Fitness studios are flourishing in California and have for years. Yoga classes to cycling classes all take advantage of employing workers falling into the classification of being independent contractors. The fact is that anyone considered a fitness instructor at a studio should nearly always be considered an employee. There is a common misclassification of these kinds of workers as independent contractors. This leads to the denying of basic employee rights that are guaranteed in California. While saving millions of dollars, they are knowingly or inadvertently not living up to what is required of them.
California AB-5 Law
Under California AB-5, a worker is presumed to be an employee—and the burden to demonstrate their independent contractor status is placed squarely on the shoulders of the hiring company. To do this successfully a company must demonstrate (the emphasis is on “demonstrate” as scrupulous documentation is critical) that the worker satisfies all 3 criteria of the test (1 or 2 doesn’t cut it).
A worker can only be classified as an independent contractor if:
- (a) the worker is free from control and direction in the performance of services; and
- (b) the worker is performing work outside the usual course of the business of the hiring company; and
- (c) the worker is customarily engaged in an independently established trade, occupation, or business.
| Please contact attorney Brad Nakase for a free consultation, 619-550-1321.
California State Law Regarding Worker Classification
The state law is clear regarding claims for underpaid wages, unsatisfactory record keeping, and denial of meals and breaks. In the decision of Dynamex v. Superior Court (2018) 4 Cal.5th 903, it was established when a worker is considered an employee.
They are not considered employees if they are free from being controlled and directed by the party hiring them. This is in regards to what that workers’ performance at their place of work would be. Another exception is if the worker conducts work going beyond the normal scope of business of the hiring party. Another exception is if the hired worker is usually involved in a trade, occupation, or business independently. This involvement would have to be similar to what they are doing for the hiring entity. All three of these are grouped together and called the “ABC Test.” This makes it clear to see if someone is an independent contractor or employee.
The Dynamex decision was codified into law in September of 2019 by the governor, within Assembly Bill 5, or AB 5. This law now uses the ABC Test to determine whether someone is an employee or not. This shows just how fervently the state of California believes in the previous court decision. With AB 5 now the law in California, the ABC Test has become the gold standard of evaluating workers. It is now easy to identify whether a worker is an employee or independent contractor.
This is momentous, since it establishes that virtually every fitness studio in California has employees, not independent contractors. What’s more is that this classification works retroactively. This is true even though the Supreme Court did not require the ABC Test to be applied in this way. Courts all over California have decided that it can be applied retroactively, with AB 5 now backing them up.
The Consequences of Worker Misclassification
There have been major consequences resulting from misclassifying workers within the California fitness industry. The most significant effect has been studio owners avoiding paying what is due for operating a business in California. Other businesses are required to do so, making it unfair for fitness studios to skirt the law. Studios that have not been complying with this law continue to break the law. These non-compliant studios operate against the law until they become aligned with what the law now states. There are several costs that fitness studios have been skirting. Some of these are the following:
Workers Compensation Insurance
Studio owners have been avoiding paying workers compensation for fitness instructors. This saves them the cost of paying insurance premiums other businesses pay.
Studio owners who pay a flat rate are not paying for the time outside of the class itself. This includes tasks such as planning activities. The money they should be paying their instructors for working outside of classes is being kept from them.
Rest Breaks and Down Time
When studio owners pay instructors a flat rate, they are paying what is considered a piece rate wage in California. Employees getting paid a piece rate are entitled to get paid for time considered to be a rest break. This time would be paid at the normal rate of pay they receive. The amount of time would be 20 minutes within an eight-hour day. Additionally, they should be getting paid for non-productive down time, occurring prior to and after a class. This non-productive time also includes time spent in meetings, as well as training programs. The paid rate for this time should be at least minimum wage. When a studio owner withholds paying for these, they are withholding millions of dollars that instructors should be receiving.
California and Local Sick Leave Laws
Owners of fitness studios have been skirting around paying their instructors paid sick leave.
Studio owners require their instructors to use their own money to wear clothing that will sometimes carry the studio logo. This is in direct violation of California state law, regarding purchasing work uniforms.
When studio owners classify workers as independent contractors, they avoid tracking the time they work. This also includes non-productive down time for piece rate workers.
Owners of studios have not been paying payroll taxes they should be. This also includes paying for unemployment insurance. What this usually leads to is workers being unable to get the unemployment benefits they need after leaving a studio.
Discrimination and Harassment
When studios misclassify their workers, they also avoid giving required sexual harassment training to them. There are protections mandated under Title VII of the United States Code, as well the Fair Employment and Housing Act.
Employees in California state receive protections so they cannot be terminated if the reasons violate state public policy. Studio owners have attempted to protect themselves from being held liable under California law. These laws are there to protect employees from being treated unfairly by their bosses.
Waiting Time Penalties
According to the Labor Code § 203, when an employee was not given all the wages that are owed to them upon termination, they get another 30 days of pay. This section of the Labor Code also states the employer will have to pay waiting time penalties.
Studio owners must reimburse their employees the costs they incur while they are doing their jobs. This could include training or materials to be used during a class. Expenses such as these should be reimbursed by the studio owner, as stated under Labor Code § 2802. Independent contractors are not given the opportunity to be reimbursed. This is another reason why studio owners have misclassified their instructors.
These are many of the most apparent ways fitness studio owners have cut costs. By misclassifying their workers, they have been saving lots of money, while doing so against the law. AB-5 now makes it very clear that what fitness gyms are doing is in violation of state law. The misclassification of workers as independent contractors is considered one of the reasons for increased income inequality.
This law has been codified to stop the misclassification of workers, so they receive basic rights and protections owed to them. This included receiving a minimum wage, workers’ compensation, unemployment insurance, paid sick leave, and paid family leave. Protections are now guaranteed for potentially millions of people.