Contributed by Allison Chaplick
The misclassification of employees as independent contractors has been a very hot issue in the legal and employment communities for quite some time. The misclassification of an individual can result in costly litigation and even costlier damages for violating the Fair Labor Standard Act’s (FLSA) mandate on paying minimum wage and overtime. The following example case shows that businesses must carefully evaluate how they classify and pay individuals who perform work for them; i.e., “employees” or “independent contractors.”
The plaintiff’s in this example case were nude, female exotic dancers who entertained gentlemen at the defendants’ nightclub. The sole issue at question was whether the dancers should have been classified and treated as employees rather than independent contractors.
The definitions of “employee” and “employer” under the FLSA are indirect in nature, so just like other federal courts, the court in this example looked instead to the definition of “employ.” Under the act, “employ” means “to suffer or permit to work.” Since the term “to suffer or permit to work” is not defined anywhere in the FLSA, this court used the six-factor “economic realities test” to determine if an employer/employee relationship existed between the dancers and the nightclub.
The nature of the position and degree of control the club exerted on the dancers’ work weighed in favor of finding an employer/employee relationship and not an independent contractor relationship. For example, the club maintained an employee manual, given to each dancer, which required overweight dancers to diet and enforced club rules as to the cost of dances, scheduling, tipping the disc jockey, and paying a fee to the club.
It was also noted that the opportunity for profit or loss was greater for the nightclub than for the dancers because the evidence showed that the nightclub was primarily responsible for attracting customers through marketing and promotion decisions, nightclub maintenance, aesthetics and atmosphere, and cost and availability of food and alcohol.
Additionally, it was determined that the relative investment in employing the dancers created an employer/employee relationship because the club spent approximately $900,000 annually on the cost of equipment, fixtures, advertising, insurance, rent, alcohol, licenses and music; whereas each dancer spent significantly less annually on the cost of hairstyles, costumes, props, shoes, makeup, and nails. As no “special skills” were required to perform as an entertainer/dancer in the club and because the dancers were absolutely integral to the club’s business, the employer/employee relationship was finally determined.
Worth noting is that there was one factor which was found to be in favor of an “independent contractor” relationship. It was noted that the club’s dancers tended to be transient or itinerant, and thus, lacked the “permanency of working relationship” to satisfy an employer/employee relationship because many of the dancers named in the case were employed at the club for less than one year. However, this one factor was not strong enough to outweigh all the others.