the situation
A private club enters into independent contractor agreements with a
number of exotic dancers which state that they can choose the days they
work, along with their dance routines and songs. The agreements also
provide that the dancers keep all the tips they earn while performing
and half of each “couch dance” fee collected. The dancers agree to pay
the club certain fees for the ATM and jukebox. Are these dancers
actually employees?
the ruling
Yes, according to a recent decision from the Western District of Virginia. Foster, et al. v. Gold & Silver Private Club, Inc., et al, Civil
Action No. 7:14-cv-00698 (December 8, 2015). The Gold & Silver
Private Club in Roanoke, Virginia is a “social and recreation club”
whose members “are bound together by an appreciation of artistic exotic
dancing” (according to its application for membership). Dancers at the
club are required to enter into agreements which clearly state that the
dancers are independent contractors, that they are free to choose their
own days to work, costumes, songs and dance routines. The dancers agree
to work full shifts. The contract states that the dancer will keep all
tips paid during her performance and half of any fee paid for a “couch
dance” (determined by the club) and that the dancer will pay certain
fees for the ATM and the jukebox, along with other fines that may be
assessed.
In fact, the club assessed fines against some of the dances for
leaving work early. Also, the dancers were prohibited from consuming
alcohol and drugs and allowing any significant others in the club.
Some of the dancers filed a lawsuit against the club, its management
company, and the president of the management company, claiming that they
failed to comply with the FLSA’s minimum wage requirements—basically
claiming they were improperly treated as independent contractors.
The district court agreed with the plaintiffs, finding that the
dancers are employees as a matter of law and granting summary judgment
as to this issue.
The court applied the six factor test known as the economic realities
test and found that the economic reality was that the dancers were not
in business for themselves, but were economically dependent on the club.
First, the club exerted significant control over the dancers-setting
the fee that was charged for the couch dances, requiring the dancers to
pay certain fees, requiring dancers to work full shifts and fining them
for leaving early, and prohibiting them from using drugs or alcohol and
limiting who was allowed to come to the club. Second, the dancers really
do not have the opportunity for profit or loss—the club controlled of
customers which really controlled the opportunity for profit. Third, the
dancers did not have a high level of investment in the business
compared to the club’s investment, amounting to providing their own
costumers versus the club’s responsibility for the buildings and
furnishings. Fourth, there is no special skill required to be an exotic
dancer. The fifth factor (the permanency of the working relationship)
weighed in favor of an independent contractor relationship as there was a
definitive lack of permanence in the relationship and some of the
dancers worked elsewhere at the same time. However, However, the court
found that the sixth factor, whether the services provided by the worker
are integral to the business of the potential employer, also supported
an employment relationship, as the presence of the dancers was essential
to the existence of the club. Overall, then, the consideration of these
factors led to the conclusion that the dancers were employees, despite
the fact that they had signed an agreement saying otherwise.
the point
What does this mean? The dancers would be entitled to minimum wage
for the hours they worked, along with overtime to the extent they worked
more than 40 hours in a week. Additionally, this conclusion could have
other consequences for the club, including tax consequences and related
to other benefits provided by the club to employees. Independent
contractor misclassification is a hot topic and a common focus of DOL
investigations. Just because an agreement purports to establish an
independent contractor relationship does not make it so. Employers are
well advised to take a careful look at any independent contractor
arrangements to insure they are properly classifying workers under the
law.
Originally posted on Virginia Employer Law Blog, by Elaine Hogan on January 13, 2016.