance between a patient’s right to choose his or her own psychologist and an employer’s right to protect and recoup its legitimate business interests in training Dr. Eaton and providing him with access to patients.

The difference in approach to restrictive covenants between New Jersey and New York highlights that there is no “one size fits all” rule.  Each state’s laws, rules, regulations, and judicial decisions must be consulted to determine applicability and enforceability.

This is the first article in a continuing series entitled, “The Restricting Covenant.”  The goal of this Series is to provide a brief overview and some interesting insights and practical pointers when dealing with unique issues or special circumstances that might arise in the context of restrictive covenants and a particular occupation or industry.  It is not intended to provide and should not be construed as providing legal advice.  Each situation is different and if legal advice is needed, you should seek the services of a qualified attorney who is knowledgeable and experienced in this area of the law to address your specific issues or needs.  Stay tuned for future articles in this Series, which will discuss the restrictive covenant landscape for other occupations and industries, including accountants, actors, agents, attorneys, and more.  And that’s just the “A’s.”

Click here to view all posts in “The Restricting Covenant” series.


[1] Future articles in this Series will discuss how similar restrictions might or might not apply to other mental health professionals such as social workers and therapists.