Cracking Down on Booth Rental

BEWARE salon owners and booth renters, alike … regulators are coming after you!

This warning is particularly pronounced in California, where we are now seeing the Department of Industrial Affairs and other state and local agencies levying heavy fines (routinely in excess of $20,000!) for misclassifying workers in beauty/barbering establishments.

So it’s a good time to brush up on the current state of the law.  To aid you in that endeavor, we will focus on California, although its statutes follow generally accepted common law principles that apply in many states.  So establishments across all 50 states should review and weigh these principles against their current booth rental contracts and practices.

For suite rental businesses, these concerns are largely mitigated by the structure of their rental relationships (particularly the separate addresses of the independently licensed suite renters within their buildings), but they too should pay close attention to and comply with  the legal separations explained below.

This column isn’t meant to provide legal counsel to any particular beauty or barbering establishment, since the operations of every business is unique.  Government agencies —  or courts in the case of private claims — will follow the relevant practices in the establishment, not just the written contract, so having a well written booth rental contract ins’t necessarily a “get out of jail free” card.  

And since we cannot answer all the “what if’s” of every individual salon, shop or spa, all we can do in this column is outline the legal elements necessary to establish an independent relationship, again focusing on California law, specifically.  Without this legal structure in place, salon/spa/shop owners risk a costly misclassification finding by a government agency or civil lawsuit verdict by a disgruntled booth renter.

Bluntly stated, most booth rental establishments have been playing fast-and-loose when it comes to the necessary degree of separation between renters and their landlords.  Beyond poorly drafted rental contracts that fail to properly delineate roles, many also practice slipshod day-to-day operations that undermine the independent relationship.  So the legal summary here will come as quite a shock to many, no doubt.  But we’ve been sharing these legal principles for many years, so nobody following the PBF should be surprised.

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 beauty/barbering business utilizing booth renters doesn’t meet those enumerated requirements, there will be no need for regulators or the plaintiff bar to weigh the various “right to control” criteria; the establishment owner will be found to have misclassified their salon workers.

Here are the general requirements of independent workers across California, not just beauty/barbering industry, 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/spa/shop 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 statutory requirements laid out in black-and-white in California Labor Code Section 2778 . One important aside is the ongoing situation in California in which manicurists are specifically barred from booth rental, altogether — a problem the Professional Beauty Federation is working hard to rectify in Sacramento … you can read more about this unique challenge in prior  Hot Topics columns.

Creative salons, shops and spas will no doubt find some work-arounds, for example: utilizing a shared calendar of appointments that each individual booth renter must ultimately approve.  But unless California beauty/barbering establishments can show they meet these explicit standards, their booth renters will be determined to be employees.

With clarity comes responsibility.  All of our establishments must raise their professional practices, particularly those utilizing booth renters.  The consequences of violating these labor laws are steep, just ask those being served very expensive fines.