Imagine you are a stripper. Come on, work with me here. Crank up that imagination. Here are the rules you dance by.
- You are told when to work.
- You are told what you have to wear or not wear as the case may be.
- You are told how to stand on stage.
- You are told what you cannot do on stage.
- You earn nothing except tips.
- You have to pay for the privilege of working.
These are the rules. Are you an independent contractor or an employee?
According to the courts
Here in Atlanta a dancer filed a lawsuit on behalf of herself and other dancers claiming that they were incorrectly classified as independent contractors rather than employees. According to an article in the Atlanta Journal-Constitution “Dancers’ work hours, time and manner of dancing, attire and customer interaction with customers was regulated by the owners, and dancers were required to attend meetings at the club without being paid for their time there…” Their contention is that they should have been considered and paid as employees.
The IRS and the USDOL both have rules for what constitutes an independent contractor. Generally these rules fall into three categories. These are:
- Behavioral control. The more restrictive you are on what someone work on and where a person works the more they are an employee. Requiring someone to be some place at a specific time, having them clock in and out, requiring them to attend meetings the more they appear as an employee.
- Financial relationship. How you pay someone has an effect on their status. Paying by the hour, paying on their attendance, looks like an employee. There is no penalty for not working.
- Relationship. Generally an independent contractor can work for someone else. You are more interested in the results of their work than the time spent on the work. The longer someone works for you the more they look like an employee.
Given these factors and the facts of the case there is somewhat a mixed bag. With the strippers/dancers there is definitely behavioral control. They earn only tips and actually have to pay for the privilege of being on stage. But they generally only work for one club and will stay at that club if they are making good money. So are they independent contractors or employees?
The judge in this particular case has ruled that the dancers are improperly classified as independent contractors and should be reclassified and paid a wage and overtime. According to the attorneys at the law firm Orrick, other judges in other venues have also come to similar decisions. Judges in New York and Florida have made similar decisions against clubs, including an $8 million settlement with a New York club. The judge in the Atlanta case ignored the “contract language” the dancers had with the club.
The result of this is that if these kinds of judgments can occur against strip clubs then they can occur in almost any business that utilizes independent contractors. The Orrick attorneys say “Irrespective of industry, companies that utilize independent contractors are well advised to periodically reexamine the economic realities of those relationships.”
A side note
A friend of mine, to whom I had mentioned this case, wondered why dancers would want to do that. He thought they made very good money on a cash basis and wondered why they would want to then have a W-2 reporting to the IRS what they made. I wondered if employers in these clubs will not be reporting tips like restaurants and taking the allowed tip credit. My guess is they will not have any problem making minimum wage, but you never know. Perhaps that is why this all got started in the first place.
I will be presenting a webinar on “Making sure your independent contractors are truly independent” on March 18th at 1pm. You can find the registration link in the sidebar soon.
Image courtesy of imagerymajestic / FreeDigitalPhotos.net