A recent ruling by the Supreme Court of California that restricted classification of independent contractors has tattoo, salon and barber shop employers unsure of what lies ahead, according to local small business owners.
The ruling in the case of Dynamex Operations West v. Superior Court this past April allows the state to assume all workers are employees unless their work passes an “ABC” test for independent contractor classification. The three-pronged test outlined in the ruling states that the employer must prove:
(A) that the worker is free from the control and direction of the employer
(B) that the worker performs work that is outside “the usual course of the hiring entity’s business”
(C) that if the worker is “customarily engaged” in an independently established business, then the worker should be considered an employee and the hiring business an employer
Dynamex workers were the plaintiffs in the California ruling this past April. They argued that the company treated them like employees, but misclassified them as independent contractors. Dynamex is a courier company that employs truck drivers to deliver goods. The court ruled in favor of the worker and thus created the ABC test to prevent other companies from employee misclassification, according to the ruling.
Although some businesses that hire independent contractors can satisfy most aspects of the test, the B portion is what works against employers, according to Sharrion James Salon owner Sharrion Johnson. That provision disallows independent contractors from performing the main work that the business offers. Therefore, a salon cannot hire an independent contractor who is a hairstylist, but can hire an independent contractor who offers something outside of hairstyling, such as nail or makeup design.
Johnson said she might have to resort to having a different type of business to at least keep the salon going on the side. “I would probably try and restructure my business and turn it into a beauty supply store because I know beauty supply stores have salons inside their businesses,” she said. “But I have to figure out – probably through an attorney – what to call my business.”
For small business owners in the cosmetology industry, Johnson does not see resorting to restructuring one’s entire business as a feasible option.
Stephanie Stomp, owner of Envy Beauty Studio in the East Village Arts District, also noted the disadvantages to the court ruling, especially for small business owners. Stomp found that having employees might be an easier option than complying with the ABC test. “Now that I have to turn my [contract workers] into employees, it’s really taken a hardship on me. My business license costs more now because I have employees and I pay payroll and unemployment taxes,” she said.
She also did not think established hairstylists would want to become employees because they would make more money renting a chair in the salon. Yet, many small business owners in the industry do not or cannot structure their business to have renters, according to Stomp.
“It’s totally going to discourage my opportunity to bring new talent in because I’m in a developing area over here, so we don’t have a lot of the walk-in traffic that some of the other areas of Long Beach have,” Stomp said.
Mikey Vigilante, owner of Paper Crane Tattoo, found the ruling to work against the tattoo industry as well. “Tattoo artists prefer to be independent and masters of their own destiny, and having a tattoo shop allows them [the space] to do that,” Vigilante said. “If they were to become employees, the culture would essentially die. I don’t know how we’re going to survive if they enforce it.”
Vigilante thought that although the ruling would protect those in other industries who may be misclassified by their employers, that the tattoo industry would take a big hit. “What I would like to believe is that the people who are enforcing the law and making these Supreme Court rulings are able to look at this and act in the best interest of the people who they’re trying to protect,” he continued. “I hope that it’s not a tax grab where they’re trying to collect revenue and payroll taxes and that type of thing.”
Owner of barber shop The Broken Comb, Jeff Farley, thought the ruling was not intended for the barbering, cosmetology or tattoo industries, but rather toward courier or driver services such as Dynamex.
According to Farley, driver service companies like Uber and Lyft might suffer because they only employ independent contractors to perform the core services of their business. Yet, within his industry, Farley thinks there are ways to comply that would affect them less.
For example, Farley has a renter that simply takes up the chair next to him. He is not an employee but rather a renter who operates his own barbering business. Farley argued that if a worker has his or her own license and pays the rent on time per contractual agreement, then barber, salon or tattoo shop owners would not be qualified as employers, but as property owners renting out their space.
“For Danny [who rents the other chair in the shop], there is zero compensation from The Broken Comb to him. He pays The Broken Comb rent, and The Broken Comb claims that rent as income,” Farley said. “Because of the way we operate within our situation, we are well within the three rules.”
Whether the state will appeal the ruling or continue to enforce it remains in discussion. The California Chamber of Commerce is advocating for the courts to consider delaying enforcement of this ruling for a year so business owners and independent contractors could find a way to make the ruling work for them.
Until the court’s ruling regarding independent contractors is appealed or its enforcement is delayed, business owners and freelance workers have to re-examine their current work situations to confirm their compliance with the ruling.