Category Archives: Independent Contractor vs Employee

February 16, 2013 · 10:08 am

10th Cir.: Employee Who Performed Work Afterhours for Employer Through His Separate Company Held to be Independent Contractor for Afterhours Work

Barlow v. C.R. England, Inc.

Following an order granting the defendant summary judgment, the plaintiff appealed. As discussed here, the issue before the Tenth Circuit regarding the plaintiff’s FLSA claim, was whether he was properly deemed to be an independent contractor for janitorial work her performed for his employer afterhours, while the same employer deemed him to be an employee for security work he performed during the day. In a decision lacking much by way of reasoning, the Tenth Circuit affirmed the decision of the court below and held that the defendant’s dual classification for the two different types of duties performed was valid.

The Tenth Circuit laid out the pertinent facts as follows:

In February 2005, Barlow began working as a part-time security guard at a Denver maintenance yard operated by England, a large trucking company. Barlow patrolled England’s grounds for about thirty hours a week, from 6:30 P.M. to 5:00 or 6:00 A.M. Friday through Sunday nights. Most of the yard was fenced in, accessible through an automatic overhead gate. Barlow also performed maintenance and ground work to try to reach 40 hours of work per week.

After Barlow had been at England for about a year and a half, he asked the facility’s site manager, John Smith, for extra work. Smith, who had initially hired Barlow, was not satisfied with England’s janitorial contractor at that time, so he asked England’s personnel department about having Barlow take over. Smith was told he could not allow Barlow to work any more hours because the company would have to pay overtime.

To get around this, Smith suggested Barlow create a company England could contract with. Barlow formed E & W Janitorial & Maintenance Services, LLC. Beginning in February 2007, Barlow cleaned for England on Mondays, Wednesdays, and Saturdays, pursuant to an oral agreement with Smith. On a few occasions, his girlfriend, a co-owner of E & W, filled in. England provided his cleaning supplies, but did not require Barlow clean in any particular order. England, the only company for which E & W worked, paid $400 a month for E & W’s services.

Without much reasoning regarding this portion of the plaintiff’s claim, the court held:

We also agree with the district court’s decision to grant summary judgment against Barlow regarding his FLSA claims. Barlow argues that he performed his janitorial work as an employee under the FLSA, and that he was therefore entitled to overtime pay. But applying the “economic realities” test of employee status, we conclude that Barlow was not a statutory employee for purposes of the FLSA.

The “economic realities” test seeks to look past technical, common-law concepts of the master and servant relationship to determine whether, as a matter of economic reality, a worker is dependent on a given employer. Baker v. Flint Engineering & Const . Co., 137 F.3d 1436, 1440 (10th Cir.1998). “The focal point in deciding whether an individual is an employee is whether the individual is economically dependent on the business to which he renders service, or is, as a matter of economic fact, in business for himself.” Doty v. Elias, 733 F.2d 720, 722–23 (10th Cir.1984) (emphasis added) (citations omitted). “In applying the economic reality test, courts generally look at (1) the degree of control exerted by the alleged employer over the worker; (2) the worker’s opportunity for profit or loss; (3) the worker’s investment in the business; (4) the permanence of the working relationship; (5) the degree of skill required to perform the work; and (6) the extent to which the work is an integral part of the alleged employer’s business.” Baker, 137 F.3d at 1440. It also “includes inquiries into whether the alleged employer has the power to hire and fire employees, supervises and controls employee work schedules or conditions of employment, determines the rate and method of payment, and maintains employment records.” Id. “None of the factors alone is dispositive; instead, the court must employ a totality-of-the-circumstances approach.” Id.

Some factors favor Barlow, while other factors favor C.R. England, but, ultimately, we agree with the district court that Barlow was an independent contractor. Barlow and his partner created a licensed, limited liability company in order to provide janitorial services. Cf. Rutherford Food Corp. v. McComb, 331 U .S. 722, 730 (1947) (classifying as employees speciality group of production line workers in part because “[t]he group had no business organization that could or did shift as a unit from one slaughter-house to another”). Barlow kept records for the company, opened a separate bank account, and filed a corporate tax return. The district court also noted Barlow had the “freedom to decide how to accomplish” his tasks, even if the company reviewed the ultimate work product. 816 F.Supp.2d at 1107. Indeed, little in the case indicates the relationship between Barlow and C.R. England materially differed from one the company would have with any other cleaning service except for the fact Barlow also happened to otherwise be an employee. This suggests Barlow was in business for himself as a janitor, and we therefore affirm the district court’s decision to grant summary judgment.

Click Barlow v. C.R. England, Inc. to read the entire decision.

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October 13, 2012 · 10:16 am

N.D.Miss.: Workers Who Performed Off-the-Clock After-Hours Work in Exchange for Food Were Employees Not Independent Contractors; Food Was Not Adequate Compensation for Work

Newsom v. Carolina Logistics Services, Inc.

This case was before the court on the parties’ competing cross-motions for summary judgment. As discussed here, at issue was whether the defendants were liable to plaintiffs for after-hours off-the-clock side work they performed for defendant cleaning its warehouse. Although the court held that any issue of fact precluded summary judgment with regard to the amount of damages due, the court granted the plaintiff (who participated in the case) summary judgment as to liability and denied the defendant’s cross motion for summary judgment on liability.

The court recited the following facts as relevant:

Shortly after starting his work, Newsom [the plaintiff] made a special arrangement with his center manager, Alfred Taylor, whereby Newsom was permitted to clock out from work after his shift and clean CLS’s warehouse in exchange for a banana box of food. The work consisted of sweeping, mopping, picking up trash, and using a floor cleaning machine to clean the entire warehouse. Newsom Decl. at 1. According to Newsom, he worked approximately four to four and-a-half hours after each shift. In October 2008, Newsom was transferred to CLS’s Olive Branch, Mississippi center. There, Taylor remained his supervisor and allowed the banana-box program to continue. Not long after the move, Newsom found that he could not clean the new center alone and recruited Plaintiff Shanda Bramlett, another CLS employee, to assist him with the more arduous work. Taylor agreed to allow Bramlett to participate in the program, and Bramlett began assisting Newsom in March 2009. Bramlett’s work entailed sweeping floors, cleaning bathrooms, and performing other cleaning tasks. She claims that she worked an average of somewhere between two and three-and-a-half hours after each shift. Taylor assisted Newsom and Bramlett by moving pallets that obstructed their ability to clean the premises. From December 2010 through March 2011, no one was allowed to take anything from the warehouse. Nevertheless, for reasons unexplained in their depositions, both Newsom and Bramlett continued to perform their after-hours work, apparently without any guarantee of compensation.

Describing the issues at bar, the court explained:

It is undisputed that Newsom and Bramlett worked for CLS “off the clock” in exchange for a banana box of food. This case turns on a simple legal question: Does Newsom and Bramlett’s after-hours work constitute a violation of the FLSA? The Plaintiffs advance a simple and persuasive argument why the Court should answer affirmatively. Put simply, the Plaintiffs maintain that, at all times pertinent to the present suit, they worked as CLS employees with CLS’s knowledge and under CLS’s supervision. Judging from the record, CLS’s management appears to have initially adopted this view, at least with respect to Newsom, by sending him a check and an apology letter. Now at the summary-judgment stage of litigation, however, CLS takes a different view of the matter, offering two legal theories why the Plaintiffs cannot recover for their FLSA claims: (1) Newsom and Bramlett acted as independent contractors, not employees, when performing their after-hours work, and (2) even if Newsom and Bramlett were employees, they were properly compensated for their work with food.

Initially, the court rejected the defendant’s contention that the plaintiff performed his after-hours work for defendant as an independent contractor (as opposed to as an employee), thus requiring that all of plaintiff’s hours be treated cumulatively each week for determining defendant’s overtime obligations. Rejecting the defendant’s second contention- that the banana box of food constituted sufficient wages, in lieu of actual wages- the court reasoned:

CLS advances its second contention-that Newsom and Bramlett were compensated appropriately under the FLSA with a brief-and incomplete-reference to the definition of ‘wages’ in the statute, and therefore the Court will give this argument short shrift. Under the FLSA, the term ‘wages’ can include board, lodging, and other facilities as CLS suggests. 29 U.S.C. § 209(m). As an initial matter, it is unclear as to whether banana boxes of food fall within the categories of “board, lodging, or other facilities.” The statute does not mention food, sustenance, or any other similar term. Moreover, the statute continues that in order for “board, lodging, and other facilities” to constitute wages under the FLSA, they must be “customarily furnished by such employer to employees .” Id. (emphasis added). The Court declines to opine as to whether banana boxes of food are customarily furnished by CLS to its employees for cleaning services, and since CLS fails to make such an argument, the Court will dismiss it without prejudice. CLS may raise this argument subsequently with respect to damages, provided it advances the argument with cited legal authority.

Thus, the court granted plaintiff-Newsom’s motion for summary judgment as to liability, and left open the issue of damages.

Click Newsom v. Carolina Logistics Services, Inc. to read the entire Memorandum Opinion and Order.

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September 20, 2011 · 7:15 am

E.D.Pa.: Dukes Does Not Affect Court’s Analysis On 216(b) Conditional Cert Motion; Defendant’s Motion to Reconsider Denied

Spellman v. American Eagle Exp., Inc.

In one of the first decisions, post-Dukes, to clarify what affect the Supreme Court’s recent decision will have on conditional certification of FLSA cases, the answer appears to be not much.

In Dukes, the Supreme Court held that the trial court had inappropriately certified a class of over a million women employed by Wal-mart, based on claims of gender bias.  The Supreme Court reasoned that the plaintiffs had not met their burden to demonstrate the requisite commonality required by FRCP 23.  In the wake of Dukes, there was much speculation as to whether courts would extend the reasoning in Dukes to cases seeking conditional certification of collective actions under 216(b) of the FLSA.  In one of the first decisions rendered on this issue, the answer appears to be a resounding no.

This case was before the court on the defendant’s motion seeking reconsideration of the court’s prior order conditionally certifying a class of drivers employed by defendant.  Plaintiffs alleged that defendant, a trucking company, improperly misclassified all of its drivers as independent contractors, when they were really employees.  Holding that plaintiffs had met their lenient burden of proof as so-called stage one, the court conditionally certified a nationwide class of drivers, all of whom had been classified as independent contractors.  Following the Duke’s decision, the defendant sought reconsideration of the order conditionally certifying the class.  Denying the motion, the court explained that the differences between FRCP 23, the class action provision under which Dukes was decided and 216(b), the opt-in provision for FLSA collective actions render Dukes inapplicable in the context of an FLSA collective action.  As such, the court denied defendant’s motion.

The court reasoned:

“The instant case is a collective action brought pursuant to the FLSA, 29 U.S.C. § 216(b). Unlike Rule 23 class actions. the FLSA requires collective action members to affirmatively opt in to the case. See § 216(b). To determine whether the proposed group of plaintiffs is “similarly situated,” and therefore qualified to proceed as a conditional collective action, a district court applies a two-step test. See Smith v. Sovereign Bancorp, Inc., No. 03–2420, 2003 U.S. Dist. LEXIS 21010 (E.D.Pa. Nov. 13, 2003). In the first step, which is assessed early in the litigation process, the plaintiff at most must make only a “modest factual showing” that the similarly situated requirement is satisfied. See Bosley v. Chubb Corp., No. 04–4598, 2005 U.S. Dist. LEXIS 10974, at *7–9 (E.D.Pa. Jun. 3, 2005). The Plaintiffs have made this modest factual showing, and this Court’s analysis is not affected by Dukes. The second step of the collective action certification process will be conducted at the close of class-related discovery, at which time this Court will conduct “a specific factual analysis of each employee’s claim to ensure that each proposed plaintiff is an appropriate party.” Harris v. Healthcare Servs. Grp., Inc., No. 06–2903, 2007 U.S. Dist. LEXIS 55221, at *2 (E.D.Pa. Jul. 31, 2007). At this second stage, AEX may argue that Dukes‘s analysis of what constitutes a “common question” is persuasive to this Court’s analysis of whether an FLSA collective action should be certified. In the interim, AEX’s motion for reconsideration is denied.”

Click Spellman v. American Eagle Exp., Inc. to read the entire Order.

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September 17, 2011 · 8:47 am

N.D.Ga.: Exotic Dancers Are Employees Not Independent Contractors; Entitled to Minimum Wages and Overtime

Clincy v. Galardi South Enterprises, Inc.

This case was before the court on numerous motions.  As discussed here, the judge granted plaintiffs’ motion for summary judgment and denied defendants’ cross motion, holding that plaintiffs’- exotic dancers or strippers- were defendants’ employees, not independent contractors.  As such, plaintiffs were entitled to minimum wages and overtime pursuant to the Fair Labor Standards Act.

Significantly, none of the plaintiffs were paid any direct wages by the club in which they worked.  Instead, they paid defendants for the right to perform in their club.  The plaintiffs’ each were required to sign independent contractor agreements as a prerequisite to beginning work for the defendants.  Further, the defendants claimed that the dancers were independent contractors because they were paid directly by customers and did not receive paychecks.  They also claimed that the club did not profit from the dancers and that the dancers did not necessarily drive the club’s business.  However, based on evidence that the defendants set the prices for tableside dances and how much of their gross receipts dancers were required to turn over in the form of “house fees” and disc jockey fees, as well as the fact that the defendants set specific schedules for the dancers, created rules of conduct (subject to discipline), check-in and check-out procedures and otherwise controlled the method and manner in which plaintiffs worked, the court held that the defendants were plaintiffs’ employers under the FLSA.

Although not a groundbreaking decision, it is significant because the majority of strip clubs around the country continue to disregard court decisions that have held that most strippers, employed under circumstances similar to those in the case, are actually employees.

Click Clincy v. Galardi South Enterprises, Inc. to read the entire Order.

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May 1, 2011 · 12:14 pm

E.D.Va.: Plaintiff Alleged Actionable Retaliation Claim, Where Asserted Former Employer Denied Him Work as Independent Contractor In Retaliation for Testimony in Co-Employee’s Case

Boscarello v. Audio Video Systems, Inc.

In this Fair Labor Standards Act (FLSA) retaliation action, a former employee sued his former employers alleging that defendants retaliated against him, in violation of 29 U.S.C. § 215(a)(3), by refusing to provide him work as an independent contractor following his submission of an affidavit supporting a current employee’s FLSA claim against the employers.  The case was before the court on defendants’ motion to dismiss, for failure to state a claim.  At issue on defendants’ motion was whether a former employee states a valid FLSA retaliation claim where, the alleged retaliation consists of the employer’s refusal to provide its former employee work as an independent contractor, work that the employer was not contractually obligated to provide, but which the employer indicated would be provided.  Following Fourth Circuit precedent, the court held that the Plaintiff had indeed stated a valid cause of action.

Click Boscarello v. Audio Video Systems, Inc. to read the entire Opinion.

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October 29, 2010 · 10:12 am

Pennsylvania Laborers Like New Law That Defines “Employees,” Pittsburgh Post-Gazette Reports

The Pittsburgh Post-Gazette reports that a new law defining who is an employee (versue independent contractor) is being greated enthusiastically by Pennsylvania workers:

“Union laborers are claiming victory now that Gov. Ed Rendell has signed a law aimed at curtailing construction companies’ ability to skirt taxes — and cut its own costs and liability — by labeling its workers independent contractors.

By classifying their workers as “independent contractors” instead of employees, companies can avoid paying unemployment compensation and workers’ compensation taxes.

Avoiding those taxes, according to labor groups, reduces employer costs and allows such companies to underbid contracting companies that are following the letter of the law.

The new law — formerly House Bill 400 and now Act 72 — is called the Construction Workplace Misclassification Act. Contracting companies that violate the act could be subject to fines and criminal prosecution. There’s also an “acting in concert” provision, which would penalize anyone who knowingly hires a contractor that is in violation of the act.

“It really will start to separate responsible contractors from irresponsible contractors,” said Jason Fincke, executive director of the Builders Guild of Western Pennsylvania, a labor management and contractor association group.

The point of the law isn’t to eliminate the use of independent contractors in the construction industry, he said.

“If there’s a service that you need that you don’t normally provide, you would get someone to do that for you,” Mr. Fincke said. “That’s a legitimate independent contractor.”

The law applies to the construction field only, to the regret of the Teamsters, who had hoped the law would be expanded to include truck drivers (and other kinds of workers) as well. The Teamsters have been fighting with Moon-based FedEx Ground, which classifies its drivers independent contractors. FedEx says its drivers are “small business owners” because they own their own equipment.”

To read the entire article go to Pittsburgh Post-Gazette.

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September 16, 2010 · 6:49 am

White House Backs Bill To Close Independent Contractor Tax Loophole; RTT News Reports

RTTNews.com is reporting that:

“Sen. John Kerry, D-Mass., and Rep. Jim McDermott, D-Wash., released a statement Wednesday noting that the White House has endorsed their legislation to close a tax loophole currently allowing businesses to misclassify workers as “independent contractors.”

Kerry and McDermott said that the Fair Playing Field Act of 2010 would protect workers from losing benefits and protections as the result of the tax loophole.

Vice President Joe Biden said, “When employees are classified as independent contractors, whether by design or because the rules are unclear, they are denied access to critical benefits and protections, at significant cost to government at all levels.”

“For these reasons, stopping worker misclassification is a priority for the President’s Middle Class Task Force, which I chair, and I applaud Senator Kerry and Congressman McDermott for introducing this bill,” he added.

In addition to providing guidance about worker classification, the bill would also increase the penalties for the failure to deduct and withhold income taxes and the employee’s share of FICA taxes.”

To read the entire article, click here.

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June 16, 2010 · 7:35 am

S.D.Ind.: Exotic Dancers Are Employees, Not Independent Contractors; Plaintiffs’ Motion for Summary Judgment Granted

Morse v. Mer Corp.

Before the Court were the parties’ cross motions for summary judgment.  Plaintiffs, exotic dancers, alleged that they were employees of Defendant, the owner of the adult entertainment facility where they worked.  Defendant alleged that Plaintiffs were independent contractors and thus, not covered by the Fair Labor Standards Act (FLSA).  The Court granted Plaintiffs’ motion and denied Defendants motion.

Reciting the facts pertinent to its inquiry, the Court explained:

“The Plaintiffs in this case were all exotic dancers at Dancers Showclub, an establishment owned and operated by the Defendant, in Indianapolis, Indiana. To be hired by the Defendant, an individual had to go to the club, complete an audition application, provide sufficient identification, and perform an audition by dancing to two or three songs. Individuals who passed their auditions and were hired by the Defendant were given a copy of the Entertainer Guidelines (Docket No. 58 Ex. 3). Many of these guidelines, such as those prohibiting the Plaintiffs from leaving with male patrons and those banning family and significant others from the club while the Plaintiffs were performing, were put in place to keep the Plaintiffs safe and to ensure that the Plaintiffs followed the law.

The Defendant classified the Plaintiffs as independent contractors. Accordingly, the Defendant never paid any of the Plaintiffs a wage or other compensation. Instead, the Plaintiffs earned their income by collecting tips from customers. The Defendant did not monitor the Plaintiffs’ income.

None of the Plaintiffs had set work schedules. They were free to come to work on whatever dates and times they chose. They were also free to develop their own clientele and could generate business by advertising on the internet. The Plaintiffs’ dancing rotation was set on a first come, first served basis. Once at work, the Defendant preferred that the Plaintiffs work at least a six-hour shift. At some point during her shift, each Plaintiff was required to pay a House Fee to the Defendant. The House Fee was based on when a Plaintiff checked in to work.

The Entertainer Guidelines suggest that the Plaintiffs pay a “tip out” to the bar and the disc jockey (“DJ”) at the end of every shift. The suggested gratuity is ten percent to the bar and five percent to the DJ. However, this is not a requirement, and the Plaintiffs were not prohibited from working if they failed to pay the recommended tip out.

According to the Entertainer Guidelines, the Plaintiffs were to charge a minimum of $20 for VIP dances. Some Plaintiffs charged more than $20 for VIP dances and, according to the Defendant, no Plaintiff was ever disciplined for charging less than $20 for a VIP dance. A Plaintiff’s success as an exotic dancer was based, in large part, on her ability to entice interaction with her customers.

Discussing and applying the relevant law, the Court explained:

“The Plaintiffs filed this collective action lawsuit alleging that the Defendant violated the Fair Labor Standards Act (“FLSA”), 29 U .S.C. § 201, by failing to pay them a minimum wage. The parties agree that the relevant inquiry is whether the Plaintiffs were employees or independent contractors. This determination of a worker’s status is a question of law. Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1535 (7th Cir.1985). “For purposes of social welfare legislation, such as the FLSA, ‘employees are those who as a matter of economic reality are dependent upon the business to which they render service.’ ” Id. at 1534 (quoting Mednick v. Albert Enters., Inc., 508 F.2d 297, 299 (5th Cir.1975)). To determine the parties’ economic reality, the Seventh Circuit “do[es] not look to a particular isolated factor but to all the circumstances of the work activity.” Id. The six factors considered by courts in this circuit are:

(1) the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of workers; (4) whether the service rendered requires a special skill; (5) the degree of permanency and duration of the working relationship; [and] (6) the extent to which the service rendered is an integral part of the alleged employer’s business.  Id. at 1535.

There is no analogous Seventh Circuit case law, and the only federal appellate court to examine the issue of whether exotic dancers are employees or independent contractors was the Fifth Circuit in Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir.1993). Like the Plaintiffs in the instant litigation, the exotic dancers in Circle C claimed that they were employees, not independent contractors. After applying the Fifth Circuit’s version of the economic realities test, the court of appeals agreed.”

Similarly, here the Court applied the various factors to determine that Plaintiffs were indeed employees, and not independent contractors:

“A. The Defendant’s control as to the manner in which the work is performed.

With respect to the control factor, the Fifth Circuit explained that the club “exercise[d] a great deal of control over the dancers .” Circle C, 998 F.2d at 327. The dancers were “required to comply with weekly work schedules, which Circle C compile[d].” Id. Dancers who were tardy were fined. Circle C set the prices for table and couch dances. Although dancers could choose their own costumes and their own music, both the costume and the music had to meet standards set by Circle C. Id. Circle C also extensively controlled the dancers’ conduct by promulgating rules including: “[N]o flat heels, no more than 15 minutes at one time in the dressing room, only one dancer in the restroom at a time, and all dancers must be ‘on the floor’ at opening time.” Id. Dancers who violated the code of conduct were fined.

The Plaintiffs in the instant case are “subject to a broad range of control by Defendant when it comes to the manner in which their work is performed.” Docket No. 57 at 8. When they are hired, the Plaintiffs receive and review a copy of the Entertainer Guidelines. These guidelines require that, among other things, the Plaintiffs: work at least a six hour shift; charge at least $20 for all VIP dances; refrain from inviting significant others or family members to the club while the Plaintiffs are working; and avoid walking with a lit cigarette, chewing gum, drinking anything from a bottle, or having a cell phone on the club floor. Docket No. 58 Ex. 3 ¶¶ 9-10, 12, 15. Another version of the Entertainer Guidelines prohibits the Plaintiffs from frequenting the club on days when they are not working. See Docket No. 58 Ex. 6 ¶ 13.

The Defendant claims that the Entertainer Guidelines were “of no real import,” Docket No. 64 at 12, because there was no written record of violations. Docket No. 65 Ex. 2 at 27, lines 18-20. Further, certain violations such as chewing gum on the floor were not punished. Id. at 36, lines 3-10. In addition, the Defendant argues that some of the Entertainer Guidelines were included “to ensure that the Entertainers’ behavior conformed with the law and to keep both the patrons and Entertainers safe.” Docket No. 64 at 15. Finally, the Defendant asserts that Circle C is distinguishable because the Plaintiffs in this case were free to work on the dates and times that they chose and thus they largely set their own schedules.

Despite the Defendant’s arguments otherwise, this case is analogous to Circle C. The Defendant in the instant case regulated the Plaintiffs’ behavior with a written code of conduct. Although the Defendant claims that the rules in the Entertainer Guidelines were never enforced, there is nothing in the record indicating that anyone informed the Plaintiffs of this fact. The Defendant cannot claim that it did not impose a significant amount of control on the Plaintiffs by arguing, with absolutely no evidentiary support, that the rules did not actually apply. While it is true that the Plaintiffs in the instant case could set their own work schedules, once at the club, the Defendant asked the Plaintiffs to work for a certain amount of time. The Plaintiffs could request music, but the music was ultimately controlled by the Defendant. See Docket No. 58 Ex. 5 at 46, lines 8-14. The Plaintiffs could pick their own costumes; however, as in Circle C, the Defendant had ultimate veto power. See id. 46-47. Further, the Defendant prohibited the Plaintiffs from being at the club in their free time and also prohibited the Plaintiffs’ families and significant others from coming to the club while the Plaintiffs were working. Docket No. 58 Ex. 6 ¶¶ 13, 16. Finally, the Defendant’s argument that many of the rules were imposed to protect the Plaintiffs and to ensure compliance with the law is unavailing. See Circle C, 998 F.2d at 327 (rejecting Circle C’s attempt to downplay its control). In short, all of the parties’ admissible evidence indicates that the Defendant exerted a significant amount of control over the Plaintiffs. Thus, although the Defendant exercises less control than the club in Circle C, the Defendant’s conduct still indicates that the Plaintiffs were employees.

B. The Plaintiffs’ opportunity for profit or loss.

As to the opportunity for profit and loss, in Circle C the Fifth Circuit noted that although a dancer’s “initiative, hustle, and costume significantly contribute to the amount of her tips,” Circle C, 998 F.2d at 328, the dancers were not responsible for drawing customers to the club in the first place. “Circle C is responsible for advertisement, location, business hours, maintenance of facilities, aesthetics, and inventory of beverages and food.” Id. The court concluded that “[g]iven its control over determinants of customer volume, Circle C exercises and high degree of control over a dancer’s opportunity for ‘profit.’ ” Id. Therefore, “[t]he dancers are ‘far more akin to wage earners toiling for a living, than to independent entrepreneurs seeking a return on their risky capital investments.’ ” Id. (quoting Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1051 (5th Cir.1987)).

In the instant case, a Plaintiff’s only “opportunity for loss comes in the form of a ‘House Fee’ that she is required to pay for each shift, the amount of which ranges from $0.00-$30.00.” Docket No. 57 at 12. “All other potential risks of loss, be they food and beverage related or liability-related, are borne solely by Defendant .” Id. at 13. Similarly, an entertainer has no real opportunity to profit. At best she can “increase her earnings by taking care of herself, working harder, and enticing social interaction with her customers.” Id. The Defendant tacitly acknowledges that this was one way in which the Plaintiffs could enhance their profits. However, the Defendant refuses to acknowledge that this argument has been rejected by every court that has considered it. See, e.g ., Harrell, 992 F.Supp. at 1350; Priba Corp., 890 F.Supp. at 593. The Defendant also emphasizes that the Plaintiffs were allowed to advertise and market themselves by using MySpace, Facebook, and simple word of mouth. Docket No. 64 at 17. This may be true, but the simple fact remains that, like the club in Circle C, the Defendant is primarily responsible for drawing customers into the club. See Circle C, 998 F.2d at 328. Thus, the second factor also tips in favor of employee status.

C. The Plaintiffs’ investment in equipment or materials.

In Circle C, the Fifth Circuit noted that “a dancer’s investment is limited to her costumes and a padlock.” Circle C, 998 F.2d at 327. Although the court acknowledged that some dancers spend a significant amount of money on their costumes, the court concluded that “[a] dancer’s investment in costumes and a padlock is relatively minor to the considerable investment Circle C has in operating a nightclub.” Id. at 328; see also Harrell, 992 F.Supp. at 1350. “Circle C owns the liquor license, owns the inventory of beverages and refreshments, leases fixtures for the nightclub … owns sound equipment and music, maintains and renovates the facilities, and advertises extensively.”   Circle C, 998 F.2d at 327. Thus, this factor indicated that the dancers were employees.

The instant case is markedly similar to Circle C. The Plaintiffs “do not make any capital investment in Defendant’s facilities, advertising, maintenance, security, staff, sound system and lights, food, beverage, and other inventory.” Docket No. 57 at 14. The Plaintiffs’ only investment is in their costumes and their general appearance (i.e. hair, makeup, and nails). Id. at 15. Thus, as in Circle C, this factor tips in favor of employee status.

D. Special skills required.

The Fifth Circuit concluded that the dancers in Circle C “do not need long training or highly developed skills to dance at a Circle C nightclub.” 998 F.2d at 328. Indeed, many of Circle C’s dancers had never before worked at a topless dance club. Id. Other courts have consistently held that little skill is necessary to be a topless dancer. See, e.g., Harrell, 992 F.Supp. at 1351; Priba Corp., 890 F.Supp. at 593; Jeffcoat v. Alaska Dept. of Labor, 732 P.2d 1073, 1077 (Alaska 1987) (applying federal courts’ economic realities analysis).

In the instant case, the Defendant claims that although the entertainers are not trained dancers, they must possess special skills “in communicating, listening, and (to some minor extent) counseling” in order to be successful. Docket No. 64 at 21. According to the Defendant, an Entertainer must be a peculiar combination of a customer service representative and counselor: she must have excellent listening skills, the ability to read another person’s affect and discern from that demeanor his particular conversational or emotional needs, and the ability and willingness to fulfill those needs in a purely non-sexual way. Id. at 21-22. This argument is unconvincing, especially because nothing in the record indicates that the Defendant’s hiring process included an assessment of a prospective dancer’s communication or counseling skills. Having examined all of the parties’ admissible evidence, the Court is convinced that this factor indicates that the Plaintiffs are employees.

E. The degree of permanency of the working relationship.

The Circle C court noted that “most dancers have short-term relationships with Circle C.” Circle C, 998 F.2d at 328. “Although not determinative, the impermanent relationship between the dancers and Circle C indicates non-employee status.” Id. However, the court concluded that “[t]he transient nature of the work force is not enough here to remove the dancers from the protections of the FLSA.” Id. at 328-29. Thus, despite the fact that this factor tipped in favor of independent contractor status, the court was convinced that the economic realities of the relationship indicated that the dancers were employees. Id. at 329.

In the case presently before this Court, the Plaintiffs argue that the Defendant considered the relationship between the parties to be ongoing. See Docket No. 57 at 16-17. Thus, according to the Plaintiffs, their situation is materially different “from the limited-duration relationship typical to independent contractors.” Id. at 17. However, the Defendant submitted admissible evidence indicating that most of the dancers only worked at the Defendant’s club for six months. Docket No. 65 Ex. 6 ¶ 3. Thus, as in Circle C, this factor tips in favor of independent contractor status.

F. The extent to which the Plaintiffs’ service is integral to the Defendant’s business.

The Fifth Circuit does not include this factor in its economic realities analysis. However, other district courts have considered this issue and have concluded that “[e]xotic dancers are obviously essential to the success of a topless nightclub.” Harrell, 992 F.Supp. at 1352; see also Jeffcoat, 732 P.2d at 1077. Although the Defendant claims that no more than ten percent of its profits came from the dancers, and thus, “the Entertainers are not a vital part of its business,” Docket No. 64 at 24, this assertion is belied by the Defendant’s own deposition testimony. Manager James Nicholson stated that “[p]robably less than one percent” of the club’s customers go to the club solely for food and drink. Docket No. 58 Ex. 1 at 27, line 20. When asked what would happen “if the club limited the use of dancers at the facility,” Nicholson stated: “The same thing if McDonald’s got rid of hamburgers, all right? We wouldn’t be that business.” Id. at 27, lines 21-25; id. at 28, line 1.

The Defendant’s argument that the dancers are non-essential forms of extra entertainment, “like televisions at a sports bar” is simply unconvincing. Robert W. Wood, Pole Dancers: Employees or Contractors? TAX NOTES, Nov. 9, 2009, at 673, 675. Indeed, the Defendant’s own manager apparently does not believe this assertion. The Plaintiffs are critical to the Defendant’s current business model. Thus, this factor indicates that the Plaintiffs are employees, and not independent contractors.

Having considered all of the parties’ admissible evidence and viewing the evidence in the light most favorable to the Defendant, the Lauritzen factors indicate that the Plaintiffs are employees.”

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February 12, 2010 · 5:09 pm

Companies Slash Payrolls By Calling Workers Independent Contractors; Costly To IRS And States, L.A. Times Reports

The LA Times reports that the “Internal Revenue Service and 37 states are cracking down on companies that try to trim payroll costs by illegally classifying workers as independent contractors, rather than as full employees, The Associated Press has learned. The practice costs governments billions in lost revenue and can leave workers high and dry when they are hurt at work or are left jobless.

Many who have studied the problem believe it’s worsened during the economic downturn, fueling even more aggressive recovery efforts by states.”

The article points out that “[t]ypically, unless workers fight for and win a ruling that they should have been treated as full employees, they aren’t able to collect workers’ compensation for the injury or unemployment benefits when left jobless.”

To read the full article click here.

To read more about the legal factors that determine whether someone is misclassified as an independent contractor vs employee, and industries where misclassification is rampant click here.

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October 14, 2009 · 10:50 am

5th Cir.: Cable Installers Are Employees, Not Independent Contractors; Summary Judgment For Employer Reversed

Cromwell v. Driftwood Elec. Contractors, Inc.

The trial court in this case previously granted the Defendant-employer summary judgment finding that the Plaintiff-employee-cable installers were independent contractors and not employees.  The 5th Circuit reversed on appeal, finding that although it’s a close call, Plaintiffs were employees, thus entitled to the protections of the FLSA.

The Court cited the following facts as relevant to its inquiry:

“[Plaintiffs] provided cable splicing services for Driftwood for approximately eleven months, and were required to work twelve-hour days, thirteen days on and one day off. They were paid a fixed hourly wage for their work. BellSouth was Driftwood’s customer on the restoration project. AT & T appears to have had nothing to do with the facts of this case. Cromwell and Bankston reported to BellSouth’s location every morning to receive their assignments, unless they had not completed their jobs from the prior workday, in which case they were permitted to check in by phone. Cromwell and Bankston were given prints describing the type of work that needed to be performed for each assignment and were instructed by BellSouth supervisors to follow certain general specifications. Driftwood and BellSouth representatives checked on the progress of work, but did not train Cromwell and Benson or control the details of how they performed their assigned jobs.

Cromwell and Bankston provided their own trucks, testing equipment, connection equipment, insulation equipment, and hand tools, totaling over $50,000 for Cromwell and approximately $16,000 for Bankston, while BellSouth supplied materials such as closures and cables. Cromwell and Bankston were responsible for their own vehicle liability insurance and employment taxes, but Driftwood provided workers’ compensation insurance and liability insurance for Cromwell and Bankston’s work.”

Applying the relevant law, the Court stated, “[t]o determine if a worker qualifies as an employee under the FLSA, we focus on whether, as a matter of economic reality, the worker is economically dependent upon the alleged employer or is instead in business for himself. Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th Cir.2008). To aid in that inquiry, we consider five non-exhaustive factors: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. Id. No single factor is determinative. Id. The ultimate conclusion that an individual is an employee within the meaning of the FLSA is a legal, and not a factual, determination. Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1045 (5th Cir.1987); see also Beliz v. W.H. McLeod & Sons Packing Co., 765 F.2d 1317, 1327 & n. 24 (5th Cir.1985) (citing and reconciling cases). Therefore, “we review the determination that [plaintiffs] were not employees as we review any determination of law,” which is de novo. Donovan v. American Airlines, Inc., 686 F.2d 267, 270 n. 4 (5th Cir.1982). Because there are no disputes of material fact, we also conclude that the district court was correct to resolve the matter on summary judgment.

The defendants-appellees argue that the facts of this case are similar to those in Carrell v. Sunland Const., Inc., in which we held that a group of welders were independent contractors under the FLSA. 998 F.2d 330 (5th Cir.1993). In Carrell, we noted that several facts weighed in favor of employee status, including that the defendant dictated the welders’ schedule, paid them a fixed hourly rate, and assigned them to specific work crews. Id. at 334. However, we held that the welders were independent contractors because the welders’ relationship with the defendant was on a project-by-project basis; the welders worked from job to job and from company to company; the average number of weeks that each welder worked for the defendant each year was relatively low, ranging from three to sixteen weeks; the welders worked while aware that the defendant classified them as independent contractors, and many of them classified themselves as self-employed; the welders were highly skilled; the defendant had no control over the methods or details of the welding work; the welders performed only welding services; the welders supplied their own welding equipment; and the welders’ investments in their welding machines, trucks, and tools averaged $15,000 per welder. Id.

In Carrell, we distinguished our prior decision in Robicheaux v. Radcliff Material, Inc., 697 F.2d 662 (5th Cir.1983), in which we held that a group of welders were employees under the FLSA, on the grounds that the welders in Robicheaux worked a substantial period of time exclusively with the defendant in that case, ranging from ten months to three years; the welding in Robicheaux required only “moderate” skill; the defendant in Robicheaux told the welders how long a welding assignment should take; the welders in Robicheaux spent only fifty percent of their time welding, and the remaining time cleaning and performing semi-skilled mechanical work; and the defendant in Robicheaux provided the welders with “steady reliable work over a substantial period of time.” Carrell, 998 F.2d at 334 (citing Robicheaux, 697 F.2d at 667). The welders in Robicheaux had signed a contract with the defendant in that case describing themselves as independent contractors; furnished their own welding equipment, in which they had invested from five to seven thousand dollars each; provided their own insurance and workers’ compensation coverage; invoiced the defendant on their own business letterheads, filed federal income tax returns on IRS forms as self-employed individuals, and received a higher hourly wage than did other welders employed by the defendant who did not furnish their own equipment and who were considered by the company to be employees. Robicheaux, 697 F.2d at 665.

The facts of this case lie somewhere between those of Carrell and Robicheaux. Similar to the facts in Carrell, the plaintiffs in this suit are highly skilled and perform only services requiring the use of those skills, the defendants here did not control the details of how the plaintiffs performed their assigned jobs, and the plaintiffs provided their own trucks, equipment, and tools, in which they had invested substantial sums. However, there are some significant dissimilarities between the facts in the instant case and the facts in Carrell, such that the facts of this case are not as readily distinguishable from those in Robicheaux. The plaintiffs in this case worked full-time exclusively for the defendants for approximately eleven months, within the time range that the Robicheaux welders had worked for the defendant in that case. The plaintiffs in this case did not have the same temporary, project-by-project, on-again-off-again relationship with their purported employers as the plaintiffs in Carrell did with their purported employer. The defendants-appellees argue that Cromwell and Bankston’s work-restoring damaged telecommunications lines along the Mississippi Gulf Coast in the wake of Hurricane Katrina-was by nature temporary, but “courts must make allowances for those operational characteristics that are unique or intrinsic to the particular business or industry, and to the workers they employ.”   Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1054 (5th Cir.1987) (“[W]hen an industry is seasonal, the proper test for determining permanency of the relationship is not whether the alleged employees returned from season to season, but whether the alleged employees worked for the entire operative period of a particular season.”). Thus, the temporary nature of the emergency restoration work does not weigh against employee status.

It is common in FLSA cases that “there are facts pointing in both directions” regarding the issue of employee status, see Herman v. Express Sixty-Minutes Delivery Serv., Inc., 161 F.3d 299, 305 (1998) (quoting Carrell, 998 F.2d at 334), but the facts in this case truly appear to be nearly in equipoise. However, on balance, we believe that, as a matter of economic reality, Cromwell and Bankston were economically dependant upon Driftwood and BellSouth, and were not in business for themselves. The facts of this case simply appear closer to those in Robicheaux than in Carrell. The most significant difference between the facts in those cases, in terms of the economic reality of whether the plaintiffs were economically dependant upon the alleged employer, was that the Robicheaux welders worked on a steady and reliable basis over a substantial period of time exclusively with the defendant, ranging from ten months to three years, whereas the Carrell welders had a project-by-project, on-again-off-again relationship with the defendant, with the average number of weeks that each welder worked for the defendant each year being relatively low, ranging from three to sixteen weeks. Similar to the Robicheaux welders, Cromwell and Bankston worked on a steady and reliable basis over a substantial period of time-approximately eleven months-exclusively for their purported employers. The permanency and extent of this relationship, coupled with Driftwood and BellSouth’s complete control over Cromwell and Bankston’s schedule and pay, had the effect of severely limiting any opportunity for profit or loss by Cromwell and Bankston. Although it does not appear that Cromwell and Bankston were actually prohibited from taking other jobs while working for Driftwood and BellSouth, as a practical matter the work schedule establish by Driftwood and BellSouth precluded significant extra work. Also, the fact that Driftwood and BellSouth provided Cromwell and Bankston with their work assignments limited the need for Cromwell and Bankston to demonstrate initiative in performing their jobs. See Carrell, 998 F.2d at 333 (“As for the initiative required, a Welder’s success depended on his ability to find consistent work by moving from job to job and from company to company. But once on a job, a Welder’s initiative was limited to decisions regarding his welding equipment and the details of his welding work.”). Although there are facts that clearly weigh in favor of independent contractor status, notably that Cromwell and Bankston controlled the details of how they performed their work, were not closely supervised, invested a relatively substantial amount in their trucks, equipment, and tools, and used a high level of skill in performing their work, these facts are not sufficient to establish, as a matter of economic reality, that Cromwell and Bankston were in business for themselves during the relevant time period. The judgment of the district court is VACATED, and this case is REMANDED to the district court for proceedings consistent with this opinion.”

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