Hair-Braiding Business Denied Permission To Operate Over Fears of Competition

Since when do government officials get to decide that a market is “oversaturated”?

Among the stupid ideas burdening health care in this country are "certificate of need" laws that require government permission to open new medical facilities or expand existing ones. Such laws are rackets that shield existing operations from competition, thereby limiting choices and raising prices. Leave it to government officials to take that bad idea and apply it to a hair-braiding business.

No Competition in This City

"A small business owner says she was told she could not open because her business is similar to neighboring businesses," WSB-TV reported in July of a dispute in South Fulton, Georgia. "Awa Diagne says her braid shop hasn't been able to open in the shopping plaza on Campbellton Fairburn Road for three months, because of South Fulton's like-use zoning code."

South Fulton, a city of more than 100,000 people that was incorporated in 2017, has a "like-use" restriction in its ordinances that bars new businesses from opening within one mile of similar businesses—at least its officials claim it does (more on that later). It's an inherently anticompetitive rule that puts the fate of entrepreneurs and the choices available to consumers in the hands of city officials who must decide whether sometimes idiosyncratic small businesses are in direct competition and whether they should be allowed to offer goods and services to the public.

Nevertheless, Diagne, a Senegalese immigrant who became an American citizen and has been braiding hair for over three decades won initial approval for her proposed business from city staff.

"The residents that attended both online and in person shared their support for Awa Best Braid and welcomed the business to the community," staff noted in their June 26 memorandum recommending the Planning Commission approve a special use permit for the salon. "The concern was about how the ordinance is keeping small businesses from flourishing."

The Planning Commission unanimously approved the recommendation.

But the city council rejected the recommendation when it met, with two members arguing the proposed hair-braiding business is too much like a hair salon and a beauty supply store located nearby. Three city council members supported Diagne's application, but four voted against it.

"We don't want any business to suffer any losses due to an oversaturation," one councilmember insisted.

"Never did I think, here in America of all places, that I would get denied a business permit because I might be too successful," Diagne told 95.5 WSB radio. "I've been braiding hair my entire life. This is a business I know, a community I love. For the Council to deny me when I've done nothing wrong just isn't right."

Blocking Competition Without Good Reason Is Unconstitutional

Subsequently, represented by the Institute for Justice (IJ), Diagne filed suit against South Fulton.

In a complaint filed in the Fulton County Superior Court, Diagne and IJ attorneys point out, "Respondent refused to let her open, explicitly because she would pose competition for nearby businesses. Such economic protectionism was just held unconstitutional by the Supreme Court of Georgia."

The complaint references Raffensperger v. Jackson, a 2023 Georgia Supreme Court case involving occupational licensing in which Chief Justice Michael P. Boggs discussed "the right to pursue a lawful occupation free from unreasonable government interference" and wrote in his opinion that protectionism is among the interests "not sufficient to justify a burden on the ability to practice a lawful profession." That is, shielding existing businesses from competition isn't good enough reason for restrictions on new entrants into a market.

A Law That Copies a Bad Idea from Health Care

That's a consideration that should be applied across the country—not just to occupational licensing requirements, but also to the Certificate of Need (CON) laws that make it difficult to expand medical competition in 35 states and Washington, D.C. Under such laws, approval is required from health planning agencies or other regulators to open new health facilities or expand existing facilities' services.

"Existing hospitals and other medical providers have the opportunity to oppose the CON application of a would-be competitor, simply by claiming that there is no need for that additional medical service," the Mercatus Center's Thomas Stratmann testified before Alaska lawmakers in 2017. "This is akin to McDonalds needing permission from Burger King to open a restaurant in Alaska."

Or it's equivalent to letting an existing salon and its government allies block the opening of a hair-braiding operation out of fear of competition. That expands an anticompetitive idea to a sector of the economy where entrepreneurs have fewer resources than hospitals to fight for the right to make a living.

A Regulation Created Out of Thin Air?

But does that like-use zoning law even exist in South Fulton? Diagne and IJ suggest that such a regulation is not only unconstitutional, but also a spurious excuse for standing in the way of a new business.

"At the hearings, Council members also claimed that the City had a 'like use' ordinance that limited the number of similar businesses that can operate within a mile to a mile-and-a-half of each other," according to the complaint. "On information and belief, no such ordinance exists, but Council members' repeated insistence that it does, at minimum, establishes a policy or practice of treating new businesses less favorably if they might compete with an established business."

That might explain why, after entirely too much time spent digging through South Fulton's zoning code and ordinances, I could find nothing resembling the city council's claimed restrictions on competition. 

Reached by email, Councilmember Helen Willis, in whose district Awa Diagne's hair-braiding salon would be located, declined to comment since the matter is in litigation. So did Shaheen Solomon, South Fulton's public affairs director.

"Government shouldn't be able to stop legitimate businesses from opening simply because they might compete with existing ones." IJ Attorney Will Aronin said with regard to the case. "This is America, where the government doesn't get to decide who is and who isn't able to compete in an industry. Awa has every right to open her business."

Both right and law are on Diagne's side. If she prevails, she may clear the way for other entrepreneurs hobbled by regulations intended to shield existing businesses from healthy competition.