What is Assembly Bill 5 (AB5)?
Assembly Bill 5 (AB5) is a California employment law that took effect on January 1, 2020. The law addresses the classification of workers as independent contractors instead of employees. It codifies the “ABC” test (as set forth by Dynamex Operations West, Inc. v Superior Court of Los Angeles [2018] ruling), which is used to determine whether a worker is an independent contractor or an employee.
Why Worker Classification Matters
The distinction between employees and independent contractors is an important one, and one that is commonly misunderstood by employers and heavily litigated as a result. The misclassification of an employee as an independent contract can have serious (and expensive) ramifications on employers.
What most workers and hiring entities don’t know is that it is not up to the discretion of either to decide whether a worker is an employee or an independent contractor. The analysis can be completed and requires the application of one of two multi-factor tests, known as the “ABC” test, which was codified by AB5, and the Borella test.
The “ABC” Test and Prior Exemptions for Manicurists
All workers are presumed to be employees under the law, unless they are able to satisfy the three prongs of the “ABC” test, unless an exception applies. Even where an exception applies however, the worker is still required to pass the Borello test in order to be properly classified as an independent contractor.
Prior to January 1, 2025, under California law (AB5 and Labor Code Section 2778), a licensed esthetician, licensed electrologist, licensed manicurist, licensed barber, or licensed cosmetologist could all be treated as an independent contractor if the business owner was able to show ALL of the following applied to the licensee:
- Set their own rates, processes their own payments, and is paid directly by clients.
- Set their own hours of work and had sole discretion to decide the number of clients and which clients for whom they will provide services.
- Had their own book of business and scheduled their own appointments.
- Maintained their own business license for the services offered to clients.
- If the individual was performing services at the location of the hiring entity, then the individual issued a Form 1099 to the salon or business owner from which they rented their business space.
2025 Law Updates for Manicurists
Unfortunately for manicurists, the above exemption expired in 2024. Beginning January 1, 2025, manicurists working at a nail salon are presumed to be an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions (the factors of the “ABC” test):
- 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;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The Impact on Nail Salons
This is a big change for both manicurists and nail salons, as treating these former independent contractors as employees now requires that the employer provide all rights and protections to manicurists, including minimum wage, sick pay, compliant meal and rest breaks, overtime pay and workers’ compensation coverage.
Nail salons and salons advertising as providing nail services can no longer utilize the “booth rental model” for manicurists and will face significant increased costs with respect to transitioning all of these workers into W-2 employees. Failure to make this transition will expose salons providing these services to significant misclassification penalties and potential PAGA lawsuits.
Navigating the complexities of AB5 and its impact on your salon can be challenging. Contact Hackler Flynn & Associates today for expert guidance on compliance and business protection.
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DISCLAIMER
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