Time to Revisit Your Booth Rental Contract

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

This column isn’t meant to provide legal counsel to any particular booth rental salon, since the operations of every salon is unique to that establishment.  The law must apply specifically to the all of the relevant facts on the ground, not just the written contract.  

Since we cannot answer all the “what if’s” of every individual salon and their unique practices, all we can do in this column is outline the legal elements necessary to establish an independent relationship.  Without this legal structure, salon owners risk a costly misclassification finding by a government agency or lawsuit by a disgruntled stylist.

The legal requirements have been made clearer by the recent adoption of AB 5 here in California.  And though this new law only applies to California, its underlying principles are based on common, agency law holdings that courts in many of the other states have already established.

Nevertheless, this new statute will come as a shock to most rental stylists, accustomed to their independence with some of their operations but wholly dependent upon salon owners for others.  

Bluntly stated, most booth rental salons have been playing fast-and-loose when it comes to the necessary degree of separation between stylist-renters and their salon landlords.  Far too many salons have poorly drafted rental contracts that fail to properly delineate the roles, or they practice slipshod day-to-day operations that undermine the independent relationship … or both!

So consider this warning to establishment owners desirous to strictly follow this new law: it could be met with initial resistance from your booth rental stylists.  

We’re already hearing accounts from responsible salon owners that their renters are threatening to pack up and move down the street to a competitor who isn’t yet up-to-speed with the new legal landscape.  Those illegally operating salons are still offering the services booth renters have become dependent upon (e.g., making appointments, providing products and equipment, collecting client payments, not requiring 1099’s from the stylist-renters, etc). 

But we’re here to tell you that eventually — in the not-too-distant future — all salons, including the non-compliant operators, will face the growing scrutiny of state and federal agencies auditing salons that utilize 1099 contractors.  And the fines attached to misclassifying workers will be significant.  

And the plaintiffs bar won’t be far behind, representing disgruntled stylists claiming misclassification as a means of demanding back wages or retroactive Workers Comp coverage for an on-the-job injury.

So let’s get the heart of AB 5’s new standards.

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

Here are the general requirements on independent contractors as stated in AB 5:

“(A) The individual maintains a business location, which may include the individual’s residence, that is separate from the hiring entity. Nothing in this subdivision prohibits an individual from choosing to perform services at the location of the hiring entity.

(B) …[T]he individual has a business license, in addition to any required professional licenses or permits for the individual to practice in their profession.

(C) The individual has the ability to set or negotiate their own rates for the services performed.

(D) Outside of project completion dates and reasonable business hours, the individual has the ability to set the individual’s own hours.

(E) 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.

(F) The individual customarily and regularly exercises discretion and independent judgment in the performance of the services.

Beyond these general requirements, 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.  Again, straight from AB 5:   

(I) Sets their own rates, processes their own payments, and is paid directly by clients.

(II) Sets their own hours of work and has sole discretion to decide the number of clients and which clients for whom they will provide services.

(III) Has their own book of business and schedules their own appointments.

(IV) Maintains their own business license for the services offered to clients.

(V) 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.

So there you have it, the new statutory requirements laid out in black-and-white.  Of course, creative salons will no doubt find some work-arounds — perhaps utilizing a shared calendar of appointments that each individual booth renter must ultimately approve.  But unless booth rental salons can show they meet these explicit standards, their booth renters will be determined to be employees.

With clarity comes responsibility.  All salons must raise their professional practices, particularly those utilizing booth renters.  It’s the law.

(And edited version of this column appeared in the March 2020 CA Stylist magazine)