I've taken the time to investigate this "usage" issue with various sites on-line about photography and "rights" of everyone involved. I excerpted and copied here some of the information that I've read:
"Finally, we come to the issue of exploiting our photograph of another person for commercial purposes. This differs from the other three categories in that it does not require the complaining party to prove that the pictures caused embarrassment, humiliation, loss of self-esteem, or other emotional injury. The subject needs to prove only that the pictures were used for commercial purposes--that is, used with an expectation of bringing profit directly or indirectly. Personal use of photographs does not apply. Also excepted are photographs of public figures which are deemed to be newsworthy or informative, even if profit is derived from them. Lastly, the subject of the photograph must be identifiable. In other words, the subject must be able to prove that the likeness is, indeed, hers. If the person in the picture is unrecognizable because no face is showing, or if the photograph has captured only a generic part of the body--such as someone's back--the case becomes a "your-word-against-mine" situation.
In any case, when you use a photograph of person without a written release form, you take the chance of being embroiled in a lawsuit involving one of the above rights to privacy issues. What constitutes "use"? It's generally accepted that if the photographs are not displayed or published, but kept for the photographer’s own enjoyment or as instrumental in perfecting her craft, then a release form is not needed. However, the sale of such images as art, or as stock (because it constitutes a commercial use), necessitates obtaining a written release. If there is even a remote chance that you may be able to sell an image, get a release."
"A release is needed for the commercial use of a person's name or image. A "commercial use" occurs when selling or endorsing a product or service. For example, if your website offers haircutting products and you feature pictures of people using the products, you would need a release from the people in the photos. A release is not required if the person cannot be recognized in the photo, for example, if the photo only includes the person's hands. Several decades ago, the failure to obtain the release would have led to an invasion of privacy lawsuit. However, the "right of publicity" has now become the claim de jour for those whose name or image is used for commercial purposes."
"If the photograph is that of a person, you must also obtain permission of the person depicted in the photograph to use his or her likeness. The courts of the United States and some other jurisdictions have recognized a “right of publicity,” a right that derives from the “right of privacy.” These rights apply to all living persons and, under certain circumstances, those dead.
There are several sub-issues that have to be dealt with in terms of the right of privacy:
First: a person’s likeness and name may not be used for commercial purposes without the person’s consent. What then is a “commercial purpose?” This means a use that implies sponsorship, endorsement or where the photograph is used to sell a product or service. If you intend to use a photograph for such purposes, you absolutely must have a valid, written license from the subject to do so and you should be prepared to pay for the same.
Even if your use is not for “commercial purposes,” you still must have releases in writing from each of those whose images are distinguishable in the photograph. Most professional photographers carry model releases with them that the model, professional and otherwise, signs granting these personal rights to the photographer. But a word of warning: often the model releases may have limits on the rights granted the photographer and therefore, if the photographer grants you more rights than the photographer has, he and you may be liable to the subject. Therefore, it is always advisable to get the model to sign a separate release as well, even though the photographer may represent that he or she has such permission. If he or she is wrong, all you’ve got is a lawsuit."
It seems clear to me that, given the information above, the photographer was wrong in distributing (whether he sold the photo to the company or not) that photo to the hair products company ... AND the hair products company was wrong to use the image in a commercial (because that's what the ad is) with someone clearly identifiable pictured without making sure the photographer had a signed release from the people in the shot. Sure, a WAIVER was signed for the RACE or EVENT, and permission granted to use her likeness in photos or videos and the like in order to "promote the Run" .... but not to promote and advertise hair care products.
In my OWN mind, that's a clear violation .... and as photographers, we all should recognize that it's a clear violation so that we don't commit the same mistake ....
Just my 2 cents ....
AND I'd very much like to find out how this issue is resolved by Calgary_life .... I hope they keep us up-to-date ...