Fitness Studios in California, including those that provide training in yoga, strength conditioning and stationary bike classes, have for years flourished in California by using workers classified as independent contractors. In fact, fitness instructors working for studio owners should almost always be classified as employees. By misclassifying workers as independent contractors, many studio owners have either knowingly or inadvertently failed to provide fitness instructors basic employment rights guaranteed in California. As a result, these companies have saved millions of dollars in business costs.
What is the State of the Law on Worker Classification?
With respect to claims for underpaid wages, missed meal and rest periods and record keeping violations, California law is clear. Last year’s California Supreme Court decision Dynamex v. Superior Court (2018) 4 Cal.5th 903, establishes that a worker is an employee in the eyes of the law unless an employing party establishes that, (A) the hired person is free from the control and direction of the hiring entity in connection with the performance of the work, (B) the hired person performs work that is outside the usual course of the hiring entity’s business, and (C) the hired person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. This is the “ABC Test” for determining whether a worker is an independent contractor or employee in California. Very few fitness salons can satisfy Part B of the ABC Test. Providing instruction to salon clients is squarely inside “the usual course of the hiring entity’s business.”
In September 2019, Governor Gavin Newsom signed Assembly Bill 5 into law. AB 5 codifies the Dynamex decision and the ABC Test for most workers. In other words, the California Legislature and Governor Newsom believe so strongly in the correctness of the Dynamex decision, that they passed AB 5 into law, which makes the ABC Test the standard of evaluating whether a worker is an employee or an independent contractor. Read together, AB 5 and Dynamex establish that nearly all fitness instructors in California working for fitness studios are employees and not independent contractors. Not only now, but in the past as well. Though the Supreme Court did not state that the ABC Test must be applied retroactively, courts across California have determined that it is, and now in AB 5 the Legislature has clearly stated that the ABC Test must be used in all applicable cases brought before the courts of California, past, present and future.
The adverse consequences of worker misclassification in the fitness industry in California have been significant. One of the most widespread and detrimental effects of worker misclassification is that many studio owners have avoided their duty to pay the price of conducting business in California that is required of other businesses that do not rely on misclassified workers. Non-compliant studios have operated and continue to operate as if they were exempt from California’s strict employment laws. They are not.
Here are just a few of the economic costs fitness studio owners have avoided:
- Workers Compensation Insurance: By failing to provide workers compensation insurance to instructors, studio owners have avoided the cost of insurance premiums paid by compliant businesses.
- Off-the-Clock Work: By paying misclassified instructors on a flat rate basis only for the time they are running classes, studio owners have avoided paying their instructors for the time they spend on class planning activities. By failing to pay for prep time, fitness studio owners routinely retained money that was due their employees.
- Rest Breaks and Nonproductive Time: “Flat rate” wages are classified as piece rate wages under California law. Piece rate employees in California are entitled to be paid separately for rest breaks (every 3.5 hours) at their regular rate of pay (20 minutes during an eight-hour day), and they are entitled to be paid for nonproductive time before and after teaching classes, for team meetings and for the time spent in advanced training programs required by the studio owners at least at minimum wage. By failing to pay for these additional work hours, fitness studio owners in California have pocketed millions of dollars that should have gone to their instructors.
- California and Local Sick Leave Laws: Studio owners have avoided the cost of providing paid sick leave to their workers.
- Uniforms: To the extent salon owners have required instructors to buy and wear studio-specific attire, especially apparel with studio logos, salon owners have violated California law relating to the purchase and maintenance of work uniforms.
- Record Keeping: By misclassifying workers, studio owners have avoided the cost of buying payroll systems that are needed to track worker time, including the nonproductive time of their piece rate workers.
- Payroll Taxes: Studio owners have avoided paying the employers’ share of payroll withholding, including the cost of paying into the unemployment insurance system in California. This often leaves workers unable to obtain unemployment benefits when their work for a fitness studio ends.
- Discrimination and Harassment: By running their operations with misclassified workers, studio owners have failed to provide mandatory sexual harassment training to their staff, and they have failed to give workers the protections mandated under Title VII of the United States Code (barring discrimination in the workplace) and under the Fair Employment and Housing Act in California.
- Wrongful Termination: California employees are protected from termination on grounds that violate California public policy. To the extent salon owners have terminated workers based on workers’ good faith complaints about how they are paid and about their worker rights, studio owners have sought to shield themselves against several California laws designed to protect employees from unfair termination practices.
- Waiting Time Penalties: Under Labor Code § 203, an employee who has not been paid all wages due at termination, is entitled to up to 30 days of additional pay. Labor Code § 203 provides that an employer who willfully fails to pay an employee all wages due at termination must pay the employee waiting time penalties. Given the relatively high turnover in fitness studios, millions of dollars in waiting time penalties have been avoided by studio owners who have operated their business with misclassified independent contractors.
- Unreimbursed Expenses: Employers are required to reimburse employees costs they incur performing their job. For example, in the fitness studio world, instructors often are required to pay for the cost of advanced training studio owners require. Some studios have required instructors to bring in their own music and sound systems for classes. All of these kinds of costs are recoverable for employees under Labor Code § 2802. Reimbursement of these costs is not required with independent contractors, however. By misclassifying fitness trainers as independent contractors, fitness studio owners have foisted these costs onto their workers.
These are the most obvious cost savings fitness studio owners have enjoyed by misclassifying their workforce. In the preamble to Assembly Bill 5, the California Legislature was even clearer about the impact of worker misclassification on the economic health and well being of California workers:
The misclassification of workers as independent contractors has been a significant factor in the erosion of the middle class and the rise in income inequality.
It is also the intent of the Legislature in enacting this act to ensure workers who are currently exploited by being misclassified as independent contractors instead of recognized as employees have the basic rights and protections they deserve under the law, including a minimum wage, workers’ compensation if they are injured on the job, unemployment insurance, paid sick leave, and paid family leave. By codifying the California Supreme Court’s landmark, unanimous Dynamex decision, this act restores these important protections to potentially several million workers who have been denied these basic workplace rights that all employees are entitled to under the law.
On September 26, 2019, Kitchin Legal filed an employment class action against Wheel House in San Francisco. We also filed with the State of California a request to be appointed as a private attorney general on behalf of California to obtain penalties for the State and our client’s similarly misclassified co-workers.
Our client, a former spin instructor at Wheel House, was misclassified as an independent contractor by the company. Though Wheel House paid her a flat fee for teaching spin classes, it failed to pay her any wages for the trainings the company required her to undergo. In the lawsuit, out client alleges Wheel House failed to pay her for the many hours she spent preparing for each class, which Wheel House expressly called “home work.” By misclassifying its workforce as independent contractors, she alleges, Wheel House failed to provide workers compensation coverage for her and other instructors, failed to provide paid medical leave, failed to institute mandatory sexual harassment training and protections, and failed to maintain employment records required under California law. The complaint can be viewed on the San Francisco Superior Court website’s online site: https://www.sfsuperiorcourt.org/online-services [Enter Case Number CGC-19-579541.]
In the coming year, I expect to see dozens of lawsuits filed against fitness studio owners in California. Given the clarity of the law today, this seems inevitable. As studio owners across California begin to reclassify their fitness instructors as employees, I believe we will begin to see some of the benefits promised to fitness instructors and many others by both the California Legislature and the California Supreme Court. Fitness workers will begin to receive “the basic rights and protections they deserve under the law.”