Is there a law, state or federal the does not allow me to tell my employee how to dress

You can set any policies you want, and if not followed, you can fire the employee.  The problem is that since this is not a written policy (as you are a small business) and dress tends to follow gender, there is always a risk that the firing would be deemed gender related.  Therefore, start with a written memo as to what you want, without threats, and make sure the policy goes to everyone.