Hairstylist ordered to pay former employer $10,000

B.C. Supreme Court says stylist's use of client list was tantamount to theft
|employmentlawtoday.com

A Vancouver hairstylist was ordered to pay her former employer $10,000 for stealing client information when she left the salon.

Theresia Weigert left Axiom Hair Design in October 2001, along with another stylist, to work for a competitor. Axiom said Weigert acted improperly in taking and using customer information when she left. It also alleged her association with the other salon violated the terms of a non-competition agreement.

The case

Up until 1999, Weigert was the owner of Axiom. She had worked as a hairstylist in Vancouver since 1966, buying her first salon in 1969. Over the years she operated a number of salons until, in 1989, she formed Axiom Services Ltd.

That company opened Axiom Hair Design. In the early 1990s, Weigert bought out the interests of two of her partners and became the sole shareholder.

Under her management the company prospered, growing to 18 hairstyling stations (with a total of about 25 chairs.)

In 1999 Weigert sold the Salon for $320,000. The British Columbia Supreme Court said the bulk of the value of the salon was in its “goodwill” — the company had less than $70,000 in tangible assets. The real value of the business lay in its ability to produce revenue, and this was dependent on its ability to maintain its customers.

The new owners, Knanh Le and Georges McCaulley, recognized that keeping the core group of stylists was essential to maintaining business and felt they would be able to hold onto most of the staff after they bought the salon.

They were particularly concerned about the possibility that Weigert would open another shop, and they obtained, as part of the deal, a non-competition agreement from her. The agreement included the following terms:

“Theresia Weigert agrees that she will not without the consent in writing of Khanh Le and George McCaulley, which consent may be denied without reason, directly or indirectly for a period of five (5) years, within the geographical area of the lower mainland of British Columbia from West Vancouver to and including Hope, British Columbia own, manage, operate, join control or participate in the ownership, management, operation, consultation or control of or be connected in any manner in any business which is engaged in the supply, sale and delivery of hair care and beauty services for sale to the public, or which in any manner conducts business similar to that conducted by Axiom Services Ltd. prior to the sale by Theresia Weigert of her shares in Axiom Services Ltd. to Khanh Le and George McCaulley.”

“The parties have agreed that Axiom Services Ltd. will provide a chair for Theresia Weigert. Theresia Weigert will have the option to stay and work however she will set her own hours, she will deal with her own clients and she will help with overflow if necessary. If the arrangement between Theresia Weigert and Axiom Services Ltd. is not satisfactory to either the vendor or Axiom Services Ltd. then Theresia Weigert shall be able to cut hair and provide services at another salon however she shall not participate in the operation and control or consultation of such salon.”

The expectation was that Weigert would stay on at the salon as a part-time stylist without management responsibilities. Weigert anticipated limiting her workload, providing services only to her existing customers. But it had been 30 years since she worked in a salon that she did not own, and she wanted to ensure that if things did not work out she would not be completely foreclosed from cutting hair.

The apparent conflict in the non-competition agreement reflected an attempt to balance the interests of the owners and Weigert.

A smooth start

Things began smoothly following the sale, and profits and revenues were largely in line with expectations. While the salon experienced staff turnover consistent with the nature of the industry, it was largely successful in keeping its core group of hairstylists.

But within months of selling the salon, Weigert was unhappy working as a mere stylist. Nonetheless, she continued for about three days a week until the fall of 2001.

That’s when another stylist at Axiom, Catherine Pelletreau, decided to buy her own salon. She talked to Axiom on Oct. 19, gave one week’s notice and said she would not attempt to contact clients until after she left. It was an amicable departure, with both sides wishing each other well.

On the same day the owners of Axiom approached Weigert. They had heard rumours she was unhappy and asked if she was thinking about leaving. She said her plans were unsettled, that she was going to Germany to visit her dying mother and would decide on her future when she returned to Vancouver. She specifically said she would not be joining Pelletreau.

On Oct. 20 Weigert decided she would not be returning to Axiom. As the owner was in Toronto on a business trip, she simply left a note stating she would not be coming back. She packed all her equipment up, said goodbye to some long-term employees and left to plan her trip to Germany.

But after speaking with her sister, she learned her mother’s health had stabilized and she decided to postpone her trip and contacted Pelletreau about coming to work for her. She started working for the other salon on Oct. 25.

Court skeptical of stylist

The British Columbia Supreme Court said it did not find Weigert’s version of the events to be truthful.

“The evidence points unequivocally to the conclusion that (she) planned her exit from Axiom carefully, and in advance,” said Justice Harvey Groberman in his decision. “I find that she made arrangements with Ms. Pelletreau to work at her salon before Ms. Pelletreau even completed the purchase.”

Perhaps the most damning evidence against Weigert’s version of events is that in late September or early October 2001, she requested that the office manager provide her with a list of her customers. Weigert knew she was not entitled to the list and gave no explanation for why she obtained it, other than to say that she wanted to be able to contact her clients after she left Axiom, the court said.

The fact she started at the new salon so quickly is another telling fact, the court said.

“Given that she worked only Thursdays, Fridays and Saturdays, it is evident that she lost not a single day of work in the transition,” said Justice Groberman. “Without the transition having been planned, that truly would be a remarkable feat.”

The arrangement worked well for both women. Weigert, a senior hairstylist who was winding down her career, was not an especially attractive prospect for most salons, the court said. She wanted to work independently within a small salon at a modest rent. Pelletreau, on the other hand, wanted to open her own shop but had limited funds. She was pleased to get funds (a $5,000 advance from Weigert to cover her chair rent for the foreseeable future) effectively interest free and also have a chair in her new salon occupied by an experienced stylist who could provide her with advice on managing a salon.

Weigert used the list she got from Axiom to contact her clients and let them know of the change.

“I find that over the course of weeks, she contacted all of her long-term clients, and that the majority of them followed her to her new location,” the court said. “Only a handful of (her) clients remained loyal to Axiom.”

Pelletreau, on the other hand, did not acquire a printout of her clients from Axiom. She recognized that the computer database at Axiom was confidential and did not even ask if she could access it. But, from early on in her career, she had maintained an address book in which she recorded telephone and address information for her regular clients. After leaving Axiom, she contacted all of her regulars and the majority followed her to her new salon.

“The loss of Ms. Pelletreau and Ms. Weigert was a severe economic blow to Axiom,” Justice Groberman said. “There is evidence that, typically, when a stylist leaves a salon, only about 30 per cent of the stylist’s clients remain with the salon. In the cases of Ms. Pelletreau and Ms. Weigert, the proportion of clients who remained with Axiom was much smaller than that — probably less than a dozen in total.”

Did the stylists have a fiduciary duty to Axiom?

Axiom argued the stylists had a fiduciary duty and that by contacting Axiom’s clients after leaving, they breached those obligations.

The court said Weigert was not a fiduciary employee. She was simply an employee, and not a particularly important one, in the aftermath of the sale.

“She played no part in the management of the company and exercised no supervisory role over employees,” said Justice Groberman.

Nor did he find Pelletreau to be a fiduciary. She was one of the top three employees in terms of revenue, but she was neither a director, manager nor even a key employee that would attract special fiduciary duties, the court said.

Contractual duty not to compete

Axiom argued that Weigert had breached the terms of her non-competition agreement by going to work for a competing salon. It argued the court should infer she was involved in the ownership, operation or management of the new salon. But the court said the evidence didn’t support such a notion — there was nothing to suggest that she was entitled to any of the profits nor that she had control over any of the operations.

Axiom also argued that she was involved in some consultation because she had offered advice on the electrical supply, water heater and the interior design at the new salon. But the court said it did not consider these “various, incidental, gratuitous opinions” to be of the sort of consultation contemplated by the non-competition agreement.

The computer printout: ‘Nothing short of theft’

But where the court did find fault was in Weigert’s use of the list of Axiom clients.

“(She) was well aware that the database was confidential, and that stylists were not entitled to access it,” said Justice Groberman. “I find that (she) secured a client list from Axiom’s databases knowing that she was not entitled to it. She then used the client list to contact her clients and to ensure that they continued with her rather than with Axiom. In my view, the taking of the client list was nothing short of theft. (She) knew that she had no entitlement to it and that it was confidential.”

The court said she improperly used her relationship with the office manager, who said she gave the list to Weigert because of her position as a former boss and mentor, to obtain the confidential list.

It then turned to whether Pelletreau did anything inappropriate by using her own address book. In general, employees are prohibited from taking customer lists and information belonging to their former employers, the court said. They are, however, entitled to use their own resources to attempt to contact former clients after leaving an employer.

While the court said it was not prepared to label her list as theft, it said it does seem arguable that Pelletreau’s actions constituted a breach of loyalty. But, unless her purpose in maintaining the client contact information was to benefit herself at the expense of Axiom, no breach of the duty of loyalty can be found.

It said she was entitled to keep a list of client contacts, for example, for social purposes or for promotional purposes while at Axiom. She did not keep any information on clients who were not her regulars.

Had the salon had a clear policy prohibiting stylists from keeping such information, the court might have found in the employer’s favour with respect to Pelletreau. But no policy existed at the time she was employed at Axiom.

’Clients are not property’

Axiom argued it had a clear policy that clients belonged to the salon, and not to the individual stylists. While the court had no doubt Axiom had such a policy, it said it simply didn’t make sense.

“It was not for Axiom, or for the stylists, to designate clients as belonging to one or the other,” said Justice Groberman. “Clients are not property. It was for the individual customers to decide whose clients they were.”

Damages against Weigart

The court said there was nothing to provide it with an accurate way to assess the amount of damages it should award as a result of Weigart’s theft of the client list.

Axiom argued it should assess damages by considering the decrease in the company’s profitability after Weigert and the Pelletreau left. The court rejected that idea, because most of the loss of business could be attributed to Pelletreau rather than Weigert. Since Pelletreau did not breach any duty to Axiom, it couldn’t recover losses attributed to her.

The court said it would be more appropriate to look at Weigert’s income after she left. It appears that for the years 2000 to 2003 her income was about $23,000 per year.

“Only a proportion of that amount, however, would have stayed with Axiom in the event (Weigert) had not taken and used client lists when she departed Axiom,” the court said. Further, by replacing her with a new stylist, Axiom was able to reduce its losses and ultimately recover from Weigert’s departure.

The court said there is some evidence to suggest that, as a rule of thumb, 30 per cent of a stylist’s customers remain with a salon when a stylist leaves. It expected Weigert to keep more customers than a typical stylist because of her personal loyalty and the longstanding nature of her customers. As well, because she had a relatively small client base, the court said it expected she would have been able to contact a significant portion of them even if she had not taken the lists.

But the circumstances of her departure made it difficult for Axiom to mitigate its damages. She departed at the same time as Pelletreau and gave no notice. It was also during a busy time of the year. In those circumstances, it would take a considerable amount of time for Axiom to recover.

Therefore the court pegged damages at $10,000 plus interest.

For more information see:

Axiom Services Ltd. v. Weigert

, 2005 CarswellBC 357, 2005 BCSC 145 (B.C. S.C.)

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