Recently, California switched from the Borello test to a more simplified ABC test to determine whether a worker is truly an independent contractor. The ABC test (or 3-factor test) is currently in use in over 20 states.

UPDATE 2019: AB5 has passed. Here’s the full text of the bill. The content of the original article has been unchanged. You can find the updates at the end.


NOTICE

Read this article IN FULL before linking it out. Too many readers are reading a few sentences, assuming they know what the next 2,000 words will say, and posting this article in online discussions as if it validates their arguments. Unless you’re preaching the importance of reading legislation and not jumping on a hype train conducted by special interests and propelled by ignorant Chicken Littles, it very likely does not.


California’s ABC test requires the “hiring entity” (salon owner, in our case) to prove each of the three factors:

A.) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
B.) that the worker performs work that is outside the usual course of the hiring entity’s business; and
C.) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

I’m here to hopefully stop this insanity by clarifying a few things about the Dynamex decision in California. As usual, I’ve provided links for verification. Please read the entirety of the article and the provided links before trying to argue your point. While I’m not an attorney, educating workers in the beauty industry about their employment rights (specifically about worker classification issues) has been my profession for nearly the last decade. However, I don’t expect anyone to take me at my word—read the links.


Audio Version


Fact 1: These laws aren’t new. Misclassification has always been illegal.

California previously utilized the Borello test, a more flexible system which had 11 factors. Salon owners utilizing IC salon professionals would likely not have passed that test.

On a federal level, the IRS utilizes a 20-factor test. Salon owners utilizing IC salon professionals probably would not have passed that test either. (They usually do not.)

The salon owners you see on the news? They were likely never in compliance.

Not on a state level and not on a federal level. The “new” standard didn’t suddenly make them non-compliant. They were likely never compliant to begin with, even under Borello (see factors 1, 2, 6, 8, and 9). Borello weighed each of the 11 factors differently, depending on the circumstance, but I would argue that violating nearly half of them would have resulted in an unfavorable judgment.

In salons, professionals should either be employees or renters. If you are a salon owner and you are issuing 1099s to salon professionals—odds are good that you are doing things wrong. Situations in the salon where the use of a salon professional functioning as an independent contractor would be appropriate are so rare, they’re exceptionally uncommon.

Fact 2: Renters and independent contractors are not the same thing.

Renters and independent contractors are self-employed, but that doesn’t mean they’re the same. All self-employed people run their own businesses. They set their own schedule, work wherever they please, perform their work however they choose, use whatever products they prefer, provide all their own tools and products, pay the entirety of their employment taxes, wear and promote their own branding, set their own rates, and may not be controlled as an employee is by an employer.

What first separates a renter from an independent contractor is the type of contract they sign.

A renter signs a lease (which gives them the right to conduct business in the space they’re renting) and run their business without any control or interference from their landlord. Renters accept their own payments. They pay rent to their landlord and issue a 1099 to their landlord when they have paid over $600 to that landlord in a tax year.

An independent contractor works on a contract-by-contract basis for private clients and sometimes other business owners who require their specialized services. Independent contractors sign and fulfill work agreements and are responsible for attaining a result in accordance with that agreement. Work agreements are contracts that define the terms of a job—the scope of work, delivery dates, the fees the hiring entity must pay, and any consequences each party may face for severance or failure to complete the job in accordance with the work agreement.

For example, in my capacity as a management consultant, I provide my customers with work agreements which outline what I will do, when it will be done by, my payment terms (how much, when, and by what method I am to be paid), and what will happen if I or the customer decide to violate or sever the agreement before the completion of the job. Once the contract has been completed, I part ways with the owner with no expectation to return (unless they seek me out for my services in the future—in which case, a new work agreement will be drafted and signed).

It’s important to also note how the money exchanges hands. A renter takes payment directly from their clients and pays rent to their landlord in accordance with their lease. Independent contractors are compensated by the person/business who contracted their services (the salon owner, in our case), in accordance with a work agreement.

1099 is not a status—it’s a tax form one person issues to a non-employee when they have paid that person in excess of $600 in the tax year. The 1099 form verifies the exchange of funds occurred. The recipient uses the 1099 to claim their income and the sender uses it to claim the business expense. An IC receives a 1099 from the person who contracted their services. A salon landlord receives a 1099 from their renters.

To illustrate the use of a proper independent contractor, let’s look at an example. A hair salon owner may contract the services of an IT professional to establish their salon’s computer system.

Under California’s ABC test:

A.) The IT professional doesn’t answer to the hiring entity (the salon owner) about how the work will be performed.
B.) The IT professional performs work that is completely outside the usual course of the hiring entity’s (the salon owner’s) business. The hiring entity (the salon owner) owns a hair salon that performs hair services. The IT professional does not perform hair services.
C.) The IT professional is customarily engaged in an independently established trade (technology services), occupation (technology services), or business (technology) of the same nature as the work performed (technology services).

However, we frequently see salon owners misuse the independent contractor classification by routinely staffing the salon with them and controlling them like employees. For instance, when a hair salon owner has an entire salon full of hair stylists who are so-called “independent contractors.”

  • These workers typically show up to the salon every day to work.
  • They are often expected to have a continuing relationship and are frequently prohibited from working freelance or in other salons.
  • They are often scheduled, put into uniforms, required to undergo training, are controlled through the threat of dismissal, and are treated like employees in every way.
  • They are also filling positions within the salon that an employee would normally be hired to fill.

Under California’s ABC test, in a typical IC situation in the salon:

A.) A hair stylist would be answering to the hiring entity (the salon owner) about how the work is performed, what products are used, and what prices are charged.
B.) The hair stylist performs work that is absolutely inside the usually course of the hiring entity’s (hair salon owner’s) business. A hair stylist performs hair services.
C.) The hair stylist is not customarily engaged in an independently established trade, occupation, or business. They are filling positions employees would normally be hired to fill.

Once you understand what an independent contractor is and how they function professionally, you can understand how ridiculous it is to utilize them in the salons the way most salon owners do. It also becomes extremely clear that renters are not independent contractors.

Fact 3: ABC likely doesn’t “illegalize” legitimate rental.

Currently, much of the confusion around the Dynamex decision revolves around theories that it illegalizes booth rental in the state of California. I have found absolutely no valid evidence to support that conclusion. (If you’ve got some from a reputable source—not some random salon owner screaming doomsday theories—I’d love to see it.) Once again, this test has been used for decades in over 20 states. Is rental illegal in all those states? Nope.

A proper salon landlord operates a rental facility licensed as a salon, but does not operate a salon business.

A salon landlord’s primary source of income doesn’t come from the sale of beauty services, but from the rent payments of their tenants. Their function isn’t to manage a beauty business but to manage the property itself by ensuring it’s safe and well-maintained. Salon landlords aren’t “salon owners” any more than their own commercial landlords and property managers are. Their tenants are salon owners.

If it helps, consider it this way: can the landlord of a strip mall be considered a spa owner, sandwich shop owner, restaurant owner, and retail store owner just because they lease storefronts to those businesses? No.

Similarly, if you own or franchise a rental complex (like Sola), you’re not engaged in the business of running a salon. You’re operating a rental complex. The renters’ customers are not your customers. The renters themselves are your customers.

The only time Dynamex may threaten a so-called “rental” salon is when the salon owner has been misclassifying the renters as independent contractors. We usually see this when “landlords” try to take percentages of their tenants’ gross sales instead of a flat rental rate. These landlords are often controlling the money—collecting it from the so-called renters’ clients and issuing checks to the renters. The landlords then issue 1099 forms to the so-called “renters” for the money they have paid them.

Let’s recap:

  • In a proper rental salon, the renters collect their own money from their clients, the landlord receives rent checks from tenants, and the landlord receives 1099s from their tenants at the end of the tax year for the rent the tenants have paid.
  • An independent contractor is compensated by the hiring entity (the person/business who they have a work agreement with). The hiring entity issues the 1099 to the independent contractor. The hiring entity must be able to prove the independent contractor meets the standards set forth in the ABC test.

A salon landlord should not be collecting money from their tenants’ customers and issuing checks to the renters, as that constitutes an extremely inappropriate degree of control. Referring back to our strip mall analogy—would it be appropriate for the property management company or property owner to sit at the cash registers and collect the payments from the businesses in their complex, then issue checks to the spa owner, sandwich shop owner, restaurant owner, and retail store owner they lease storefronts to? No.

The landlord should never be issuing payments or 1099 forms to renters.

Under California’s ABC test:

A.) A legitimate renter doesn’t have a “hiring entity.” They have a landlord who doesn’t intervene in their business operations whatsoever.
B.) The renter performs work outside of the nonexistent “hiring entity’s” course of business. They perform beauty services. The nonexistent “hiring entity” rents workspace to beauty professionals.
C.) The renter engages in an independently established trade, occupation, or business—but because there is no work agreement and no “hiring entity,” there is no way to measure how the work they do differs from the “work performed” by the nonexistent “hiring entity,” since—once again—they have not been contracted nor compensated by any hiring entity.

Stop using the words “independent contractor” and “renter” like they are interchangeable.

These words each have different meanings.

  • Self-employed means that a person does not have an employer. They work for themselves. Renters and independent contractors are self-employed.
  • An independent contractor is a self-employed worker who fulfills a work agreement.
  • A renter is a self-employed business owner who signs a lease and rents space.

An actual, legitimate renter isn’t an independent contractor, so evaluating their arrangement to determine whether they’re improperly classified as an independent contractor doesn’t make sense unless the salon landlord tries to exert managerial control over that renter. Should that evaluation become necessary, it wouldn’t be to determine whether the renter is truly an “independent contractor,” but whether they were truly self-employed. If the ABC test were being used to make that determination, the salon owner who rents to some professionals and employs others would likely fail because of factor B—but ABC specifically is designed to determine whether someone is an independent contractor, making it clear that this test was designed to target the gig economy (those who receive 1099 forms), where the misuse of independent contractors is the norm.

However, until the state responds, nobody has any idea how rental salons will be affected—if at all.

What we do know is this:

  • A hair salon owner who staffs their hair salon with “independent contractor” stylists is misclassifying.
  • A nail salon owner who staffs their nail salon with “independent contractor” nail technicians is misclassifying.
  • A spa owner who staffs their massage business with “independent contractor” massage therapists is misclassifying.
  • An esthetics salon owner who staffs their esthetics business with “independent contractor” estheticians is misclassifying.

Those are all roles employees would normally fill to perform services that are integral to those salons, and that’s what the ABC (Dynamex) decision puts a stop to.

The ABC test is for independent contractors. If—after 2,000+ words of explanation—you still don’t understand what this means for you, immediately contact an employment law attorney in your area. Educate yourself and stop signal boosting the hysteria. The end is not nigh. This is not “the death of the industry.”

Understanding the Outrage

So why are people so pissed? Salon owners who don’t want to ensure prevailing wage compliance, pay employment taxes, or abdicate control over their misclassified workers by making them legitimate renters are upset that they’ll be held to the same standard as every other business owner in their state, and in the country. They’re angry that they’re losing the competitive advantages that misclassification, tax evasion, and wage theft previously granted them.

Now, they have two choices:

1.) Present their “independent contractors” with lease agreements, give up managerial control completely, and let them run their own businesses, or
2.) Employ their renters legally and retain managerial control.

They probably don’t want to do that. Owners who misclassify in this industry do so because they want to exert managerial control without paying the price (taxes and prevailing wage compliance) for that control. We call this “wanting to have your cake and eat it too.”

Why is misclassification bad for the beauty business?

Misclassification allows employers to shift the cost of doing business onto their workers, saddling them with the entirety of their employment taxes and denying them access to employment rights they would otherwise have access to. These salon owners also skip out on prevailing wage compliance. By exempting themselves from those responsibilities, these owners are able to charge less money for the salon’s services, creating an atmosphere of unfair competition that makes it very difficult for businesses that actually do comply with the laws.

These practices have plagued our industry for decades. Our industry should be seen as a valid career opportunity. Our workers should be given the same rights and protections as employees in every other industry. Our employers should absolutely be held to a higher standard. Those who can’t succeed without misclassifying their employees probably weren’t cut out for business ownership in the first place.

“Why didn’t the state inform us?”

You are not owed a golden invitation, a direct letter, or a personal phone call about compliance. The state of California has provided you with more than enough information and resources to educate yourself. They are a shining example that other states should take notes from, and the fact that some of you believe they aren’t doing enough is—quite frankly—an embarrassment.

It isn’t the responsibility of the California BBC, DIR, or the EDD to educate you, salon owners.

When you renew your license in California, you’re required to check a box that acknowledges you understand California labor law. (Don’t believe me? Go check.) If you don’t, it’s on you to read the information provided to you on the state’s website and call state officials if you have any questions.

Be thankful that you have fact sheets and FAQ’s written in plain language, and phone numbers to call. Most of us do not have those luxuries. We have to dig through malfunctioning, outdated websites to find the information we need, and when we finally do find it, it’s usually written in poorly formatted legalese. If we have questions, we will likely need to bring them to an employment law attorney, because we don’t have anyone to call at the state.

“But this guy who sells business seminars said…”

I know that meetings have been held where “experts” and lobbyists are making contradicting statements and confusing the issue. Be aware that these people likely have an agenda to push and/or services to sell you.

Verify the information others give you independently by consulting with the authorities themselves.

Remember when I said don’t take my word for it? You must make the effort to confirm the information you are given. You are responsible for educating yourself, so attend the official meetings. (I wish I could, but I’m on the other side of the country and I’m afraid the aggravation would make my head explode.) Watch the next legislative session between the chamber and labor, and hope like hell the DIR doesn’t roll out punitive enforcement (retroactive of four years).

Please stop spreading misinformation and fear, use the resources your state taxes pay for, and for the love of god, stop potentially incriminating yourselves by speaking to the media before speaking to an attorney.


2019 Update: AB5 Approved, Cosmetology “Carve-Out” Still Won’t Allow Salon Owners to Misclassify with Impunity 

The passage of AB5 should come as a surprise to nobody. Those who have been most outraged have agendas of their own–gig employers, salon owners who want to continue incorrectly utilizing the IC status at the expense of their workers, and anti-regulation libertarian groups (the same people who think all we do is “shampoo hair” and “paint nails” and shouldn’t have standards or licenses to begin with).

AB5 isn’t rocket science and compliance isn’t complicated, but as stated in the original article, it did cause potential problems for legitimate salon landlords who also practiced cosmetology in their rental facilities. These landlords may not have satisfied part B of the ABC test, even if their renters were truly self-employed.

Professionals fought for (and successfully received) a carve-out. (And by “professionals” I mean Jaime Schrabeck and Wendy Jacobs Cochran.)

The most important thing for salon owners to understand is that the carve-out only benefits legitimate salon landlords, who wouldn’t have satisfied part B of the ABC test. That’s it. It doesn’t endorse their idiocy.

Salon owners now have to prove compliance with 6+ factors of the Borello test. To fall within the exception, the salon owner must establish that the professional service provider maintains a separate business location, has a business license, can set or negotiate their rates and hours, controls their own client database and appointment book, and exercises discretion and independent judgment. Independent contractors are required to provide the “hiring entity” (salon owner) with a 1099 for rent paid.

My primary complaint with California is that legislators use the words “independent contractor,” “renter,” and “self-employed” as if they are synonymous. They are not.

Unfortunately, this leaves a lot of room for confusion, resulting in a situation where professionals, business owners, enforcement agencies, attorneys, and the legislators themselves don’t realize their definitions aren’t in alignment. If the EDD, DIR, and BCC were all on the same page and using the right words, AB5 would have been perfectly fine as it was written.

Our industry didn’t need a carve-out. The legislators needed a vocabulary lesson.

Inter-agency inconsistencies and idiocy aside, rental has been clearly and effectively protected, allowing salon landlords who also work in their facilities to continue business as usual. As a reminder, THIS CARVE-OUT DOES NOT allow salon owners with employees to classify their non-renter workers as independent contractors.

AB5 goes into effect January 1, 2020.

75 COMMENTS

  1. Tina… You helped us in the beginning with our business SO MUCH that we started 3.5 years ago! I misclassified out of ignorance for the first 6 months we were opened, but only had one employee then. After writing back and forth with you, I set up everything right. That was 3 years ago. I now have 7 employees, and we do EVERYTHING above board, including reporting 100% of tips on behalf of our employees, and including tips on their paychecks, like 80% of employee salon owners don’t realize you’re supposed to do.

    It’s ridiculous that people think salons deserve to operate in such an outdated and illegal model, while 99% of other businesses operate in the real world of taxes and rules! I constantly try to post links to your blog on Hairstylist Education Forum on Facebook where tens of thousands of hairdressers are members and are totally ignorant of labor laws and how they are being taken advantage of. But 99% of the time, HEF moderators remove those links because links are against the rules. Links to your blog should be the only exception to their rule! This is very simple, and I”ve been trying to explain basically the same thing you just did. Booth renters PAY TO owners rent each month and provide the owner with a 1099 at the end of the year. They never receive anything FROM an owner, unless it is a dang receipt for their rent check! A 1099 IC receives PAY FROM a salon owner for a specific job. If ANY owner in America is paying their workers commission/hourly and then gives them a 1099 at the end of the year, that owner is breaking Federal employment law, and could be in huge trouble with the IRS. You rock, Tina, and we will always be in debt to you for helping us set up our business!

    • That’s awesome to hear! You aren’t the only one contacting me about this. So many of my consulting clients in CA are like, “Can you believe these people are on the news acting like they deserve special treatment? This isn’t a NEW thing!”

      I sincerely wish that the state would be clearer about that in their communications with professionals and salon owners. Our workers are either employees or renters. There is no in-between, and if you’re issuing 1099s to your professionals, you are doing it wrong.

  2. Nicely stated Tina.
    I have been arguing we have 3 classes here in CA and why are we confusing/lumping Rental and IC.
    Even the attorneys are confused.
    1. Rental Salon
    2. Employee salon
    3. The so-called IC
    We have known for years IC was not compliant.

    One question that continues to come up to me, (we serve over 12k salons here in CA) “can we pay retail commissions to renters?”
    We have no determination from the state of course. My thought is it’s another source of income for the renter outside of them conducting hair service. The renter chooses to or not to at their discretion.
    What would you suggest is best practice for the rental salon concerning retail sales in the front of salon and not have each renter retailing themselves at station?

    • My suggestion on this in the state of California is to wait until the state clarifies whether that would constitute an inappropriate arrangement, because there’s a very gray area there. In my opinion, I think renters should be permitted to sell retail. So long as the decision has been made voluntarily, there’s no control being exerted over the renter.

      • As long as the salon landlord clarifies that selling retail the salon has provided for itself is not mandatory for booth renters, could it be classified in a lease agreement that it is not a requirement to sell retail but if any retail is sold by a booth renter, a 10% commission will be given to the booth renter as a gratuity or “thank you”? I’m having a brain fart trying to figure out better wording than “thank you” and “gratuity” but hopefully it makes sense. I understand that it is still a gray area though.

        • Yeah, it’s a gray area, but one that (to my knowledge) has never caused a salon landlord to be determined to be an employer on its own. So long as it’s entirely voluntary, I don’t believe it poses any real legal risk.

  3. Hi Tina, the one issue that the attorney I work with has challenged is that a salon owner is typically also a stylist. This would falsify the ABC criteria that “the worker performs work that is outside the usual course of the hiring entity’s business”. Can you please address?

    • I counter with this: Who is the “hiring entity?” A renter signs a lease agreement. They pay the landlord and provide the landlord with the 1099. The salon owner isn’t a “hiring entity” any more than the owner of the building could be considered a “hiring entity” for the business owners running establishments out of their building.

      • So if I own the salon and work a station too, paying rent to the salon. Am I ok? Also, show each stylist get their own business license?

        • I believe so, but check with an employment law attorney in your area who is familiar with your individual business and who has read your lease agreements.

  4. Great article. It’s a big one to tackle in order to explain to people what all of this means.
    Some owners in my souther California community are all caught on the fact that they (owners) are operating as a stylist in their booth rental salon which then makes them fail B. In your understanding/opinion could those renters, still sue for wages and misclassification in this arrangement?

    • That’s still up for debate, but my opinion is that in a legitimate rental salon, where the renter signs a lease, pays rent, and isn’t controlled by the landlord–there is no hiring entity. The renter is a self-employed business owner; not an independent contractor. An independent contractor is a self-employed person who fulfills a contract (work agreement) for a private customer or another business owner. There’s no valid comparison to be made between a renter and an independent contractor, so the test can’t reasonably be applied.

  5. Hi Tina,
    Thank you for posting this! This makes sense to me,…..but I am confused as to why the EDD ( Employment Development Department) describes a Booth Renter as an Independent Contractor ? That they must give a 1099 form to the salon owner. They only describe an employee and an independent contractor in their “Table of determination elements “. The salon owner thinks we have to give her a 1099 form because of this. I’m calling my accountant right now!
    Thanks Tina!

    • I’m also confused as to why they can’t get their terminology straight. The BBC released a pamphlet earlier this year that used the words interchangeably too. The attorneys I know in California are extremely frustrated by their lack of understanding. Friends who attend the meetings are telling me that employment law attorneys are showing up and telling them to wipe the word from the industry’s vocabulary, lol. The state needs to accept the majority of the blame with regards to the lack of comprehension. They’ve been sending mixed messages for the last few years.

  6. Hello. I am a booth renter in the middle of trying to figure out what my choices are. I understand your points and thank you for making the distinction between booth renter and independent contractor. However, I am on the state board of cosmetology website, searched booth rental and found minutes from a meeting August 28th, health and safety committee,Board of barbering and cosmetology, which states in agenda items #5 #6 #7 Discussions on the impact of the Supreme Court decision. “This decision renders almost 100 percent of the industries booth rental salons void. Booth renters are now in effect employees.” I’m speechless

    • Without having seen the minutes, you’re probably looking at an argument made by someone present. To me, this statement indicates that the person who made it doesn’t understand the terminology being used and has made the wrong assumption. Can you link me to the minutes?

  7. Thank you so much for writing this article. So insanely helpful and answers our questions without hesitation! I have shared with my salon team, and will be sharing on my social media too!
    I tuned into a live stream of a publicized “Q&A forum” here in CA and it was awful and left me angry and more confused, so thank you again!

  8. Thank you for this article! I just want to make sure I completely understand. A salon now has to be ALL booth rental or ALL employees? A salon can no longer be both rental and commission. Is that correct?

  9. Thank you, this article was very helpful to breaking down these laws for me.
    Now this is mainly about salon owners and the people they decide to either hire as legal employees or decide to rent out to booth renters and not have any say in managing their business.
    I was wondering if you have any knowledge on Hairstylist’s using assistants and how this law effects how they hire them for their services?

    • A stylist’s assistant will always be a worker who should be classified as an employee. They should absolutely not be utilizing independent contractors as assistants.

  10. If the salon owner has misclassified the stylists as independent contractors and been paying them on a commission-only basis, therefore not tracking hours, how would the stylists go about getting the wages they were owed?

  11. Thanks for the informative article, it’s the only thing I have read that is sensible and clear. However, I do have a few questions…according to the Board of Barbering & Cosmetology (worker’s rights brochure), there are two catgeories of workers; employee and independent contractors (aka booth renter), not three? https://www.barbercosmo.ca.gov/forms_pubs/publications/bbc_workers_rights_brochure.pdf
    As a beauty business owner with 6+ renters in Calfornia, it seems the only option according the new ruling is to make the renters employees or change the dynamic of our salon model to mirror those of independent salon studio/suites with no shared sales of retail? This is a new a business for me with debt still owed to previous owner with product sales being the biggest part of the it’s revenue. In your opinion, is it fair to say I cannot be remibursing (commission) to the renters for the sale of the retail goods and products sold in the common area. They have been renters all along except for earning commission if they choose to sell our products. I do not control any aspect of their business, they set their own schedule, services, backbar, rates, attire, payments. At a total loss even after reaching out to attorneys, related government agencies and lobby groups with legaility and our current business model. Dependent on the A,B, C test with new ruling, our set up ispotentially illegal as booth renters (independent contractors). Your thoughts?

    • Booth renters are not independent contractors. There are not three classifications, but the BBC made a major mistake by misusing the terminology for so long. They’re to blame, in my opinion, for the panic caused by the Dynamex ruling. A worker is either employed or self-employed. A self-employed person may work as an independent contractor (freelancer) at times, but not always. Using “booth renter” and “independent contractor” as synonyms is intensely problematic because it confuses renters with legitimate freelancers who work on a contracted basis.

      As I said in the article, if your renters are legitimate tenants, they’ve signed lease agreements–not work agreements. They’re self-employed but they are not functioning as independent contractors. This ruling really isn’t that complicated, but the BBC’s misuse of the terminology caused a whole host of issues. (I’ve even seen places where the EDD has done the same.)

      I don’t know which attorneys you’re reaching out to, but stay away from the ambulance chasers in the news and on social media. Find an employee rights attorney–someone who almost EXCLUSIVELY practices in that area of law. A lot of attorneys who don’t have the proper specialization or experience are coming out of the goddamn woodwork trying to profit from the confusion. Avoid them. Go to the attorney who is most likely to bury you in court if you’re found guilty of misclassification, someone with a record for fighting for worker’s rights. Hire them. Ask them to help you ensure compliance.

  12. Hi Tina,

    First and foremost, thank you for your informative work and comprehensive research. My question is regarding your statement “a proper salon landlord operates a rental facility licensed as a salon, but does not operate a salon business.” If a salon has proper booth renters and also employees, can the landlord/establishment owner work as a hairdresser as well? You say “A salon landlord’s primary source of income doesn’t come from the sale of beauty services, but from the rent payments of their tenant.” So is it even legal to have booth renters and employees? Should it only be one or the other?

    • I’m glad you asked this! Several of my consulting clients in California have retained employment law attorneys who have advised them to create a separate business entity for their rental operations. So they rent to the renters under their rental LLCs and provide services under their sole proprietorships (it’s illegal to provide personal services with an LLC in California). I recommend getting clarification on your own situation from an attorney familiar with your business, but this strategy falls in line with my initial assessment.

  13. Thank you for this information. My boyfriend and I have built a barber shop as partners. I’m an accountant and he is the barber. From my understanding on the ABC test he can no longer be the owner? I’m assuming I will have to redo all of our business license. Would it make any difference if he was also listed as a renter and paid rent? This is where we’re frustrated and confused.

    • Right now, it’s *super* questionable. I highly recommend speaking to a labor law attorney about it, because this is the only remaining gray area. Personally, I believe that there is no “hiring entity” in a rental salon, so be sure to bring that up in your discussions with whoever you consult with about your situation.

  14. As a booth rental salon can the rental agreement stipulate common area maintenance charges for amenities, i.e. cleaning services, towel service, front desk support as well as the option for use of front desk closing credit card transactions only less an admin fee? ( essentially operating as square or Venmo)? Should the booth renter agree to the support (not mandatory) ?

    • I would recommend against the credit card processing entirely. They should be using their own payment processing system.

      Any amenities you include that are basically mandatory (cleaning services and front desk support) should be included in the rental rate, not charged separately. Optional amenities (for instance, towel service) can be something they opt-in to for an additional fee, though.

  15. Thank you so much for this article! We are having the same issues here in Sacramento. Everyone has “spoken to multiple lawyers” but they are just spouting the same stuff. What states are already employing the ABC test so maybe we can get advice from attorneys in those states that are already accustomed to the laws being put in place?

    • That’s exactly what I said when people first started panicking, lol. None of them seemed to realize that ABC isn’t this new thing that was going to “illegalize booth rental.” If that were true, nearly half the country would be prohibiting it, and they aren’t. They’re just making sure that their rental businesses are appropriately licensed and their renters are signing proper lease agreements.

  16. Hi Tina this was so informative! I am gaining a better understanding of all this but would like to get clarification to my specific situation. I am a booth renter in a salon..the salon owner works as a stylist. Is it my understanding that to retain our “independence” we each should have separate lease agreements with the building owner? We are looking in to the LLC options or potentially forming a partnership. The most confusion part of all of this is the “owner not being allowed to work as a stylist” situation. We are worried about losing the great relationship we have as a team/family. Thank you

    • Hi Cammi! I recommend talking to an attorney about your situation. Those who are advising my clients in California are having the salon landlords distinguish the salon as rental facilities, where the landlords are tenants operating under separate business licenses (creating two distinct business entities–one for the rental salon and one for the landlord’s beauty business), but I wouldn’t advise moving forward with that without the guidance of a qualified attorney. There may be other options available to you as well, like changing the business from a rental facility to a collaborative, but that’s WAY outside my pay grade, so for sure make an appointment to talk to a lawyer in your area.

  17. Hi Tina

    Thank you for this article! Great read with interesting points (and literally one of the only articles I found informative of the whole situation) I have been scouring the internet, asking fellow shop owners, seeking legal advice, and it seems as though everyone is almost waiting for everything to “go in effect” before taking any action. I say that in quotes just because this whole issue has been making a lot of barbers/stylists nervous, including myself as a shop owner. I just want to be compliant at the end of the day.

    I currently own and run a barbershop in SoCal where my barbers are all booth rental terms. The idea of restructuring the business description with my landlord from a barbershop to a “booth rental” business on the lease, seems great, but we kind of have a gray area already… My shop is located within an unincorporated part of my home town county, meaning I DO NOT need a business license to open or operate at all. If I keep my barbers on booth rental terms while also not needing a business license to be open, are we in the clear?

    • Hi Rich!

      The reason it seems like everyone is waiting is because they sort of are. With the change in leadership, a few things are still in the air. The general consensus (between the employment law attorneys who are working with my consulting clients) seems to be that establishing two separate businesses and changing the branding and marketing to clarify the nature of the rental business is the way to ensure compliance. However, you’re having to deal with municipality level laws, which introduces another level of complexity. In my opinion (which isn’t worth a whole lot because I’m not an attorney and I don’t know anything about your local city laws), a clear lease will go a very, very long way towards a successful argument supporting compliance (or at least very strongly attempted compliance, which is about the best anyone can hope for given the current situation).

  18. Hi Tina
    With all of this…
    If I start selling my own retail in the salon where I’m renting , do I have to pay the salon/owner a percentage?
    Is that their option to put in a revised lease?
    I’m confused. What’s legal?

    • Hey Eric! As far as I know, there are no laws in California (yet) regarding the handling of retail sales in rental salons. Personally, if I were consulting for an owner considering that practice in that state, I’d advise against it, but I don’t have a statute or case law to point at to justify my rationale–only that I would consider it a risky proposition in California.

  19. Thank you Tina for all of this I formation. I am currently renting a space in the salon and the “hiring entity” has messaged everyone that we need to clean the bathrooms and wash the windows. Is this something we should be taking care of? We are also now I charge of supplying trash bags and cleaning supplies.

    • No. The facility owner needs to be handling maintenance themselves or outsourcing it to a third-party company. You are not their employee and they cannot direct you in that way. You aren’t their janitorial service, nor are you responsible for handling the cleaning supply inventory. Those things need to be managed by the facility owner, which they can easily do with the rent revenue. If that means an increase to cover those costs, that’s what it means, but trying to put tenants on a chore schedule or require them to do maintenance like this isn’t at all appropriate.

  20. Hey Tina , so I’m commission in my salon so does that mean i have to be a employee. Or do i have to be rental ? I’m so confused on all of this .

    • If you’re on commission in any salon, you must be an employee. Self-employed professionals control their own revenue entirely. If the salon owner takes payments from the clients and pays you, unless you are an ACTUAL freelancer working an event contract (which is highly unusual and extremely unlikely), you must be classified as an employee.

  21. Tina thanks for all the clarification on a tricky subject. I am getting ready to open a small rental salon and was wondering how to handle “owner” as a renter. I think your suggestion of having 2 licenses makes sense, 1 for my rental business and one for my beauty buisness seems like the best way to be in compliance!

    • I don’t just recommend two separate licenses, but treating the businesses as two entirely separate entities (because they are). That means separate bank accounts, separate merchant accounts, etc. The attorneys my consulting clients have spoken with recommend keeping the businesses as separated as possible legally and financially.

  22. Hi Tina, thanks so much for all the great info. We are in WA state and this is just all being ready to go to senate on the 28th. My question is my husband and I own a salon and barber shop we both are licensed practicing in these shops and I believe we are in compliance with all the rules, we booth rent only and they all sign a lease get their own keys and we have no say in their business, but my question is we (each stylist including my husband and myself) all pay a receptionist to come work 3 days a week. We all agreed on a price and that’s how she gets paid. Is that ok or would she need to be considered an employee and how would I go about that?

    • Yikes. The receptionist–regardless of the state–needs to be an employee. Without question.

      As for the bill being proposed in Washington State, it bears very little resemblance to the Dynamex ruling. I’ve emailed the sponsors of the bill for clarification, but it appears to me that the new regulations will prohibit salon owners from practicing cosmetology in the same buildings where they lease space–requiring them to run proper rental facilities. The proposed legislation prohibits anyone who holds a salon/shop license from renting space at that location–and the details of the wording are worth paying attention to. According to Washington’s regulations, it appears that renters themselves (anyone who provides personal services or runs a salon business) must have a salon/shop license. Salon landlords are only required to hold a Certificate of Registration (RCW 18.16.175), which is not a salon/shop license.

      The only people who are likely to be affected by that bill are salon owners who operate their own cosmetology businesses AND rent space within the same building.

    • An attorney familiar with your business and the commercial landlord/tenant laws in your area. Never entrust your salon’s most critical legal documents to a template or generic boilerplate found on a random website and definitely don’t attempt to write them yourself.

  23. When I was first hired, I was told I’d be an independent contractor and issued a 1099. However, I do not pay rent, wear a uniform, an required to work on certain days, and am issued a check twice a month. The owners take 1/2 of the services I perform and then deduct an additional “product fee” from my 1/2 of each service. A few years later I was advised to incorporate(by their tax lady)so I don’t receive a 1099 form anymore but am paid the same way. Is this legal?

  24. Hi Tina,
    I am going to be renting a booth soon. I was told by the landlord that I cannot sell retail products. Is this legal?

    • Landlords often create retail boutiques in their rental facilities to help subsidize the cost of rent. Typically, this works out really well (when done correctly) as it helps defray operating costs, resulting in lower rent rates for the tenants. So, it is legal for the landlord to prohibit tenants from competing with that retail business, but you should ask the landlord if they plan to pass those savings onto you–otherwise, you don’t have much incentive at all to move their products.

  25. Hi from San Diego. I currently own a 9 station salon and pay an hourly/bonus structure (AKA piece rate). There is a huge saturation of salon suites in San Diego. After all this went down I know a lot of owners that closed shop or reclassified at both rent. I am having a hard time finding stylists that want to be employees. I get calls all the time asking if I am a booth rental salon. Is it possible to have both booth renters and employees under the same roof but under completely different business entities? Would I have to somehow design my salon to separate to the different structures? Could I still be the owner of the employee run business and my husband have a completely separate entity for booth renters?

    • It doesn’t sound like it. The attorneys I’ve been speaking with are advising against having both under the same roof. The wording of the legislation implies that the businesses must be physically and legally separate. When they are not separated, you are technically involved in the same trade/business as the renters, which presents a clear conflict of interest.

  26. Hi Tina,

    I have a bridal beauty wedding booking service where I connect brides and their bridal party members with licensed stylists to work their event for their bridal beauty needs. Each stylist holds their own separate license and has a separate business/client list and book aside for the contracted bridal beauty work they provide for the contracted brides. I am also a stylist and assemble a team as needed for the work the bride has requested. Does this make me non compliant with part B of the ABC test?

    • Probably, but I’d recommend talking to an attorney about it. The ABC test was specifically implemented to curb the gig economy to stop so-called “technology companies” (like Uber and other apps that connect workers with customers). Since your business very much does fall into that category, you’ll likely need to make some changes to ensure compliance.

  27. Hi Tina!
    I’m a salon owner/stylist in so cal. I have 8 stations rented, 2 stylist who started selling retail when they heard about the new law(without consulting me-owner). I understand they’re not my employees but as a salon owner can I have policies where only my retail can be sold? Aside from subsidizing the cost of rent wouldn’t it be a liability?for example If they’re clients get an allergic reaction to a product they’re selling, the complaint would come after the owner right? Should we have them get their own liability insurance and are we allowed to raise up the rent since their going to be retailing?

    • You can absolutely restrict them from selling retail as a condition of their lease. That’s not abnormal nor illegal in California (or any state). They should also be carrying their own PLI policies, since they are self-employed. Most renters don’t understand that retail sales from the landlord’s retail boutique help keep their rent low, so have that discussion with them and ask what they’d prefer: higher rent (and the ability to retail) or lower rent (and no ability to retail). They can’t have it both ways if you’re using retail sales to help keep their rent reasonable.

  28. Hi Tina ! Myself and other stylist in the salon we rent in are having difficulty with the owner on what she can state and not state in our lease agreements. The lease aggreament states the dates, amount and how to pay the rent due. I buy my own supplies from color to tools (everything I use I buy) She provides shampoo area products, towels and a booking system that is included in our rental agreement lease. My lease is coming up for renewal and the new lease agreement has a dress code and for us to wash/fold towels and I’m sure a few new things they are requiring us to do. Is this a booth rental lease agreement, meaning I’m a renter not an employee or IC or would I be considered an IC/employee? Thank you !!

    • Hi Elizabeth! She can’t require you to wear a uniform, but if you guys are working in an open-air facility (no walls), then she can set forth attire requirements, as you’re operating from what is considered a “common area.” (Other open-air co-working spaces, like WeWork, have similar conduct and attire rules, but they’re very generalized). She cannot require you to wash/fold towels or perform other salon chores. She should also NOT be providing a “booking system” (nor should you be using it).

  29. *** sorry I forgot to ask.. including our rental agreement is liability insurance, is that for coverage for us or the salon ? I was under the impression that this is for the salon not our individual liability insurance we pay ourselves. If it is her ownership insurance for liability for the salon is she allowed to have us pay that included in the booth rent ?
    Thank you again ?

    • Whether she discloses her operational costs (including liability insurance) to you or not, you’re paying for all the facility’s operational expenses. That includes CAM (common area maintenance), utilities, insurance, the landlord’s salary, the paper towels–literally everything. Most owners wrap all that up into your rent without disclosing it, but for some things with variable expenses that may change annually (like insurance), they may put it on a separate line item, so if it increases next year, you’ll see that reflected in your rent and on your rent statements.

      Whether it’s general or professional liability insurance doesn’t really matter. Owners and renters alike should be carrying their own PLI policies. (I don’t recommend that either of you trust the other to maintain one.) The GLI is the responsibility of the person leasing the building, but there’s nothing wrong or illegal about passing that expense onto the tenants.

  30. Hi Tina. A recent popular nail Instagram account posted opposite info about this topic. I questioned her and why she didn’t read your article so she would understand she was giving out false info. Her reply to me was, “Unfortunately, her post on Dynamex is almost a year old and no longer correct. I’m working with two leading industry advocates along with the priory consultant to the senate committee, and am in contact with rep Gonzalez who wrote the bill. There is a lot going on behind the scenes and there is also A LOT of misinformation going around. I did delete Superflynails’ comment as it was creating confusion by referencing Tina’s post on the subject.I want to make sure that the info going out is correct, based in fact, and reflective of what is happening with the most updated info”. I am so confused and freaked out. Just wanted to know if this info has changed. Thanks for all your help.

    • The facts in this article remain the same, but the situation has changed, as California has stated that they will be enforcing retroactively (which is not a big surprise, since misclassification has always been illegal). They’ve been working towards finalizing a clarification, but things are STILL up in the air. Recently, I heard they were planning to make rental illegal for nail techs but not barbers, cosmetologists, or estheticians, which is very similar to a stupid thing they tried to pull in Washington State recently. This is yet another situation where enforcement of current laws would suffice but legislators are instead introducing new restrictions.

      I do have plans to update this post with the most recent information, but until they reach a final resolution, I’m not going to play the guessing games or contribute to the fear mongering. For now, my recommendation stands–keep your eyes and ears open, and be present and loud during the process.

  31. If my salon owner asked me to sign my lease agreement in front of her after i explained to her i was in the middle of a busy work day, and she responded casually that it was all the same as my last agreement… the only changes in the agreement were for retail and i signed it 1 because i trusted her and 2 because I felt intimidated/ awkward in the moment to have to sign it and now i find out that instead of it being a rental agreement where i was only liable to pay for 30 days in the previous contract, now to find out I actually signed a lease agreement on a fixed term for this year…. shes saying im liable for the entire year or to find my replacement…..can the contract be voided in any way?
    I am a self employed Booth Renter who now has a salon owner that is compliable to the laws but that wasnt always the case in California. I am currently injured and cannot work in order to pay her.

    Thank you so much for your help.

    • Rental agreements are lease agreements (it really doesn’t matter what the header of the document calls it as there’s no legal difference). California, last I checked, doesn’t dictate that salon lease agreements have a year-long term. She would have been in compliance with a month-to-month lease.

      Regarding your specific situation, you’ll need to talk to an attorney. My opinion (which is supremely uninformed, btw–I’m not a lawyer, nor have I seen the contract) is that no, the contract can’t be voided in this situation. As far as the circumstances under which you signed–it will be your word against hers.

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