Category Archives: Independent Contractor vs Employee

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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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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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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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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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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Strippers’ Lawsuit Challenges Independent Contractor Status, Boston Globe Reports

As reported in yesterday’s Boston Globe:

“When Noel Van Wagner began working as a stripper in New England clubs about 15 years ago, she typically got a modest wage or no salary at all. But she said she made so much in tips – $300 to $800 per shift – that she didn’t care and didn’t even mind paying club owners $10 or $20 for the right to perform each night.

Like other forms of entertainment, however, strip clubs have lost customers because of the bad economy, and Van Wagner said the place where she works, Ten’s Show Club in Salisbury, has responded by wringing as much money as it can out of each dancer. The club, she says, pays no salary, charges each stripper $40 to $60 per shift to perform, and imposes other fees for lateness or failing to participate in every dance routine – all at a time when tips have plunged.

Yesterday, she and another dancer at the club, along with one who left in March, sued the business in Essex Superior Court for allegedly misclassifying them as “independent contractors,” depriving them of wages and tips. The strippers were emboldened by a recent state court ruling that about 70 strippers who worked at King Arthur’s Lounge in Chelsea were entitled to recover thousands of dollars in damages in a class-action lawsuit that made similar allegations. That complaint was believed to be the first of its kind in Massachusetts.”

To read the entire article go to the Boston Globe’s website.

Although it is a widespread practice nationwide, for adult entertainment nightclubs to treat their performers as independent contractors vs employees, most courts to have considered the issue have found such performers to be employees.  Nonetheless the rampant misclassification of strippers and other adult entertainers continues all over the country.

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S.D.N.Y.: Where FLSA Defendants Admit Plaintiff Worked As Both Independent Contractor And Employee, Money Earned As Independent Contractor Not Included For Inquiry As To Whether Plaintiff Earned $100,000

Magnoni v. Smith & Laquercia, LLP

This case was before the Court on Defendants’ Motion for Summary Judgment, on several grounds. Summarized below is the Court’s discussion/decision regarding Plaintiff’s earnings and their impact on her status under the so-called “highly compensated employee” exemption.

The Court’s decision relied on the following facts:

Plaintiff’s “employment at S & L, where she worked as a litigation paralegal and handled the normal responsibilities of a paralegal in a litigation law firm, began in 1990. Beginning in 2003, Magnoni was paid a weekly salary with no extra premium for overtime work. S & L paid Magnoni a salary of $64,807.70 in 2005; $67,653.74 in 2006; and $21,846.12 from January 1, 2007 through April 13, 2007. Magnoni alleges that between 2003 and 2005 she did not receive compensatory time or overtime pay from S & L, but admits she received some compensatory time (though no overtime pay) in 2006 and 2007.

Magnoni estimates that she worked approximately six to seven hours of overtime per week between 2001 and 2005, and approximately eight hours of overtime per week in 2006 and 2007. Calculating her overtime on a weekly basis (omitting holidays and days off), Magnoni estimates that she worked about one hour of overtime per week in 2006 and 2007, and “more than that” in 2003, 2004, and 2005. [ ]

In or about November 1997, while employed at S & L, Magnoni formed a business entity named Contessa Legal Process (“Contessa”), which provided process serving and court filing services. S & L was one of Contessa’s many clients. Though Contessa was not incorporated at the time relevant to this action, Magnoni was the sole proprietor of Contessa and S & L made all payments for Contessa’s services directly to Magnoni. For Contessa’s services, S & L paid Magnoni $41,800 in 2005; $49,500 in 2006; and $11,820 through approximately April of 2007. S & L concedes that while Magnoni was S & L’s employee with respect to her paralegal responsibilities, she was an independent contractor with respect to her process

Defendants argue that Magnoni is exempt from coverage by the FLSA because the total annual compensation she received from S & L, when combining her S & L salary and the payments she received from S & L for Contessa’s services, was in excess of $100,000 for 2005 and 2006, and she was projected to receive approximately $125,000 in 2007.”

The Court discussed the applicable law and applied same to the case, noting Defendants CONCEDED that Plaintiff’s work performed for Contessa, was as an independent contractor not an employee.

“Under a regulation issued by the Department of Labor in 2004:

An employee with total annual compensation of at least $100,000 is deemed exempt under section 13(a)(1) of the Act if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee identified in subparts B, C or D of this part.

29 C.F.R. § 541.601(a). The determination of an employee’s “total annual compensation,” may include “commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period.” Id. § 541.601(b)(1). However, the language of § 541.601 leaves no doubt that it applies only to an employee’s total annual compensation; indeed, under the FLSA, independent contractors are exempt from overtime requirements. See, e.g., Van Asdale v. Apollo Assocs., Ltd., No. 6:08-CV-531-ORL-19KRS, 2009 WL 36419, at *1 (M.D.Fla. Jan. 6, 2009) (“Independent contractors are exempt from the overtime requirements of the FLSA.”); see also Schwind v. EW & Assocs., Inc., 357 F.Supp.2d 691, 700 (S.D.N.Y.2005) (analyzing whether the plaintiff was an employee or independent contractor because “[t]he overtime provisions of the FLSA … apply only to individuals who are ‘employees.’ “). Therefore, Magnoni’s compensation for her independent contractor responsibilities cannot be considered part of her total annual compensation as S & L’s employee under the FLSA.

Defendants concede that Magnoni’s process serving and court filing services on behalf of Contessa were rendered in her capacity as an independent contractor, not in her capacity as an employee of S & L as a paralegal. (See, e.g., Defendants’ Memorandum of Law in Support of Their Motion for Summary Judgment, dated March 27, 2009 (“Defs.’ Mem.”), at 1 (stating that Magnoni “was both an employee performing legal assistant responsibilities for S & L as well as an independent contractor providing significant process serving and court filing services for S & L and many other law firms”); id. at 2 (describing Magnoni’s total annual compensation to include compensation received “both as an employee and an independent contractor”); id. at 3 (describing Magnoni’s process serving and court filing services as independent from her paralegal responsibilities); id. at 10 (characterizing Magnoni as being compensated as “both S & L’s employee and S & L’s independent contractor”); id. at 15 (describing Magnoni as “operat[ing] a separate business” while at S & L); Defendants’ Reply Memorandum of Law in Further Support of Their Motion for Summary Judgment, dated April 29, 2009 (“Defs.’ Reply”), at 4 (describing Magnoni as being compensated as “both an employee and as an independent contractor”).) Thus, any compensation Magnoni received as an independent contractor for the services provided by Contessa was not part of her total annual compensation as S & L’s employee.

Defendants attempt to avoid this outcome by arguing that the Department of Labor’s regulations define “compensation” broadly. However, Defendants do not direct the Court to any case where an “employee[‘s] … total annual compensation,” 29 C.F.R. § 541.601(a), included payment for services rendered as an independent contractor. This absence of authority is unsurprising; because independent contractors are exempt from the FLSA, it would be antithetical to the spirit of the FLSA to consider payment received as an independent contractor to constitute “employee” compensation, particularly given the mandate that exemptions should be narrowly construed against employers. See In re Novartis Wage & Hour Litig., 593 F.Supp.2d 637, 643 (S.D.N.Y.2009) (“Due to the remedial nature of the FLSA’s overtime requirement, … exemptions should be ‘narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit.’ ” (quoting Bilyou v. Dutchess Beer Distribs., Inc., 300 F.3d 217, 222 (2d Cir.2002) (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960)))); see also Henry v. Quicken Loans Inc., No. 2:04-cv-40346, 2009 WL 596180, at *10 (E.D.Mich. Mar. 9, 2009) (“Defendants bear the burden of establishing the applicability of the highly compensated employee exemption because exemptions are to be narrowly construed and limited to those establishments plainly and unmistakably within the terms and spirit of the FLSA.”)

It would unquestionably violate the terms and spirit of the FLSA to construe an “employee’s” total annual compensation to include payment for separate services provided solely as an independent contractor, given that independent contractors are exempt from the FLSA’s overtime provisions. While Defendants argue that the Court should not delve into the details of Magnoni’s paralegal duties in order to determine her total annual compensation, Defendants’ concessions leave no doubt that regardless of what Magnoni’s responsibilities were as S & L’s employee, they did not include her process serving and court filing services. Indeed, on the 1099-MISC IRS forms Defendants submitted to the Court, S & L consistently listed “[ ]Magnoni d/b/a/ Contessa Legal Process” as receiving “nonemployee compensation” for which no state or federal income tax was withheld. (Certification of Thomas E. Chase, Esq., dated March 27, 2009 (“Chase Cert.”), Ex. D); see also Thibault v. BellSouth Telecomms., Inc., Civ. No. 07-0200, 2008 WL 4877158, at *6 (E.D.La. Nov. 10, 2008) (holding that employer’s lack of salary withholdings on 1099-MISC form indicated that plaintiff was an independent contractor rather than an employee).

Because Defendants concede that Magnoni’s Contessa-related process serving and court filing services were conducted in her capacity as an independent contractor, and narrowly construing the application of FLSA exemptions against S & L, compensation for such services cannot be included in the determination of Magnoni’s total annual compensation as S & L’s employee under the FLSA. Magnoni therefore is not exempt as a highly compensated employee under 29 C.F.R. § 541.601(a), as her total annual compensation as S & L’s employee never exceeded $100,000.”

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