You should absolutely tell them. Part of the whole idea behind hiring an independent masseur, either for an in call or an out call, is the sense of privacy as opposed to going to a spa with others around. As a client, I always go to the masseur's place. I've had a few times when the masseur had company. One time, it was the sister of the masseur and another was a guy who hid in the bathroom except I needed to use the bathroom before the session. Very awkward. Another time, the masseur informed me ahead of time that his landlord was in the house (he rented a bedroom) and he said he told the landlord that I was just a Grindr hook up, not a client. He didn't want him to know what he did for work. I never saw the first two masseurs again because the surprise was just too weird, and frankly, disrespectful. I should not have been put in that position.
I can only imagine that the masseur in your situation felt similar. The surprise of finding another person there probably made him nervous. Was this a sting? Was he going to be robbed or beaten up? At least give them a heads up and let them make a decision for themself.