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California’s New Booth Rental Law

Posted January 9, 2020, under Hot Topics, Labor Law

Happy New Year!  Hard to believe it’s 2020. With a new year — and decade — comes new laws and new approaches to making a living in beauty.

Since the vast majority of salon establishments utilize booth renters, we wanted to provide a detailed explanation of California’s groundbreaking new independent contractor law, aka “AB 5.”   Not surprisingly, our organization’s voicemail and email inboxes have been deluged by anxious salon owners and independent stylists, concerned about the reach of this new law, which went into effect January 1.  

While this law doesn’t apply outside of California, given this state’s size and influence, it could become a model for other states.  So this column may be worth your attention even if you don’t earn your living in the Golden State

Now armed with clear statutory standards, state and even federal regulators and tax agents will be increasing their level of scrutiny of all businesses using independent contractors.  Call it an audit bonanza!  

But unlike the past, Big Brother won’t have to solely rely upon a list of weighted, subjective criteria to determine whether a worker should be properly classified as an employee.  They now have specific legal elements in the Labor Code to determine proper classification of booth renters.  

As a result, regulators will likely be handing out misclassification fines like candy in the months and years to come … at least here in the most populous state in the Union, which licenses over 600,000 individuals in our industry.

Even though Assembly Bill 5 applies across all industries operating in California, there are specific provisions that only apply to salons.  

That new law was meant to codify a recent California Supreme Court ruling called Dynamex, which severely limited the use of independent contractors statewide and across all economic sectors.  However, some industries successfully lobbied for limited exceptions to that sweeping court ruling, including ours, which were eventually included in AB 5.

But the sections dealing with our industry set a very high bar that all rental establishments will have to meet to avoid the steep fines and costs associated with a misclassification finding.  So don’t be fooled: AB 5 doesn’t exempt our industry from the reach of Dynamex; it merely provides a narrowly tailored means by which booth renters can be utilized without violating the necessary degree of independence called for in that court ruling.

The legal classification of independent booth renters will still be governed by the “right to control” standard that was previously in place before the Dynamex ruling, with some added requirements spelled out in statute via AB 5.  So if a salon utilizing booth renters doesn’t meet those enumerated requirements, there will be no need for regulators and the plaintiff bar to weigh the various “right to control” criteria that preceded Dynamex; the salon will be found to have misclassified their salon workers … PERIOD.

So to begin with, AB 5 requires any bona fide independent contractor to obtain their own, separate “business license, in addition to any required professional licenses or permits for the individual to practice in their profession.”  In addition, the contracted individual must be able to show that they have “the ability to set or negotiate their own rates for the services performed”, “the individual has the ability to set the individual’s own hours”, “the individual is customarily engaged in the same type of work performed under contract with another hiring entity or holds themselves out to other potential customers as available to perform the same type of work”, and “the individual customarily and regularly exercises discretion and independent judgment in the performance of the services.”

Beyond these general requirements for all independent contractors, AB 5 has specific elements that apply only to our industry, requiring each booth renter to show specific ways in which independence from the salon owner is further established.    

In order to be a validly classified booth renter in California, that individual must set “their own rates”, process “their own payments”, and be “paid directly by clients.”  Moreover, booth renters must set “their own hours of work and have sole discretion to decide the number of clients and which clients for whom they will provide services.”  They also must have “their own book of business and schedules their own appointments”, maintain “their own business license for the services offered to clients,” and “if the individual is performing services at the location of the hiring entity, then the individual issues a Form 1099 to the salon or business owner from which they rent their business space.”

Disgruntled stylists through private litigation, as well as regulators from the Employment Development Department, the Department of Industrial Relations, Cal-OSHA and the Franchise Tax Board, to name just a few, will have considerable new leverage on their side as they seek to clamp down on employee misclassifications.  And the IRS will no doubt be clipping on those state agencies’ heels, anxious to nail misclassifying salon owners with delinquent payroll, FICA and other withholdings with penalty interest charges.

So, as you can see, while booth rental has earned a reprieve from Dynamex’s existential threat, salons utilizing renters will have to run a much tighter ship than has become custom with industry practices.  If your salon currently utilizes booth renters, you can continue to do so, but only if you adjust your business model according to the exact terms of AB 5.

Our industry has proven resilient and adaptive.  With these and other policy changes coming at us in a seeming torrent of reform initiatives, it’s imperative licensed professionals and industry stakeholders tune-in, turn-on and remain nimble.  

[An edited version of this article appeared in the January 2020 edition of the California Stylist]

Defending Industry From Delicensure

Posted November 6, 2019, under Advocacy, Deregulation, Licensure, Schools/Students

There is a well-financed and coordinated campaign to directly undermine occupational licensing in all 50 states — funding think tanks, foundations, lobbyists and special interest groups.   Their work successfully reached President Obama, resulting in a 2015 Presidential report on the subject, and they have now inspired President Trump, who …

New Laws on Booth Rental and Schools

Posted October 7, 2019, under Advocacy, Deregulation, Hot Topics, Labor Law, Licensure, Schools/Students

Last month we discussed several major legal and regulatory changes that have or doubtlessly will touch the lives and business operations of every person earning a living in the world of beauty.  These major policy reforms underscore the importance of a state association that can maintain an active presence at …

Change Is Coming!

Posted September 5, 2019, under Advocacy, Deregulation, Hot Topics, Labor Law, Licensure

The only constant about the world of beauty is change.  As laws and regulations are reformed, as the market shifts, as consumer preferences and styles alter, you can rest assured that our industry will evolve accordingly.  Our livelihood, profit-margins and image depend on this adaptive nimbleness. Public policies and regulatory …

Legislative/Regulatory Reforms

Discouraging Incentive Pay

Posted June 6, 2019, under Advocacy, Hot Topics, Labor Law

Here in the Golden State, we subscribe to the “golden rule”, but not the one you’re familiar with about Do Onto Others. No, we believe He Who Has The Gold Rules!  And in Sacramento, that means the well-financed trial lawyers and labor unions are mostly in charge.  This political reality …

Defending Beauty Schools

Posted May 9, 2019, under Hot Topics

The most heavily regulated sector of the beauty industry is education. Beauty schools not only have to abide by all of the State Board regulations governing salons, they have to deal with additional rules governing their finances, marketing and student contracts.   As for-profit entities, private beauty colleges have been …

Welcome to Our World

Questioning Booth Rental 

Posted March 19, 2019, under Advocacy, Hot Topics, Labor Law, Schools/Students

Last year, this site dedicated three columns to the dramatic changes threatening Booth Rental in our industry, most notably in the Golden State via a recent State Supreme Court ruling called Dynamex.  Other states, including our nearby northern neighbor, Washington, are seeking the end of Booth Rental via legislation, modeling …

Welcome to Our World

2018 Was The Year of Dramatic Change

Posted January 8, 2019, under Advocacy, Deregulation, Events, Hot Topics, Labor Law, Licensure, Schools/Students

January, 2019 If the past is prologue, 2019 will likely be a very busy year in the policy and regulatory reform arena, with serious implications for everyone earning a living in our industry.  Here’s a recap of last year’s dramatic developments. Limits To Commissions I have spent countless hours on …

Booth Rental, Part III

Posted October 4, 2018, under Advocacy, Hot Topics, Labor Law

With this article, I’ve dedicated three columns to the topic of Booth Rental since the landmark California Supreme Court decision was issued this past April.  The reason I’ve spent so much ink on the Dynamex ruling is that I continue to receive frustrated correspondences from salon owners and stylists, alike, …

Booth Rental - Part 3

End of Booth Rental, Part II

Posted September 1, 2018, under Advocacy, Hot Topics, Labor Law

In my June column, I strode atop the mountain to declare the end of Booth Rental … at least in California, and likely coming to all other states soon. Well, to paraphrase Mark Twain, rumors of the demise of booth rental are greatly exaggerated.  Allow me to explain and place …

Photo of Fred Jones

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