First things first, SB 5326 bears absolutely no resemblance to the Dynamex ruling in California. The Dynamex ruling was a clarification and simplification of existing worker classification standards (referred to as the Borello test). Dynamex was clearly designed to address the damage being done to California’s workers by the gig economy (Uber, etc.) and similar businesses that—for whatever reason (perhaps selective ignorance)—didn’t understand the 11-factor Borello test.
In this article, I’ll break down every element of Washington State’s proposed bill, SB 5326, (including all the amendments and additions), but here’s the short version:
SB 5326 prohibits someone who holds a salon/shop license from renting space to people at the licensed location.
Pay attention to those italicized words.
When reading legislation, it’s important to consider the language used and ask why legislators chose those exact words and phrases. Is there an easier way to communicate a broad prohibition against booth rental? Absolutely. Both New Jersey and Pennsylvania provide excellent examples—but we’ll get to them in a little while.
Most people read bills and take what they read at face value without paying close attention to the details of the wording and the established facts (none of which are as straightforward and intuitive as we’d like for them to be). If you assume all salon owners are required to have salon/shop licenses then you’re going to read SB 5326 as a prohibition against rental entirely. However, if you read it with the assumption that landlords who provide coworking spaces to beauty professionals aren’t required to have salon/shop licenses, then you’re more likely to interpret it as a prohibition against a landlord practicing cosmetology in the same facility where they lease coworking space to beauty professionals.
It seems like Washington is telling salon owners: you are either a landlord or you are a salon owner. You cannot be both (at least not in the same building).
The problem we’ve had with booth rental and “hybrid” salons—as an industry—are that salon landlords tend not to know their place. States see these landlords working in the salon, calling themselves “the salon owner,” and often exerting controls over their renters they have no right to exert. Their labor departments get bogged down in wage complaints and misclassification reports from beauty professionals to the point that legislators take notice and start devising solutions—not only because it hurts their workforce and creates an atmosphere of unfair competition but because the states themselves lose tax revenue, a problem exacerbated by the increased pressure being placed on the agencies tasked with enforcing existing state wage and labor laws.
Because renters (who are considered “salon/shop owners” and people who “perform personal services”) are required to attain and maintain their own salon/shop licenses in Washington, a proper landlord who isn’t practicing as a salon professional within the facility should be able to rent space, since I don’t see any regulation obligating them to hold a salon/shop license themselves. Salon landlords—who are in the business of leasing space to beauty professionals, do not technically own businesses that provide personal services to customers—only appear to be required to hold a Certificate of Registration (RCW 18.16.175), which is not a salon/shop license. It appears that salon landlords (who only lease space and do not perform services on clients) wouldn’t be required to hold a salon/shop license any more than they’d be required to hold a cosmetology license since they are not operating salon businesses or performing services.
Now, here’s the longer version:
RCW 50.04.225, summarized, basically states that booth renters are not considered “employed.” The word “employment” doesn’t apply to them. SB 5326 would amend this to carve out an exemption for licensed barbers who pay a fee for use of the barber shop and receive no compensation from the owner of the barber shop for services performed—so, booth renting barbers.
RCW 82.04.360 is a further clarification of the exemptions applied to independent contractors and booth renters. Basically it says, “Booth renters are independent contractors for the purposes of this section of the law. When we use those words, that’s what we mean.” SB 5326 would amend 3(a), removing “cosmetology” from the list of services performed, but—again—suspiciously does NOT remove “barbering, esthetics, or manicuring services.”
This specific carve out for barbers and specialists is extremely fishy and something you should be asking questions about.
I can see no logical reason for carving out barbers (and the specialists) exclusively. So, if you’re going to start a riot over anything, start there. There’s no valid reason for “…and cosmetologists” to be excluded from the amendment to RCW 50.04.225 or from RCW 82.04.360. Demand to know why.
Everything beyond that seems very straightforward.
RCW 51.12.020 provides list of people who are excluded from the mandatory coverage of Title 51. (People who are required to be covered by industrial/hazard insurance.) SB 5326 would remove #12 (“Services performed by a booth renter…”) from that list, removing all renters (including barbers and specialists, apparently) from the list of exempted professions. So, salon landlords will have to carry industrial/hazard insurance like the majority of other business owners in Washington seem to be required to.
Now we’re getting to the new regulations proposed (on page 1 of the bill). These would be added to RCW 18.16 (Washington State’s cosmetology regulations). Summarized, these amendments state:
1.) The obvious. Renters are denied eligibility for unemployment insurance/industrial insurance. This exemption gives rental salon owners an unfair advantage, since they’re skipping out on those costs. That’s why 51.12.020 exempts renters from that list, making salon landlords carry the appropriate hazard insurance so those renters are covered and protected. Really, this will likely work out best for salon landlords, as it might keep them from being sued by their renters for injuries that occur in their facility—but the intricacies of Washington’s insurance regulations are above my pay grade and beyond my willingness to research.
2.) A prohibition, disallowing anyone who holds a salon/shop license from renting, leasing, or subleasing at the licensed location. This may mean a broad restriction against rental, but it might not. The wording makes it seem as if the prohibition disallows hybrid (mixed employment and rental) salons. Until we receive clarification from the bill’s sponsors, nobody can say for certain, but this might mean that salon owners who want to rent space will have to separate their rental businesses from their salon businesses, legally and physically, by establishing two separate business entities and two separate locations.
One of the reasons everyone should settle down: rental isn’t exactly entirely prohibited in any US state, including New Jersey and Pennsylvania.
New Jersey and Pennsylvania have banned chair rental; not suite rental. Both Sola and Phenix (among others, I’m sure) have opened locations in both states. In an article with TribLive, the owners of the Pennsylvania Sola locations (Steven Bruener and David Raduziner) said it wasn’t easy getting the approval for the business because “booth rental” (chair rental) is prohibited, but they were “vetted” by the state board.
Oddly enough, both New Jersey and Pennsylvania use similar language to that found in SB 5326 in their own regulations, but they’re much more blunt about that prohibition on chair/booth rental.
13:28-2.8 LEASING SPACE PROHIBITED
No holder of a shop license shall lease or sublease space or provide space on the licensed
premises to a non-employee for the purpose of providing cosmetology and hairstyling, beauty culture, barbering, manicuring, skin care specialty, or ancillary services as part of a separate business to be conducted by the non-employee. Practices commonly known as chair rentals or booth rentals are prohibited by this section.
Section 8.1. BOOTH RENTAL PROHIBITED
The rental of booth space by an owner of a cosmetology salon, or the owner of a salon limited to esthetics, nail technology or natural hair braiding, to any holder of a license issued under this act is unlawful.
“…holder of a shop license…”
“…an owner of a cosmetology salon…”
Similar, right? Definitely not identical, though. They really hammer that prohibition against rental down with language nobody could creatively (and conveniently) misinterpret.
We could research the details of facility licensing in NJ and PA the way I have with Washington State, but honestly, it’s late, I’ve been fielding emails and comments about this every waking hour for the last week, and I’m too tired to care. The wording seems pretty clear and the surrounding facts (specifically the existing legally operating rental facilities currently operating in both states) support my hypothesis. States like NJ, PA, and Washington don’t appear to have any objection to properly structured rental businesses—they seem to object to inappropriately managed “hybrid” salons and landlords who don’t know their role.
As with Dynamex, I suspect that the only people who are likely to be affected by this are salon owners who operate their own cosmetology businesses and rent space to professionals in the same facility, but I’ve written to SB 5326’s sponsors seeking clarification. I’ll be making calls to each of them this week also. In the meantime, I recommend not signal-boosting the hysteria, especially if you live in Washington State.
Instead of spending hours speculating about SB 5326 online, do what I did and spend ten minutes composing an email and sending it to the people who are most capable of answering your questions.
While I’m still awaiting confirmation, I feel strongly that my assessment is likely to be correct specifically because the rental chains aren’t all over the media about this. If this threatened Sola or any of the other suite businesses, without a doubt, they’d be too loud about it to ignore. If corporate interests are unconcerned, generally there’s a reason for it—but that doesn’t mean you shouldn’t be in the ears of those Washington State legislators about those suspicious-looking carve outs though. Get on it.
Section 2 of SB 5326 Removed
King5 News in Washington confirmed that Sen. Karen Keiser removed section 2 of SB 5326 after hundreds of hairdressers complained about the proposal. Currently, the petition on Change.org is up to over 55,000 signatures. You can add yours here but after you do that, send them a fax or give them a call. (Don’t assume that a 5-second e-signature will be sufficient. Cover your bases.)
To be clear, removal of section 2 does not remove the prohibition against a practicing salon owner from leasing space.
So, as it stands now, practicing cosmetologists cannot lease space to other practicing cosmetologists. SB 5326 still puts salon owners in a position to choose a career as a landlord or a salon professional. The requirement to either cease practicing or split your business into two distinct entities still exists.
Representative Matt Shea called SB 5326 “a solution in search of a problem,” and as someone who has worked in this industry and is all too familiar with the exploitation that occurs in many rental salons, while I can’t agree with the notion that a problem doesn’t exist at all, I can agree that his assessment of SB 5326 is largely accurate. Shea also said that SB 5326 “unnecessarily and unfairly…targets women.” Absolutely correct. The carve outs for barbers and specialists were illogical and utterly indefensible.
I find Senator Keiser’s claim that the original bill was simply “a proposal for tax fairness” as laughable as her claim that a “small hair salon in Spokane” was alone in instigating this debacle. While the President and CEO of Gene Juarez denied that he was among the business owners pushing for the bill, he appears to support it, saying, “…myself and this company agrees that everybody in the industry should be held to the same standard.” He also claimed he is not and will never be against booth rentals but supports the tax fairness initiative. However, if tax fairness were the true goal of this bill, those exceptions for barbers and specialists wouldn’t have existed at all.
“Everybody in the industry” should include everybody in the industry; not just cosmetologists.
If state legislators truly desire tax fairness and level playing fields for business owners, they need to start by enforcing existing employment classification laws and punishing people who are already in violation—stealing wages, evading taxes, exerting inappropriate control over so-called “self-employed” professionals, and enjoying the lower costs and liabilities that come with those illegal tactics.
Business owners are already ignoring and willfully violating existing wage and classification laws without consequence.
Without adequate enforcement of existing legislation, passing new laws will accomplish absolutely nothing, serving as a symbolic victory at best.
SB 5326 is going “back to the drawing board.”
Senator Keiser announced that she has removed the section banning booth rentals and has expanded the scope of the bill to include barbers.
Common sense dictates that level playing fields, by nature of their definition, need to be level.
Keep the pressure up. For those of you in Washington State, plan to be at the public hearing in Olympia at 10 a.m. on Monday to let the Senate Committee on Labor & Commerce know exactly what you think of SB 5326. Read this to learn how Washington State expects attendees to testify and prepare accordingly.
Statement on SB 5326’s public hearing.
Senator Karen Keiser released a statement on January 28th regarding the public hearing on SB 5326 where she continues to claim, “The original bill was not fully understood as a proposal for tax fairness, which remains its primary goal.”
You can read that statement in its entirety here. In it, Sen. Keiser presents two different salons:
- An employment-based salon with six stylists, each of whom generate $50,000 a year, resulting in $300,000 of revenues annually that the salon owner must pay B&O (gross receipt taxes) on.
- A rental salon with six renters, each of whom generate $50,000 a year, resulting in the same amount of gross sales, but because each individual renter operates as a separate small business and none of their revenues are high enough to meet the $56,000 B&O minimum tax rate, those $300,000 are exempt from B&O taxes.
Senator Keiser doesn’t seem to understand that she’s making an unequal comparison, nor that this “tax unfairness” situation wouldn’t be unique to our industry.
First of all, the $300,000 in gross receipts are not “the same.” You are comparing the combined gross receipts of a salon with six employees to six independently owned and operated microsalons, each with $50,000 of revenue. Each business must be seen as separate entities. The gross receipts of six combined small businesses may equal $300,000, but they are not comparable because they are not operating as a single entity. Each has different management, different costs, different strategies for offsetting those costs, different services, different products, different protocols, and most importantly, each one of those independent businesses has exactly one employee—who also happens to be the owner.
Stop comparing apples to astronauts and make a comparison that makes sense. The only situation in which the B&O threshold isn’t “fair” is one in which a booth renter or landlord who generates over $56,000 is somehow exempt, which isn’t the case.
In the statement, Sen. Keiser claims to have modeled her bill on those found in NJ and PA—bills that did effectively ban booth rental in those states, so that invalidates her claim that the bill wasn’t “intended” to ban booth rental. But you know what? Those laws didn’t solve the problem of tax unfairness in either state.
If “tax fairness” is truly the issue, lower the B&O threshold for ALL businesses.
SB 5326 only curbs this “problem” in one industry. What about the other sole proprietorships generating less than $56,000 annually? Why are beauty professionals being singled out on account of our profession? What makes our “activities” more taxable than those of other self-employed business owners?
- What about a bookkeeper who leaves their job and goes into business for themselves, renting a desk in a coworking facility? What makes her $50,000 annually any different than ours?
- What about a tech consultant who leaves their consulting firm and starts their own solo practice from home? What makes her $50,000 annually any different than ours?
- What about attorneys?
- What about tax preparers?
- What about general contractors?
- What about real estate agents?
- What about domestic workers?
- What about home health care professionals?
- What about freelancers?
- What about professional tutors?
What about literally all of the other solo business owners in every industry? What makes their revenue less taxable than ours? Tell me again how this creates “fairness.”
Sen. Keiser is proposing that our small businesses should be subject to taxes that other small businesses are exempt from. There is absolutely nothing “fair” about that.
Plan to be at the next public hearing on Monday at 10 a.m. to let Sen. Keiser know that her revision doesn’t solve the problem and does nothing but create more unfairness.