I know of one who was wearing 4 gold bars and taken aside by a CFI and politely shown the error of his ways. (Nothing to do with the fact the CFI only wore 3 bars!!)
Well, both of them are tossers to be wearing stripes, but IMO they both have the right to wear anything that doesn't compromise safety.
I don't think an employee has any business telling a paying customer what to wear. The CFI should be taken aside and politely shown the error of his ways