IIRC, each player character can't buy the same upgrade twice. So while you can upgrade your farmhands' tools, you can't do it if you've already upgraded your tools
I could be mistaken, but that's what I experienced. Maybe it was because I also held my own tools
It's because you were holding your own tools and they were higher up in your inventory (going left to right). If you put those tools in a chest, or even just rearrange the order you are holding them, you can upgrade the other tools.
When I played multiplayer with my friend, she could only log on very rarely, so when she wasn't on, I would take all her tools from the mayor's lost and found, go to Clint and upgrade them all. She was REALLY amused to get iridium tools with zero effort on her part. My farmer, on the other hand, was tickled pink to provide all the best tools, weapons, and boots for their farmhand.