As we know, Assembly Bill 5 (AB5) is a law that affects how companies, both in-state and out-of-state, can classify workers as independent contractors throughout the state of California. It has brought significant changes to many industries, the beauty industry included, radically affecting the way employers must conduct business. With worker misclassification suits gradually growing, we’re here to help you and your business navigate the complicated nature of AB5. Here is a breakdown of how AB5 affects hairdressers.

What is Assembly Bill 5 (AB5)?

Assembly Bill 5 (AB5) codifies the “ABC” test, set forth in the Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) ruling. Effective January 1, 2020, AB5 makes this test the default standard for worker classification throughout the state of California. The test determines whether a worker is an employee as opposed to an independent contractor, and places the burden on the hiring entity, or employer, to prove otherwise. For the hiring entity to classify a worker as an independent contractor, it must demonstrate that all the following conditions of the “ABC” test are satisfied:

1. The person is free from the control and direction of the hiring entity in the performance of the work.
2. The person performs work that is outside the usual course of the hiring entity’s business.
3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Parts B and C are two new factors that were never before part of California’s independent contractor analysis under Borello, the previous multi-factor test from S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989).

Recently, California Governor Gavin Newsom signed a new law on September 4th, 2020, titled Assembly Bill 2257 (AB2257), that amends certain sections of AB5. Although the “ABC” test remains the default standard for the independent contractor-employee classification, there are new statutory exemptions from the test, which apply retroactively where applicable, as well as changes to existing exemptions.

Hairdressers are Exempt from AB5

Under AB5’s “Professional Services” carve-out, hairdressers (defined as a licensed barber or cosmetologist) are exempt from AB5.

Because a hairdresser would normally be considered to be performing services that are within “the usual course” of a salon’s business, the salon (or hiring entity) can never truly meet part B of the “ABC” test. So, AB5 provides an exception for certain workers in the beauty industry, including barbers, cosmetologists, estheticians, electrologists, and manicurists.

This means that the independent contractor status of hairdressers will be governed by the Borello test, and not the “ABC” test. However, in order to be governed by the Borello test, the individual worker, or hairdresser, must first meet all of the following conditions:

1. Sets their own rates, processes their own payments, and is paid directly by clients;
2. 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;
3. Has their own book of business and schedules their own appointments;
4. Maintains their own business license for the services offered to clients, in addition to any required professional licenses or permits; and
5. 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.

Key Takeaways

Salons seeking to take advantage of this exemption must exercise care and diligence in implementing an agreement and course of conduct with the hairdresser that meets the five requirements. In order to avoid the probable risk of misclassification under AB5, we recommend companies engage legal counsel to assist with an independent contractor analysis and to craft written independent contractor agreements that accurately reflect the actual business relationship between the salon and the hairdresser.

If you need any assistance with an independent contractor analysis or crafting a legally compliant independent contractor agreement, contact Hackler Flynn & Associates.

DISCLAIMER: Content within this post should not be considered legal advice and is for informational purposes only. Communications made through this post do not create an attorney-client relationship. Hackler Flynn & Associates is not responsible for any content that you may access from third-party resources that may be accessed through or linked to this post. Hackler Flynn & Associates is only licensed to practice in California.