Barbershop Workers Quit After CA Supreme Court Ruling Redefines “Independent Contractor”
California’s #1 Rule: The Law of Unintended Consequences
Truly, the only law that California’s politicos in Sacramento follow to the letter is the one related to unintended consequences.
By way of background, this spring the California Supreme Court changed the way independent contractors are classified in this state. The court-mandated approach makes it much more difficult for employers to put employees under that label.
The April 2018 court ruling now says workers are assumed to be employees unless all three of these factors can be proven:
(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such 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 for the hiring entity.
There are about 2 million workers in this state who would normally be considered “independent contractors” in states’ in which laws are based on reason and sanity. Among those workers are those who provide services in beauty parlors and barber shops.
The impact is already being felt in Sacramento, as one barber shop has lost all seven of its service personnel.
The work doesn’t stop at Downtown Sacramento’s Bottle and Barlow, even if it became a one-man shop.
“I lost my entire staff,” said owner Anthony Gianotti.
…Historically, the cosmetology industry, which includes barbers and hair stylists, have been classified as independent contractors, but that won’t be the case anymore. Gianotti explains the new rule.
“That you cannot classify someone as an independent contractor if they offer the same service that is the primary business of the business.”
The consequence of this new rule, then, is that a barber, hair stylist, or other personal care professionals can no longer work in a barbershop, beauty parlor, or similar establishment as an independent contractor, where they typically set their own hours and arrange for their own pay. Instead, they are forced to become employees of the business on an official payroll.
The reclassification was driven by the exploding number of independent contractors in the state, which was motivated by employers trying to manage ever-increasing labor costs. The California Supreme Court adopted its 3-pronged requirements from a standard used in 22 other states. However, all of those states adopted their regulations through the legislative process, not the courts.
[Allan Zaremberg, president and CEO of the California Chamber of Commerce] said all but one of the states also have a broader B factor that an includes an “or,” allowing workers to perform a similar function as the hiring company’s “usual course” of business if it is at a different location.
Business groups are now asking the Legislature to a conduct a public review and update of California’s wage orders, which are more than a decade old, to clarify industries that should be exempt from employee classifications because don’t they fit the model anymore.
Senate President Pro Tem Toni Atkins and Assembly Speaker Anthony Rendon did not pursue the change as the Legislature finished work for the year.
Republican gubernatorial candidate John Cox has a theme, #HelpIsOnTheWay, which seems timely in the wake of this developing employment-based crisis. It sure seems the other branches of the state’s government will be offering none.
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Comments
Could the shop refactor it’s buisness model – be a space rental facility for barbers with a royalty share agreement as the method of detemining payment?
I was under the impression that things kind of worked that way. At least, the shops I would frequent the stylists were all *renting* the chairs and space. They weren’t technically employees of the salon, but they had to maintain certain standards and their hours were limited to the hours of the salon. However, inside of those things they were just renting the space.
“both under the contract for the performance of such work and in fact;”
Depends if they pay an inspector enough to not tell them that “in fact” they are lying. No conservatives need apply.
I would be SHOCKED if a GOP Governor won in California. Last polls showed him down 20+% and the way that Republicans are universally demonized in that state makes me very wary of any change in the near future.
The difference is 5 points, and Newsom and Cox are tied among hispanics.
https://legalinsurrection.com/2018/09/republican-cox-closing-in-on-democrat-star-newsom-in-california-governors-race/
Given that much of the electorate of the Republic of Mexico are voters in California, and yet are not polled for obvious reasons; any confidence in polling showing less than catastrophic news for anyone to the Right of Lenin is misplaced.
Why is is that, every single time, without fail, that a Dumb-o-crat apparatchik pol puts pen to paper and crafts economic-related legislation, it is guaranteed to hinder, stifle, interfere with, and, otherwise make more expensive and more onerous, all business-related and contractual activities undertaken by citizens and corporations?
As sure as the day is long, a Dumb-o-crat is physically incapable of authoring legislation that might actually support, encourage, and otherwise be conducive to business and economic activity.
Obviously that is not only true for lawyers in the legislature, but also for the lawyers in the court system.
How about a cigar shop that happened to have barber chairs?
This could have significant consequences for software businesses.
Granted independent contractor is often abused there, but there are also a lot of places where you need need specialized training, and there might be only five people in the world that do that sort of work. So it’s still software but…
I can see a lot of businesses moving out of California for that reason.
Not just software, Automation, Controls, Robotics and Material handling are going to get killed. Over 1/2 of us are self employed contractors. This would mean that if I went to work for an automation house for a 6 month contract job, they would have to W4/W2 me take out withholding, pay insurance (based on head count). Then pay UI when they ended my contract. Then on top of that what about travel expenses, Per diem ect, are those to be taxed as salary? Is so my rates just doubled.
You forgot Legal Outsourcing.
Follow the money. Under the old rules “Bill” who cuts your hair at the barber shop can be “Bill Smith, barber” in the eyes of the IRS and state tax people. He does all his paperwork at his home office (license updates, tax filings, etc) after hours.
As a business he could write off as expense his travel to a work site, a dedicated telephone and/or ISP connection, the rent he paid for his “satellite work location” –if dedicated to the work — and no one knew exactly how much revenue he generated, other than what was stated on the tax filings.
As an employee, the owner of the shop is responsible for keeping track of the finances and paying the various related taxes and fees. Bill’s drive to work is not a deductible expense, as the other costs of his “business” were. The net is that his gross income is documented from the start (and possibly more accurate) and his taxes are paid quarterly and he has workers’ comp insurance at the expense of his new employer. The state gets its grubby hands a little deeper into his pocket.
“The California Supreme Court adopted its 3-pronged requirements from a standard used in 22 other states. However, all of those states adopted their regulations through the legislative process, not the courts.”
During the previous hundred years, I think we’ve witnessed the rise of a new system of government I’ll call ‘Fascialism.’ You can surmise the 2 mash-up components.
An elected legislature can trample citizen’s rights just as easily as an unelected politbureau wearing black robes, so the fact that the fascialists in California chose that path is not surprising.
The fact that 22 other states have already enacted such legislation is alarming.
We’ve long been in ‘frog boiling’ territory where government views private business as its puppet, and this example is simply another set of strings to make private business dance for government’s enrichment. Sadly, these examples are legion.
And the message is clear: assimilate or else.
*Stop me before I metaphor again!*
Eh, I like the clarification that this new “law” provides. Businesses there will have to adjust soon, and to the extent they can’t make the numbers work, the legislature will have to give more flexibility, but how many bazillions of dollars have been spent litigating this heretofore very ambiguous standard?
Certain businesses have been abusing the system for years, by classifying what are essentially employees of the business as independent contractors. So, this decision is really no surprise.
In the case of cosmetologists and barbers, they generally work in a location where the primary [usually the only] services provided are those directly related to grooming. The location may “rent” space to the service personnel, but the shop usually sets the prices charged and schedules the hours that the personnel have to be in the shop. And, rather than pay a flat monthly rate for space [a chair and other facilities in the shop] they shop usually takes a percentage of the money collected for the services provided by the personnel. But, the real kicker is that these independent contractors usually do not have a business license for an established business. They are treat as and function as an employee of the business in which they perform their services. Virtually all states require that a person who runs an independent business, this included independent contractors, has to have a license for that business. They have to file business tax reports with the state, and, in some cases, the federal government. But, these :independent contractors” are not doing that. They are functioning as employees of the business which they service.
This could work out for them. They can demand the shop provide the tools of the trade, instead of the employees being required to provide their own. They should be able to work under the license of the shop instead of having to be individually licensed (yeah, sure the state will give up that fee income), etc. However, my experience is while the shop is open certain hours the “contractors” have a fair amount of flexibility within those hours. That obviously will no longer be possible.
If the Supreme Court hadn’t gutted the Privileges and Immunities clause in the 1880s or so, “business licenses” would be unconstitutional.
But, business license are NOT unconstitutional. So, your point is????
My point is that the constitution as written seems to ban them, and they only exist because the Supreme Court decided to ignore that clause.
It’s California, who cares? The sooner they go full-on Socialism the better example they’ll be for the rest of America. I’d be willing to bet those barbers voted for the Democrats. Yes, I know this was a judge.
It’s a simple principal – your earnings belong first to the state; you can have what the state figures it can’t get away with stealing, but only that.
In many businesses, the “independent contractor” claim is both a tax and an insurance dodge. Insurance issues include liability for the product, for the work involved in installing or maintaining the product, and for the employee’s health and safety. Look for health coverage dodges to increase everywhere, not just in California, as health care costs increase without foreseeable limit.
I like dumping on Californicate idiocy as much as anyone, but tax and insurance issues are not themselves strong evidence of creeping fascism. They’re the normal crap any government has to deal with.
California is gone. Republicans who try to salvage it are just delaying the inevitable while improving nothing. They will never be given the power to reverse any of the Democrats’ destructive policies, but they’ll be set up as scapegoats to take all of the blame.
Whatever happened to the California secession effort ?
It failed. But as the victimized barbers of CA would say: it was a close shave.
California is in chaos: there is no opposition party. There’s barely an opposition party in Congress.
After years of boehner/ryan/mcconnell/mccain/corker/graham/alexander/flake and the rest of the corrupt GOPe garbage infesting the Party in our name, what could anyone expect?
Wipe-out the rino rats, and the GOP just might rise again as a force attracting voters – especially in California. Remember: there are millions of registered Republicans in California, and millions of other voters sick of corrupt leftists destroying the state.
Throw out the GOPe garbage.
The one consistent attribute of liberals is that they NEVER think of the unintended consequences of their actions. Klinton bans manufacture of old-style semiautomatics, the people respond by buying 10+ million of them. Obummer decides that all full-time employees are entitled to health insurance, employers cut hours of as many employees as they can to 31 hrs a month. For every measure, there is a counter-measure put in place ASAP. All of those liquor stores in New Hampshire about 3 ft from the border with Mass. aren’t there by coincidence. Of course, if you are a conservative, the countermeasure is a loophole not in the spirit of the regulation.
Once a company hires someone, it is almost impossible to fire them, so the new tactic is to hire them as an independent contractor for 89 days to test them out first.
I don’t see how anybody could qualify as an independent contractor under those rules.
The first rule (“that the worker is free from the control and direction of the hirer in connection with the performance of the work”) suggests that merely monitoring the quality of the work is enough to squash contractor status. If you can’t monitor quality, which presumably implies some sort of control and direction, what’s the point?
The second rule (“that the worker performs work that is outside the usual course of the hiring entity’s business”) means you can’t be an independent contractor unless you’re doing work that no regular employee at the firm does. As the other poster says, sayonara to contract software engineering.
“that the worker is free from the control and direction of the hirer in connection with the performance of the work”
There’s a difference between monitoring quality and controlling the work. Controlling the work is defined as being able to direct the way the work is done (order of operations, location of the work if it is portable, manner of performing the work if there is more than one way to do it, time the work is performed like between 8 am and 5 pm, etc…).
Reviewing the quality of the work goes separately to whether or not the contractor has performed the contract to specification (usually “good and workmanlike” standard).
Well, good job California.
The State of California has effectively just killed legal outsourcing for every law firm in California (at least under these rules). Now, every low-rent motion writer in India that a lot of the big firms use to draft their form motions will classify as “an employee.”
This will be fun to watch. The small-time attorneys have been trying to figure out how to stop that type of outsourcing for years without success because it artificially lowered the big-firm cost of representation vs the small firm model. The Supreme Court of California goes and does it by accident.
Hmmmmm, so how does this work out for accounting firms that do the same thing at tax time.
California is nuts, but not lost. John Cox has a real chance at being governor, and he’s supported by common sense candidates up and down the ballot. I’m one of them, and people constantly say they don’t care about party; they can’t stand our new third-world existence. Here’s what our state looks like for many of us — https://youtu.be/WVpdbxJlpqw
And this is what happens when you have a micro-mismanaging legislature that thinks it knows it all but really knows very little.
You lose flexibility, sanity and reason and jobs are destroyed while nothing works.
I’m happy to see California become our poster child for Socialism and Leftist tyranny. To bad about the citizens.