In an ideal world, disputes about fragrances would not require the intervention of a manager. But fragrance sensitivity is nonetheless a real and important issue in many workplaces. Here's some guidance:
Adopting a policy. Even if it's vague, a policy can be helpful. Simply mention in your handbook, new-employee orientation or staff meetings—perhaps alongside your discussion of a dress code—that fragrances should be used moderately, if at all. This gives you a way to broach the issue when a worker's cologne disorder is simply out of control. Of course, if you have employees with health conditions (like asthma) aggravated by chemical fragrances, you're well within your rights (and perhaps legally advised under the Americans with Disabilities Act) to enforce a strict no-perfume policy.
Maintaining indoor air quality. Of course, even if you or your employees aren't asthmatic or suffering from chemical sensitivity disorders, you can still feel adverse health effects from the use of fragrances. It's useful to remember that perfume is, in this sense, no different from tobacco smoke or cat hair or dust or diesel fumes—or, for that matter, the fragrances in the cleaning products and soaps used in the workplace. Good ventilation, air filters and other measures to improve indoor air quality should be considered, particularly when it's not clear that one worker's scent of choice is the source of your problem.
Seeking collaboration. But what do you do when it really is one employee's cologne? Should you ban fragrances altogether, or can you simply tell him not to wear it? You should be prepared to do both but oftentimes, people have no idea that their scents are problematic, and they don't have any problem accommodating the needs of others. You're on much shakier ground, of course, when the scent is simply unpleasant to you or others, but isn't causing any evident health or wellness issues. In that case, a collaborative approach with the entire team is a good idea. It's much better in the long run if the whole team can buy into going fragrance-free as a workplace norm, rather than you handing down an edict.