How new employment law is affecting local businesses like Apollo’s Barber Shop VIP Lounge

Apollo's Barber Shop VIP Lounge in Valencia to close January due to rent hike and challenges faced by new state employment laws. Tammy Murga/ The Signal

Adorned with vintage collectibles, large television screens and a bar, Apollo’s Barber Shop VIP Lounge has garnered a reputation as the “man cave” for haircuts and beer.

But customers have only until the end of January to indulge as the business is set to shut down, according to the owner.

Garo Papazian, who owns the shop on Town Center Drive in Valencia and two others, said his decision to close down the VIP Lounge stems from an April 2018 California Supreme Court ruling changing the way independent contractors are classified.

“It breaks my heart to see what’s happening here,” he said. “The state of California is devastating the industry.”

All three of his shops had “1099” workers, or self-employed independent contractors who receive pay in accordance with their contracts. Historically, barbers and those in the cosmetology industry were classified as such, but under the new state employment law, businesses will be in violation if they remain that way.

To comply with the law, Papazian has had to follow the court ruling, which says that workers will be considered employees unless the company meets these A-B-C requirements:

A: Each worker is free from the control and direction of the hirer in connection with performing the work.

B: Workers perform work outside of the usual course of the hiring entity’s business.

C: Workers are customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

Apollo’s Barber Shop VIP Lounge in Valencia to close January due to rent hike and challenges faced by new state employment laws. Chase Monroe (pictured) among the barbers affected by changes. Tammy Murga/ The Signal

This means all barbers in the VIP Lounge would be considered employees of the business on an official payroll rather than independent contractors. If all three factors are not met, companies can face a $25,000 minimum penalty per violation, per employee, according to Santa Clarita attorney Brian Koegle of Poole & Shaffery, LLP.

But Papazian said he cannot afford to make the change for three shops. “With the new rule, I cannot afford to have my barbers on W-2 and give them a 50-percent commission, plus all the taxes and health care that I have to provide.”

Besides complying with the court ruling, the Apollo’s owner said his landlord had raised his rent by more than $2,000 a month, another expense he cannot afford. He said he fears the landlord may sue him if for breaking a lease contract he extended before learning about the new law.

Closing the VIP Lounge will put Papazian at a $300,000 loss, one that he said hurts but not as much as losing some of his barbers. He said his plan is to relocate about nine out of the 19 barbers he now has to his shop on Tournament Road.

“It breaks my heart to see these guys go because these guys are craftsmen; they have families,” he said.

The new rule has already had a large impact on shops across the state, and on other industries including the rideshare industry. Papazian said several business friends who own shops in the San Fernando Valley and Los Angeles area have also made the decision to close down.   

Koegle said that although it is cheaper for the hiring entity to want independent contractors, state legislators are not thinking about that.

“The problem is that our legislators come back and say, ‘Wait, we want to protect workers. Our goal is to protect workers and protecting workers include that they’re covered with workers compensation,’” he said. “If they become disabled, that they’re eligible for state disability insurance. If they lose their job, they’ll be able to get unemployment.”

From June through August 2018 after the court ruling, the Employment Development Department has come down with 30 percent more violations than it had in the two years previous with investigations on such matters, said Koegle.

Apollo’s Barber Shop VIP Lounge in Valencia to close January due to rent hike and challenges faced by new state employment laws. Tammy Murga/ The Signal

Papazian said he is safe from audits as he is now complying with the law, but he is worried for other local businesses and his VIP Lounge clientele, especially veterans.

“We serve a lot of veterans here and I’m sad to have to close down this place, but we will still have two other locations,” said Papazian, a veteran himself. 

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