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7th Cir.: Truck Driver Adequately Alleged He Was Misclassified as an Independent Contractor and Thus Entitled to Minimum Wage and Overtime
Brant v. Schneider National, Inc.
In this case, a truck owner-operator who contracted with an over the road hauling company contended that he was misclassified as an independent contractor, and thus entitled to overtime pay and minimum wages under the Fair Labor Standards Act (FLSA) and Wisconsin law (minimum wage). In addition, the plaintiff alleged that the contracts he signed with the defendant were unconscionable and thus defendant was unjustly enriched because it required him to bear overhead costs that should have been borne by defendant. Finally, plaintiff alleged that defendant violated the Truth in Leasing regulations, based on representations it made to him.
After the district court dismissed the case with leave to amend, the plaintiff amended his complaint, and the defendant moved to dismiss the amended complaint. The lower court again dismissed the complaint, but the second time with prejudice, and held that plaintiff’s claims were essentially barred by the very agreements he was challenging the legality of. On appeal, the Seventh Circuit reversed, noting that employee status is determined by application of the “economic reality” test and thus, reaffirmed the longstanding black letter law that FLSA rights may not abridged by contract.
While Schneider argued that this agreement established that the driver had a high degree of control over his work and that Schneider had therefore properly classified him as an independent contractor, the plaintiff argued that under the controlling test–the economic reality test–he was Schneider’s employee.
Under the FLSA, workers are employees when “as a matter of economic reality, [they] are dependent upon the business to which they render service.” As the Seventh Circuit noted, the economic reality test includes analyzing: (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.
In reversing dismissal of the driver’s minimum wage claims, the Seventh Circuit concluded that the district court had “erred by giving decisive effect to the terms of [its] contracts,” when “what matters is the economic reality of the working relationship, not necessarily the terms of a written contract.”
For instance, while the operating agreement gave the driver the ability to choose the route and schedule to follow when delivering a shipment, the driver alleged that “the economics of his work constrained his route selection, so his nominal freedom to choose a route did not determine whether he controlled his labor.”
Similarly, while the operating agreement gave the driver the ability to choose which Schneider shipments to haul (and in theory, to select more shipments with higher profit margins), the driver alleged that he could not actually exercise this theoretical right to turn down shipments. The driver further alleged that, despite the terms of his contract, Schneider did not allow him to hire workers or haul freight for other carriers.
In light of these allegations, the Seventh Circuit concluded that the driver’s amended complaint had pled sufficient facts to allow a plausible inference that Schneider was his employer and he was its employee, and not an independent contractor. Thus, the Seventh Circuit reversed.
Click Brant v. Schneider National, Inc. to read the entire Opinion.
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4th Cir.: Strippers Are Employees NOT Independent Contractors; Trial Court Properly Applied the Economic Reality Test
McFeeley v. Jackson Street Entertainment, LLC
In this case, multiple exotic dancers sued their dance clubs for failure to comply with the Fair Labor Standards Act and corresponding Maryland wage and hour laws. The district court held that plaintiffs were employees of the defendant companies and not independent contractors as the clubs contended. Following a damages-only trial and judgment on behalf of the dancers, the Defendant-clubs appealed the court’s finding that the dancers were employees and not independent contractors. The Fourth Circuit held that the court properly captured the economic reality of the relationship here, and thus affirmed the judgment.
The Fourth Circuit summarized the salient facts regarding the dancers’ relationship with the defendant-clubs as follows:
Anyone wishing to dance at either club was required to fill out a form and perform an audition. Defendants asked all hired dancers to sign agreements titled “Space/Lease Rental Agreement of Business Space” that explicitly categorized dancers as independent contractors. The clubs began using these agreements after being sued in 2011 by dancers who claimed, as plaintiffs do here, to have been employees rather than independent contractors. Defendant Offiah thereafter consulted an attorney, who drafted the agreement containing the “independent contractor” language.
Plaintiffs’ duties at Fuego and Extasy primarily involved dancing on stage and in certain other areas of the two clubs. At no point did the clubs pay the dancers an hourly wage or any other form of compensation. Rather, plaintiffs’ compensation was limited to performance fees and tips received directly from patrons. The clubs also collected a “tip-in” fee from everyone who entered either dance club, patrons and dancers alike. The dancers and clubs dispute other aspects of their working relationship, including work schedules and policies.
After discussing the traditional elements of the economic reality test, the Fourth Circuit discussed each element and concluded that, overall, they supported the district court’s holding that the dancers were employees and not independent contractors.
Here, as in so many FLSA disputes, plaintiffs and defendants offer competing narratives of their working relationship. The exotic dancers claim that all aspects of their work at Fuego and Extasy were closely regulated by defendants, from their hours to their earnings to their workplace conduct. The clubs, not surprisingly, portray the dancers as free agents that came and went as they pleased and used the clubs as nothing but a rented space in which to perform. The dueling depictions serve to remind us that the employee/independentcontractor distinction is not a bright line but a spectrum, and that courts must struggle with matters of degree rather than issue categorical pronouncements.
Based on the totality of the circumstances presented here, the relationship between plaintiffs and defendants falls on the employee side of the spectrum. Even given that we must view the facts in the light most favorable to defendants, see Ctr. for Individual Freedom, Inc. v. Tennant, 706 F.3d 270, 279 (4th Cir. 2013), we cannot accept defendants’ contrary characterization, which cherry-picks a few facts that supposedly tilt in their favor and downplays the weightier and more numerous factors indicative of an employment relationship. Most critical on the facts of this case is the first factor of the “economic realities” test: the degree of control that the putative employer has over the manner in which the work is performed.
The clubs insist they had very little control over the dancers. Plaintiffs were allegedly free in the clubs’ view to determine their own work schedules, how and when they performed, and whether they danced at clubs other than Fuego and Extasy. But the relaxed working relationship represented by defendants—the kind that perhaps every worker dreams about—finds little support in the record.
To the contrary, plaintiffs described and the district court found the following plain manifestations of defendants’ control over the dancers:
Dancers were required to sign in upon arriving at the club and to pay the “tip-in” or entrance fee required of both dancers and patrons.
The clubs dictated each dancer’s work schedule. As plaintiff Danielle Everett testified, “I ended up having a set schedule once I started at Fuego’s. Tuesdays and Thursdays there, and Mondays, Wednesdays, Fridays, and Saturdays at Extasy.” J.A. 578 (Everett’s deposition). This was typical of the deposition testimony submitted in the summary judgment record.
The clubs imposed written guidelines that all dancers had to obey during working hours. J.A. 769-77 (clubs’ rulebook). These rules went into considerable detail, banning drinking while working, smoking in the clubs’ bathroom, and loitering in the parking lot after business hours. They prohibited dancers from leaving the club and returning later in the night. Dancers were required to wear dance shoes at all times and could not bring family or friends to the clubs during working hours. Violations of the clubs’ guidelines carried penalties such as suspension or dismissal. Although the defendants claimed not to enforce the rules, as the district court put it, “[a]n employer’s ‘potential power’ to enforce its rules and manage dancers’ conduct is a form of control.” J.A. 997 (quoting Hart v. Rick’s Cabaret Int’l, Inc., 967 F.Supp.2d 901, 918 (S.D.N.Y. 2013)).
The clubs set the fees that dancers were supposed to charge patrons for private dances and dictated how tips and fees were handled. The guidelines explicitly state: “[D]o not [overcharge] our customers. If you do, you will be kicked out of the club.” J.A. 771.
Defendants personally instructed dancers on their behavior and conduct at work. For example, one manager stated that he “ ‘coached’ dancers whom he believed did not have the right attitude or were not behaving properly.” J.A. 997.
Defendants managed the clubs’ atmosphere and clientele by making all decisions regarding advertising, hours of operation, and the types of food and beverages sold, as well as handling lighting and music for the dancers. Id.
Reviewing the above factual circumstances into account the Fourth Circuit held that the district court was correct to conclude that the dancers were employees of the clubs under the FLSA and not independent contractors. The Court reasoned:
Taking the above circumstances into account, the district court found that the clubs’ “significant control” over how plaintiffs performed their work bore little resemblance to the latitude normally afforded to independent contractors. J.A. 997. We agree. The many ways in which defendants directed the dancers rose to the level of control that an employer would typically exercise over an employee. To conclude otherwise would unduly downgrade the factor of employer control and exclude workers that the FLSA was designed to embrace.
None of this is to suggest that a worker automatically becomes an employee covered by the FLSA the moment a company exercises any control over him. After all, a company that engages an independent contractor seeks to exert some control, whether expressed orally or in writing, over the performance of the contractor’s duties and over his conduct on the company’s premises. It is rather hard to imagine a party contracting for needed services with an insouciant “Do whatever you want, wherever you want, and however you please.” A company that leases space or otherwise invites independent contractors onto its property might at a minimum wish to prohibit smoking and littering or to set the hours of use in order to keep the premises in good shape. Such conditions, along with the terms of performance and compensation, are part and parcel of bargaining between parties whose independent contractual status is not in dispute.
If any sign of control or any restriction on use of space could convert an independent contractor into an employee, there would soon be nothing left of the former category. Workers and managers alike might sorely miss the flexibility and freedom that independent-contractor status confers. But the degree of control the clubs exercised here over all aspects of the individual dancers’ work and of the clubs’ operation argues in favor of an employment relationship. Each of the other five factors of the “economic realities” test is either neutral or leads us in the same direction.
Two of those factors relate logically to one other: “the worker’s opportunities for profit or loss dependent on his managerial skill” and “the worker’s investment in equipment or material, or his employment of other workers.” Schultz, 466 F.3d at 305. The relevance of these two factors is intuitive. The more the worker’s earnings depend on his own managerial capacity rather than the company’s, and the more he is personally invested in the capital and labor of the enterprise, the less the worker is “economically dependent on the business” and the more he is “in business for himself” and hence an independent contractor. Id. at 304 (quoting Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 570 (10th Cir. 1994)).
The clubs attempt to capitalize on these two factors by highlighting that dancers relied on their own skill and ability to attract clients. They further contend that dancers sold tickets for entrance to the two clubs, distributed promotional flyers, and put their own photos on the flyers. As the district court noted, however, “[t]his argument—that dancers can ‘hustle’ to increase their profits—has been almost universally rejected.” J.A. 999 (collecting cases). It is natural for an employee to do his part in drumming up business for his employer, especially if the employee’s earnings depend on it. An obvious example might be a salesperson in a retail store who works hard at drawing foot traffic into the store. The skill that the employee exercises in that context is not managerial but simply good salesmanship.
Here, the lion’s share of the managerial skill and investment normally expected of employers came from the defendants. The district court found that the clubs’ managers “controlled the stream of clientele that appeared at the clubs by setting the clubs’ hours, coordinating and paying for all advertising, and managing the atmosphere within the clubs.” J.A. 1001. They “ultimately controlled a key determinant—pricing—affecting [p]laintiffs’ ability to make a profit.” Id. In terms of investment, defendants paid “rent for both clubs; the clubs’ bills such as water and electric; business liability insurance; and for radio and print advertising,” as well as wages for all non-performing staff. Id. at 1002. The dancers’ investment was limited to their own apparel and, on occasion, food and decorations they brought to the clubs. Id. at 1002-03.
On balance then, plaintiffs’ opportunities for profit or loss depended far more on defendants’ management and decision-making than on their own, and defendants’ investment in the clubs’ operation far exceeded the plaintiffs’. These two factors thus fail to tip the scales in favor of classifying the dancers as independent contractors.
As with the control factor, however, neither of these two elements should be overstated. Those who engage independent contractorsare often themselves companies or small businesses with employees of their own. Therefore, they have most likely invested in the labor and capital necessary to operate the business, taken on overhead costs, and exercised their managerial skill in ways that affect the opportunities for profit of their workers. Those fundamental components of running a company, however, hardly render anyone with whom the company transacts business an “employee” under the FLSA. The focus, as suggested by the wording of these two factors, should remain on the worker’s contribution to managerial decision-making and investment relative to the company’s. In this case, the ratio of managerial skill and operational support tilts too heavily towards the clubs to support an independent-contractor classification for the dancers.
The final three factors are more peripheral to the dispute here and will be discussed only briefly: the degree of skill required for the work; the permanence of the working relationship; and the degree to which the services rendered are an integral part of the putative employer’s business. As to the degree of skill required, the clubs conceded that they did not require dancers to have prior dancing experience. The district court properly found that “the minimal degree of skill required for exotic dancing at these clubs” supported anemployee classification. J.A. 1003-04. Moreover, even the skill displayed by the most accomplished dancers in a ballet company would hardly by itself be sufficient to denote an independent contractor designation.
As to the permanence of the working relationship, courts have generally accorded this factor little weight in challenges brought by exotic dancers given the inherently “itinerant” nature of their work. J.A. 1004-05; see also Harrell v. Diamond A Entm’t, Inc., 992 F.Supp. 1343, 1352 (M.D. Fla. 1997). In this case, defendants and plaintiffs had “an at-will arrangement that could be terminated by either party at any time.” J.A. 1005. Because this type of agreement could characterize either an employee or an independent contractor depending on the other circumstances of the working relationship, we agree with the district court that this temporal element does not affect the outcome here.
Finally, as to the importance of the services rendered to the company’s business, even the clubs had to concede the point that an “exotic dance club could [not] function, much less be profitable, without exotic dancers.” Secretary of Labor’s Amicus Br. in Supp. of Appellees 24. Indeed, “the exotic dancers were the only source of entertainment for customers …. especially considering that neither club served alcohol or food.” J.A. 1006. Considering all six factors together, particularly the defendants’ high degree of control over the dancers, the totality of circumstances speak clearly to an employer-employee relationship between plaintiffs and defendants. The trial court was right to term it such.
Significantly, the Fourth Circuit also affirmed the trial court’s holding that the performance fees collected by the dancers directly from the clubs’ patrons were not wages, and that the clubs were not entitled to claim same as an offset in an effort to meet their minimum wage wage obligations. Discussing this issue, the Court explained:
Appellants’ second attack on their liability for damages targets the district court’s alleged error in excluding from trial evidence regarding plaintiffs’ income tax returns, performance fees, and tips. The clubs contend that fees and tips kept by the dancers would have reduced any compensation that defendants owed plaintiffs under the FLSA and MWHL. According to defendants, the fees and tips dancers received directly from patrons exceeded the minimum wage mandated by federal and state law. Had the evidence been admitted, the argument goes, the jury may have awarded plaintiffs less in unpaid wages.
We disagree. The district court found that evidence related to plaintiffs’ earnings was irrelevant or, if relevant, posed a danger of confusing the issues and misleading the jury. See Fed. R. Evid. 403. Proof of tips and fees received was irrelevant here because theFLSA precludes defendants from using tips or fees to offset the minimum wage they were required to pay plaintiffs. To be eligible for the “tip credit” under the FLSA and corresponding Maryland law, defendants were required to pay dancers the minimum wage set for those receiving tip income and to notify employees of the “tip credit” provision. 29 U.S.C. 203(m); Md. Code Ann., Lab. & Empl. § 3-419 (West 2014). The clubs paid the dancers no compensation of any kind and afforded them no notice. They cannot therefore claim the “tip credit.”
The clubs are likewise ineligible to use performance fees paid by patrons to the dancers to reduce their liability. Appellants appear to distinguish performance fees from tips in their argument, without providing much analysis in their briefs on a question that has occupied other courts. See, e.g., Hart, 967 F.Supp.2d at 926-34 (discussing how performance fees received by exotic dancers relate to minimum wage obligations). If performance fees do constitute tips, defendants would certainly be entitled to no offset because, as noted above, they cannot claim any “tip credit.” For the sake of argument, however, we treat performance fees as a possible separate offset within the FLSA’s “service charge” category. Even with this benefit of the doubt, defendants come up short.
For purposes of the FLSA, a “service charge” is a “compulsory charge for service … imposed on a customer by an employer’s establishment.” 29 C.F.R. § 531.55(a). There are at least two prerequisites to counting “service charges” as an offset to an employer’s minimum-wage liability. The service charge “must have been included in the establishment’s gross receipts,” Hart, 967 F.Supp.2d at 929, and it must have been “distributed by the employer to its employees,” 29 C.F.R. § 531.55(b). These requirements are necessary to ensure that employees actually received the service charges as part of their compensation as opposed to relying on the employer’s assertion or say-so. See Hart, 967 F.Supp.2d at 930. We do not minimize the recordkeeping burdens of the FLSA, especially on small businesses, but some such obligations have been regarded as necessary to ensure compliance with the statute.
Neither condition for applying the service-charge offset is met here. As conceded by defendant Offiah, the dance clubs never recorded or included as part of the dance clubs’ gross receipts any payments that patrons paid directly to dancers. J.A. 491-97 (Offiah’s deposition). When asked about performance fees during his deposition, defendant Offiah repeatedly stressed that fees belong solely to the dancers. Id. Since none of those payments ever went to the clubs’ proprietors, defendants also could not have distributed any part of those service charges to the dancers. As a result, the “service charge” offset is unavailable to defendants. Accordingly, the trial court correctly excluded evidence showing plaintiffs’ earnings in the form of tips and performance fees.
This case is significant because, while many district courts have reached the same conclusions, this is the first Circuit Court decision to affirm same.
Click McFeeley v. Jackson Street Entertainment, LLC to read the entire Fourth Circuit decision.
Courts Continue to Hold That Exotic Dancers Are Misclassified as Independent Contractors When Actually Employees; Entitled to Minimum Wage For All Hours Worked
If you are someone who follows the trends in wage and hour law, you are no doubt aware of the recent proliferation of cases in which exotic dancers or strippers have challenged the seemingly industry wide misclassification of their positions. Whereas adult entertainment clubs have classified their exotic dancers as independent contractors for many years, for almost the same duration of time, courts have held that such a classification is erroneous and that the dancers are actually “employees,” as defined by the Fair Labor Standards Act (FLSA). In the continuing cat and mouse game, clubs typically utilize the misclassification of independent contractor, reap the additional profits, and only change their classification of the position if and when they are called to task when same is challenged in a lawsuit—typically brought by a dancer no longer employed by the club. In the two decisions discussed below, two addition courts joined the overwhelming majority of courts to have opined on the issue—albeit with slightly different fact patterns—and held that exotic dancers are “employees” and not independent contractors, as the clubs had classified them.
In the first case, the court—in the District of Maryland—summarized the relevant facts as follows:
Defendant PP & G, Inc. is the owner and operator of Norma Jean’s Nite Club, a night club located in Baltimore that features semi-nude female dancers. Plaintiff Unique S. Butler worked at various times as an exotic dancer at Norma Jean’s until August 2012, when she alleges that she was terminated.
Defendant has always classified the dancers who perform at Norma Jean’s as independent contractors. Defendant asserts that the dancers are permitted to elect, in writing, to become either an employee or independent contractor. To date, no dancer, including Plaintiff, has elected to be classified as an employee.
There is no dispute that, during her time as an exotic dancer at Norma Jean’s, Plaintiff did not receive compensation in the form of hourly wages. Rather, the only compensation Plaintiff received for her work as an exotic dancer was from customer tips. Defendant contends that dancers were permitted to keep the entirety of their tips, save a non-mandatory, $45 cleaning or maintenance fee that they could pay to the club per shift. Following her separation from Norma Jean’s, Plaintiff filed the present lawsuit against PP & G, Inc., arguing that, because she was misclassified by Defendant as an independent contractor rather than an employee, Defendant illegally failed to pay her wages. She claims that, as an employee, she is entitled to back pay under the Fair Labor Standards Act, 29 U.S.C. §§ 201 et seq. (“FLSA”), and the Maryland Wage Payment and Collection Law, Md.Code Ann., Lab. & Empl. §§ 3–501 et seq. (“MWPCL”). Defendant argues that Plaintiff elected to be an independent contractor, and thus was not entitled to wages under the FLSA and MWPCL.
After laying out the factors to be applied under the “economic reality” test, the court explained that the factors required a finding that the dancers were employees:
The ultimate question for the Court’s consideration is whether the dancers were, “as a matter of economic reality, dependent on the business they served, or, conversely, whether they were in business for themselves.” Schultz, 466 F.3d at 305.
With regard to the first factor, “degree of control,” the court discussed same specifically in regard to voluminous case law that has now developed regarding exotic dancers:
Courts considering the status of exotic dancers under the FLSA generally look not only to the guidelines set by the club regarding the entertainers’ performances and behavior, but also to the club’s control over the atmosphere and clientele. For example, in Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir.1993), the court determined that the club exerted significant control where the defendant set weekly work schedules, fined the dancers for absences and tardiness, set price levels for table dances and couch dances, set standards for costumes, and managed song selection, among other things. Id. at 327. Similarly, in Morse v. Mer Corp., the defendant exercised control by publishing “Entertainer Guidelines” that set minimum shift lengths, minimum charges, and behavioral prohibitions. No. 1:08–cv–1389–WTL–JMS, 2010 WL 2346334, at *3 (S.D. Ind. June 4, 2010). Additionally, although the court in Priba Corp. noted that the defendant exercised control over the entertainers by setting show times and establishing behavioral guidelines, it emphasized that “the real touchstone” of the control factor was the “reality of the employment relationship.” 890 F.Supp. at 592. Thus, the Priba court focused on the dancers’ dependence on the club for earnings, and the club’s control over advertising and atmosphere. Id.
Here, unlike in many of the cases involving exotic dancers, see, e.g., Hart v. Rick’s Cabaret Int’l, Inc., ––– F.Supp.2d ––––, 2013 WL 4822199, at *6 (S.D.N.Y.2013) (club exerted control where it had written behavioral guidelines, imposed fines, and imposed a dress code); Thompson v. Linda And A., Inc., 779 F.Supp.2d 139, 148 (D.D.C.2011) (significant control exercised where dancers were required to “sign in,” follow a schedule, were permitted to dance only for set durations, and the defendant enforced certain behavioral rules); Harrell v. Diamond A Entertainment, Inc., 992 F.Supp. 1343, 1349–50 (M.D.Fla.1997) (economic dependence found where the club set fees, had a “stage rotation,” controlled customer volume and atmosphere, and required dancers to abide by written rules and regulations), Defendant does not appear to manage the day-to-day aspects of the dancers’ performance. Defendant does not create work schedules for the dancers, but rather permits them to work at other clubs and to “come and go as they please.” Walter Alexander Robinson, III Dep. 45:15–21, 79:1–4, Aug. 9, 2013. Defendant did not mandate that Plaintiff dress or dance a certain way, did not limit the amount of lap dances she could perform, and did not limit the number of beverages a customer could purchase for her. Unique S. Butler Dep. 40:1–10, Aug. 9, 2013. The only behavioral guidelines that Defendant required Plaintiff to follow were those set by the Maryland State Liquor Board and the adult entertainment laws. Robinson Dep. 51:1–14.
Defendant asserts that the only fee imposed on the Plaintiff was a non-mandatory $45 cleaning or maintenance fee. Id. at 71:10–14. Although Defendant recommends a minimum fee for lap dances, the manager testified that each dancer can set her own fee. Id. at 55:13–56:4. Plaintiff asserts that Defendant also imposed a “late fee,” mandated that she pay the DJ prior to getting on stage, and required her to tip the house mom. Butler Dep. 20:9–13, 31:14–32:9. Plaintiff also stated that Defendant required her to dance at particular times. Id. at 19:11–19. Further, she testified that, if dancers were sanctioned for any matter, they were instructed to work the day shift as punishment. Id. at 32:6–15.
It is undisputed, however, that the Defendant alone is responsible for advertising and creating the atmosphere of the club. Robinson Dep. 30:16–20 (“Q [:] The Defendant is responsible for the advertising, location, business hours, maintenance of facility, aesthetics, and inventory of beverages and food? A [:] Yes. There’s no food.”); 33:6–12 (“Q[:] Okay. The Plaintiff’s employment with Defendant was dependent on Defendant’s financial savvy and business know-how to keep Defendant’s business financially sound so as to keep the doors open and afford Plaintiff the opportunity to work at Norma Jean’s Nightclub? A [:] Yes.”). Like in Priba Corp., the visibility and quality of the club itself “dictates the flow of customers into the club.” 890 F.Supp. at 592. Plaintiff is thus entirely dependent on the Defendant to provide her with customers, and her economic status “is inextricably linked to those conditions over which [Defendant has] complete control.” Id.
Thus, although viewing the facts in the light most favorable to the Defendant suggests that Defendant does not exercise control over the day-to-day decisions and work of its dancers, it exercises significant control over the atmosphere, clientele, and operation of the club. Thus, this factor likely tips in favor of economic dependence, as Defendant exclusively controls the flow of customers, on which Plaintiff depended for her income.
Applying the second factor, “opportunity for profit or loss,” the court held that same supported a finding of employment, based on the defendant’s acknowledgement that plaintiff did not share in the profits or losses of the club. The court similarly held that plaintiff made virtually no investment in equipment or material, the third factor considered, and the little or no skill was required for her job (the fourth factor).
While the court acknowledged that the fifth factor, “permanence of the working relationship was not as clear, it nonetheless concluded that, the mere fact that the plaintiff was free to come and go as she pleased and work at other clubs, did not belie classification as an employee:
As to the permanence and duration of the working relationship, Plaintiff was generally permitted to work without a specified end date and could come and go as she pleased. Robinson Dep. 45:15–21, 79:1–4. Additionally, she was free to work at other adult entertainment clubs. This factor tends to weigh in favor of independent contractor status. As other courts have noted in considering this factor, however, “it is entitled to only modest weight in assessing employee status under the FLSA.” Hart, ––– F.Supp.2d at ––––, 2013 WL 4822199, at *14; see also Priba Corp., 890 F.Supp. at 593 (“Because dancers tend to be itinerant, the court must focus on the nature of their dependence.”). As the District Court for the Southern District of New York recently noted in regard to a similar challenge, “[t]hat dancers were free to work at other clubs or in other lines of work, and that they were not permanent employees, do[es] not distinguish them from countless workers in other areas of endeavor who are undeniably employees under the FLSA-for example, waiters, ushers, and bartenders.” Hart, ––– F.Supp.2d at ––––, 2013 WL 4822199, at *14.
Finally, the court dismissed the defendant’s argument that plaintiff’s services were not of an “integral nature” to its business operations:
It is undisputed that Defendant maintains an adult entertainment business at Norma Jean’s Nite Club. Defendant asserts that, although the club features dancers, dancers are not integral to the operation of the business. Rather, Defendant characterizes Norma Jean’s as “a sports bar” with pool tables, and contends that dancers constitute but one of the features. Robinson Dep. 19:5–10, 31:2–7. Defendant states that it makes all of its profits off of the sale of alcoholic beverages, not the exotic dancers.
Courts have routinely noted that the presence of exotic dancers are “essential,” or “obviously very important,” to the success of a topless nightclub. See, e.g., Harrell, 922 F.Supp. at 1352; Martin v. Circle C. Invs., Inc., No. MO–91–CA–43, 1991 WL 338239, at *4 (W.D.Tex. Mar. 27, 1991). For example, the court in Hart stated, in considering the club owners’ argument that “the Club’s restaurant, bar, and televisions served to attract customers,” that “[n]o reasonable jury could conclude that exotic dancers were not integral to the success of a club that marketed itself as a club for exotic dancers.” ––– F.Supp.2d at ––––, 2013 WL 4822199, at *14.
Here, any contention that the exotic dancers were not integral to the operation of Norma Jean’s flies in the face of logic. The presence of the exotic dancers was clearly a major attraction of the club, and increased significantly the sales of alcoholic beverages and, accordingly, the profits earned by PP & G. Further, unlike the club in Hart, Norma Jean’s does not serve food or have a restaurant. Rather, the only attractions, aside from exotic dancers, are televisions and pool tables. Because no reasonable jury could determine that exotic dancers were not integral to the success of Norma Jean’s, this factor also tips in favor of employee status.
Holding that all factors together supported an employment relationship the court concluded:
Considering the preceding factors in conjunction, and resolving all disputes of fact in favor of the Defendant, the Court concludes that Plaintiff was an employee, not an independent contractor, at Norma Jean’s Nite Club. Although Defendant asserts that Plaintiff elected to become an independent contractor, neither the label placed on an employment relationship, nor an individual’s subjective belief about her employment status, are dispositive. See, e.g., Clincy v. Galardi South Enterprises, Inc., 808 F.Supp.2d 1326, 1329 (N.D.Ga.2011). Defendant controlled the economic opportunity of the Plaintiff. Plaintiff did not have the opportunity for profit or loss, did not invest in the club, and did not have any specialized skills. Moreover, work of the type performed by Plaintiff as an exotic dancer is integral to the operation of the club. Regardless of the Defendant’s characterization of the relationship as that of an independent contractor, “[w]here the work done, in its essence, follows the usual path of an employee, putting on an ‘independent contractor’ label does not take the worker from the protection of the [Fair Labor Standards] Act.” Rutherford, 331 U.S. at 729.
Click Butler v. PP & G, Inc. to read the entire Memorandum opinion.
Stevenson v. Great American Dream, Inc.
In a second recent opinion, on very similar facts, a court within the Northern District of Georgia reached the same conclusion. Applying the same “economic reality” test to the facts before it, the court explained:
To begin, this is not a matter of first impression for this Court. In Clincy v. Galardi South Enterprises, Inc., 808 F.Supp.2d 1326 (N.D.Ga.2011), this Court found that adult entertainers-working under conditions similar to the Plaintiffs in this action-were “employees” protected by the FLSA. Many other courts have reached the same conclusion. See Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir.1993); Reich v. Priba Corp., 890 F.Supp. 586 (N.D.Tex.1995); Harrell v. Diamond A Entertainment, Inc., 992 F.Supp. 1343 (M.D.Fla.1997); Morse v. Mer Corp., 1:08–CV–1389–WTL–JMS, 2010 WL 2346334 (S.D. Ind. June 4, 2010); Hart v. Rick’s Cabaret Intern., Inc., No. 09 Civ. 3043, 2013 WL 4822199 (S.D.N.Y. Sept. 10, 2013).
Here, five out of the six factors support finding “employee” status. First, Pin Ups exercised a significant amount of control over the Plaintiffs. The Plaintiffs were issued a document titled “General Policies and Procedures.” (Pls.’ Statement of Facts ¶ 59.) These rules laid out standards for appropriate dress5 and how the entertainers were to conduct themselves on stage. (Id., Ex. 4.) They also stipulated that the DJ would ultimately select the music that the entertainers would perform to. (Id.) These rules applied not only to how the Plaintiffs conducted themselves on the main stage, but also to how they conducted themselves in the VIP room. (Id.) Further, these rules were enforced. Violations could result in dismissal. (Id. ¶¶ 16–17.) The “house moms” made sure that the Plaintiffs complied with the appearance standards. (Id. ¶ 23.) If there was a dispute regarding proper dress, the manager would make the final call. (Id. 43.) In addition to these regulations, the Plaintiffs were required to pay several fees. Upon arriving for a shift, they had to pay a house fee. (Id. ¶¶ 31–32.) They also paid fees that went to the house mom and the DJ. (Id. ¶¶ 22, 24.) Moreover, Pin Ups was responsible for settling disputes arising within the club. For example, disputes concerning the entertainer tip pool were resolved by the house mom and the manager. (Id. ¶ 49.) Pin Ups also handled disputes between the Plaintiffs and the customers. (Id. ¶ 18.) The Defendants argue that the entertainers could set their own schedules. But this was true in several cases where courts found that the entertainers were nonetheless employees. See, e.g., Priba Corp., 890 F.Supp. at 591; Harrell, 992 F.Supp. at 1348. Control over scheduling is minimal compared to all of the elements of the job that Pin Ups controlled. See Usery, 527 F.2d at 1312 (“Each operator is given the right to set her own hours … [i]n the total context of the relationship … the right to set hours [does not indicate] such lack of control by [the defendant] as would show these operators are independent from it …. [c]ontrol is only significant when it shows an individual … stands as a separate economic entity.”). Here, “the entertainer’s economic status is inextricably linked to those conditions over which defendants have complete control.” Priba Corp., 890 F.Supp. at 592.
Second, the Plaintiffs and Pin Ups did not share equally in the opportunities for profit and loss. Although the Plaintiffs risked a loss equal to the fees they paid-assuming they made nothing in tips-“The risk of loss [was] much greater for the Club.” Clincy v. Galardi South Enterprises, Inc., 808 F.Supp.2d 1326, 1346 (N.D.Ga.2011). It bore the vast majority of overhead costs. Pin Ups also had more of an impact on potential profits. It was “primarily responsible for attracting customers to the Club, as decisions about marketing and promotions for the Club, its location, its maintenance, aesthetics, and atmosphere, and food and alcohol availability and pricing are made by” Pin Ups. Id. The Defendants argue that the entertainers could earn more profit based on their interactions with the customers. (Defs.’ Resp. to Mot. for Summ. J., at 17–18.) This argument was rejected in Clincy. See Clincy, 808 F.Supp.2d at 1345–46. The Plaintiffs’ control over profits was minor compared to Pin Ups’. “[B]ut for defendants’ provision of the lavish work environment, the entertainers at the club likely would earn nothing.” Priba Corp., 890 F.Supp. at 593.
Third, Pin Ups invested far more than the Plaintiffs on necessary personnel and equipment. It provided bartenders, waitresses, cashiers, security staff, and disc jockeys. (Pls.’ Statement of Facts ¶¶ 12–13, 70.) Pin Ups also provided the facility, the stages, and the poles. (Id. ¶ 71.) As other courts have noted, the amount spent on clothing, hair styling, and make-up “is minor when compared to the club’s investment.” Harrell, 992 F.Supp. at 1350; see also Reich, 998 F.2d at 328 (“A dancer’s investment in costumes and a padlock is relatively minor to the considerable investment Circle C has in operating a nightclub.”). Many employees in many different fields are also financially responsible for maintaining an appearance suitable to their respective work environments.
Fourth, little skill is required. Pin Ups does not require that its entertainers undergo formal training. (Id. ¶ 73.) The Defendants argue that the entertainers get better as they gain experience. Although different entertainers may possess varying degrees of skill, there is no indication that a high degree of skill or experience is necessary. Taking your clothes off on a nightclub stage and dancing provocatively are not the kinds of special skills that suggest independent contractor status. See Priba Corp., 890 F.Supp. at 593 (“The scope of her initiative is restricted to decisions involving what clothes to wear or how provocatively to dance. Such limited initiative is more consistent with the status of an employee than an independent contractor.”).
Fifth, and most definitively, the Plaintiffs’ services were an integral part of Pin Ups’ business. Pin Ups is an adult entertainment club and so it needs adult entertainers. Kelly Campbell, the general manager of Pin Ups, acknowledged this. (Campbell Dep. at 20.) (“Because we are an entertainment facility and we could not be such without an entertainer.”). Pin Ups’ General Policies and Procedures issued to the entertainers states: “Your job as an entertainer is the most important one in our organization.” (Pls.’ Statement of Facts, Ex. 4.)
The court did recognize that the final factor did not necessarily weigh in favor of an employment relationship, but—citing some of the identical language as the Butler court had—it held that same was not terribly important in its inquiry:
Only the duration factor supports the Defendants’ position. There is no indication that all of the Plaintiffs worked at Pin Ups for an extended period of time, and all of the Plaintiffs were permitted to work as entertainers at other clubs. However, “[t]hat dancers were free to work at other clubs or in other lines of work, and that they were not permanent employees, do not distinguish them from countless workers in other areas of endeavor who are undeniably employees under the FLSA-for example, waiters, ushers, and bartenders.” Hart, 2013 WL 4822199, at *14. In light of the other factors, this alone cannot nudge the Plaintiffs out of the protective sphere of the FLSA.7 See Reich, 998 F.2d at 328–29 (“The transient nature of the work force is not enough here to remove the dancers from the protections of the FLSA. In analyzing the … factors, we must not lose sight of economic reality.”).
Click Stevenson v. Great American Dream, Inc. to read the complete Opinion and Order.
LPNs, Commercial Cleaners and Cable Installers: Recent Decisions Continue to Clarify That So-Called “Independent Contractors” May Actually Be Employees Under the FLSA
As the workforce becomes more and more aware of the differences between true independent contractors and employees under the FLSA—the latter entitled to minimum wages and overtime premiums under the FLSA—courts continue to address this factually intensive issue in a variety of industries. However, as many FLSA practitioners are no doubt aware, certain industries seem to have more than their fair share of employers who misclassify their employees as independent contractors. In 3 recent cases, all from within the Eleventh Circuit, courts addressed the issue of independent contractor misclassification. Significantly, all of the cases held that—under the FLSA’s very wide definition of employment, each of the workers at issue were employees (or in one case reversed the lower court’s ruling otherwise). Because the decisions themselves are factually intensive inquiries, the facts of each case are discussed in detail below.
M.D.Fla.: LPNs Employees Not Independent Contractors
Solis v. A+ Nursetemps, Inc.
The first case discussed here concerned the defendant-employer’s misclassification of its LPN (licensed practical nurse) employees as independent contractors. Following a bench trial, the court held that the LPNs were employees and not independent contractors as the employer had maintained. Analyzing the issue, the court explained:
The Eleventh Circuit cases clearly establish that the “economic realities test” is the standard to be applied in determining whether a worker is an employee covered by the FLSA, or is an independent contractor who is not covered by the Act. Medrick v. Albert Enterprises, Inc., 508 F.2d 297 (5th Cir.1975); Villarreal v. Woodham, 113 F.3d 202 (11th Cir.1997); Freund v. Hi–Tech Satellite, Inc., 185 Fed. Appx. 782 (11th Cir.2006).9
See also Antenor, 88 F.3d 925 (applying the economic realities test in resolving a joint employer issue under the FLSA).
Each of those pertinent Eleventh Circuit decisions recite various factors to be considered in applying the economic realities test, and the lists are not identical. All of the cases agree, however, either implicitly or explicitly, that “[n]o one of these considerations can become the final determinant, nor can the collective answers to all of the inquiries produce a resolution which submerges consideration of the dominant factor—economic dependence.” Freund, supra, 185 Fed. Appx. at 783 (quoting Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311 (5th Cir.1976)).
The factors listed in the cases include: (a) whether the alleged employer had the power to hire and fire the workers in question; (b) whether the alleged employer supervised and controlled the employee work schedules or conditions of employment; (c) whether the alleged employer determined the rate and method of payment; (d) whether the alleged employer maintained work time records; (e) whether the worker performed a specialty job requiring specialized training or skill; (f) whether the contractual terms of the employment varied in a material way as one worker succeeded another; (g) whether the workers had business organizations that could offer the worker’s services to others; (h) whether the alleged employer supplied the premises and/or the equipment necessary to perform the work; (i) whether the worker employed others to assist in performing the job; (j) the employee’s opportunity for profit or loss depending upon management skill; (k) the degree of permanency or duration of the working relationship; and (l) the extent to which the service rendered by the worker is an integral part of the employer’s business.
Applying each of the factors, the court reasoned:
(a) The right to hire and fire. The Court interprets this factor (taken from Villarreal, supra ) to require an examination of whether the employer has retained the usual common law right to hire and fire at will, or has placed limitations on those rights by contract as would often be the case in dealing with an independent contractor and a contractual clause imposing liability or a penalty for cancellation of the work. Here, of course, Nursetemps has sole control with respect to the selection of nurses to be assigned to shifts, and may withhold such assignments if it pleases. Just as the nurses are under no obligation to take assignments, Nursetemps is under no obligation to make them.
(b) Control of work schedules and supervision of the work. This factor (also taken from Villarreal, supra ) has two aspects as applied to this case. Control of the work schedules, in terms of assigning work to the nurses, is in the hands of Nursetemps. Supervision of the work, however, is not. That control is in the hands of the client facility, not Nursetemps. Thus, as stated earlier, if the common law test applied, Nursetemps would have a stronger case. In the context of an FLSA examination, however, this division of control does not help the nurses’ independent contractor argument because control of the work does not shift to the nurses, it shifts to another entity (which may thereby become a joint employer, Antenor v. D & S Farms, supra,) but it does not mean that the nurses thereby become independent contractors.
(c) Determining the rate and method of payment. In an independent contractor relationship, the independent contractor normally has at least an equal say in the rate to be charged for particular work by bidding on the job or by posting or advertising standard rates for the work to be performed. Here, by contrast, it is Nursetemps that fixes the hourly rate it will pay the nurses for each shift or each assignment. Individual nurses have the right to negotiate with respect to the rate they will earn, but Nursetemps retains the upper hand in deciding the rate it will pay; and it is Nursetemps that pays the nurses, not the facility where the work is performed.
(d) Maintenance of time records. While the nurses keep their own time records, they are paid by the hour, and such records are turned in to and maintained by Nursetemps (albeit not in full compliance with 29 C.F.R. § 516.2) for the purpose of calculating the nurses’ pay. Stated another way, the nurses are not paid a flat rate or piece rate per shift. They are hourly employees.
(e) Performance of a specialty job requiring specialized training or skill. While it cannot be denied that the work of a nurse requires highly specialized training and skill, such work in this society is not necessarily a specialty job in the sense that members of the public do not typically seek them out for private or individual engagements; rather, the nurses involved in this case work, instead, on an hourly basis in institutional settings like the hospices, hospitals and detention facilities.
(f) Variation in terms of employment. There is no evidence of any variation in the terms of employment as one worker succeeds another. Nurses are assigned to work shifts for rates established by Nursetemps and (subject to occasional negotiation of rates with an individual nurse) remain the same from nurse to nurse, shift to shift, week to week.
(g) Business organization for offering nurses services to others. While some of the nurses formed limited liability or corporate entities, the evidence is that those who did so were acting at the suggestion of Nursetemps, and the existence of such entities did not change the practical day-to-day relationship between Nursetemps and the nurses in any way. Also, the formation of such entities did not lead any of the nurses to use them as a vehicle to offer their services as entrepreneurs to other health care providers or to the public in general.
(h) Premises and equipment. Nursetemps does not supply the premises on which the work is accomplished, but neither do the nurses. The equipment necessary for the nurses to do their work—stethoscopes, blood pressure cuffs, thermometers and uniforms are provided by the nurses who also bear the cost of their continuing educational requirements.
(i) Employment of others. The nurses do not employ others to assist them in the performance of their work.
(j) Opportunity for profit. The nurses are paid by the hour for shift work. There is no opportunity for additional income or profit through the exercise of managerial skill or increased efficiency in the manner or means of accomplishing the work.
(k) Permanency of the relationship. A majority of Nursetemps nurses have accepted work assignments on a regular basis for a year or more.
(l) Whether the nurses work is an integral part of Nursetemps business. The work performed by the nurses is more than an integral part of Nursetemps’ business, it is the whole of Nursetemps’ business.
Per its analysis of each of the factors, the court concluded:
Consideration of the foregoing factors, both individually and collectively, leads inexorably to the conclusion that Nursetemps nurses are employees for purposes of the FLSA, not independent contractors. The same result is reached when one simply steps back to take a common sense look at the nature of the relationship between Nursetemps and the nurses. While it is certainly true that the nurses enjoy a degree of flexibility in their working lives, not shared by many in the work force, including an enhanced ability to “moonlight” by working for more than one agency at a time and by choosing when and where to make themselves available for work, the simple fact remains that when the nurses are available for work they are dependent upon Nursetemps to provide it, and when they are working on assignment for Nursetemps they are, during those workweeks, employees of Nursetemps.
Click Solis v. A+ Nursetemps, Inc. to read the entire Memorandum Opinion Including Finding of Fact and Conclusions of Law.
S.D.Fla.: Commercial Contractors Were Employees Not Independent Contractors
Robles v. RFJD Holding Co., Inc.
In a second recent case, a court in the Southern District of Florida was asked to decide whether commercial cleaners were employees or independent contractors, as the employer-defendant claimed. Applying the same test as the court above, the court granted the plaintiffs’ motion for summary judgment and denied the defendant’s motion—holding that the defendant had misclassified the commercial cleaners as independent contractors. Discussing the factors regarding its determination on the issue the court explained, in part:
1. Control of the Manner of Performing Work
When an alleged employer provides “specific direction for how workers, particularly lowskilled workers, are to perform their jobs, courts have weighed the control factor in favor of employee status.” Montoya v. S.C. C.P. Painting Contractors, Inc., 589 F.Supp.2d 569, 579 (D.Md.2008) (finding factors such as the provision of supervision of painters, instruction in what paint to use and how many coats to apply, and on-the-job training to be indicative of employee status). Similarly, the provision of written instructions and procedures for how to complete the job also indicates employee status. See Schultz v. Capital Int’l Sec., Inc. ., 466 F.3d 298, 307 (4th Cir.2006) (finding an eight-page standard operating procedure document outlining job tasks indicative of employee status); Solis v. Int’l Detective & Protective Serv., Ltd., 819 F.Supp.2d 740, 750 (N.D.Ill.2011) (finding a policy and procedure handout coupled with close monitoring of workers’ compliance with the procedures indicative of control). The provision of training likewise indicates an employee-employer relationship. See Gate Guard Servs. L.P. v. Solis, 2013 WL 593418, at *4 (S.D.Tex. Feb.13, 2013) (noting the significance of training and observing that the non-provision of training indicates an independent-contractor relationship). Finally, supervision need not be constant to establish an employee-employer relationship. See Brock v. Superior Care, Inc., 840 F.2d 1054, 1060 (2d Cir.1988) (citing Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1383–84 (3d Cir.1985)) (“An employer does not need to look over his workers’ shoulders every day in order to exercise control.”).
Here, the facts demonstrate that Defendants exercised substantial control over the manner of performing work. Defendants trained the cleaning crews in how to clean specific items, including what tools to use; they provided the crews with extensively detailed checklists of what to clean and how often to do so; they initially monitored the crews’ performance on-site and in person for an entire week; and, although there is some dispute as to how often any particular supervisor visited and inspected a specific restaurant,2 it is undisputed that Defendants’ supervisors regularly supervised the cleaning crews’ work. Viewed together, this all suggests that Defendants closely controlled the manner of Plaintiffs’ work as an employer would. While Defendants—as all businesses to some degree—may certainly have been concerned with “customer satisfaction,” Defendants manifested that concern through closely controlling and monitoring Plaintiffs’ work habits and methods. Accordingly, the first factor weighs in favor of finding that Plaintiffs were “employees” under the FLSA.
2. Opportunity for Profit or Loss Depending on Managerial Skill
Turning to the second half of the inquiry on this factor, the Court notes that Defendants do not point to any opportunity for loss that Plaintiffs risked. The opportunity for loss must extend beyond the mere threat of lost wages and must involve the risk of losing a capital investment. See Lauritzen, 835 F.2d at 1536;
Clincy v. Galardi S. Enters., Inc., 808 F.Supp.2d 1326, 1345–46 (N.D.Ga.2011). Beyond the occasional purchase of negligible cleaning supplies and tools, which is insufficient to present a risk of loss, Plaintiffs invested practically nothing but their labor in their cleaning work. See Lauritzen, 835 F.2d at 1536. To the extent that Defendants may contend that the back charges that they imposed on cleaning crews when customers were dissatisfied represent losses, see D.E. 56–1 at 9, the Court rejects this argument. Such back charges are not attributable to any discretionary managerial decision but, rather, are the result of poor cleaning performance.
When viewed as a whole, Plaintiffs’ opportunities to increase their profits support the idea that they were independent contractors, but the absence of any real risk of loss suggests Plaintiffs were “employees.” This factor is a wash.
3. Investment in Required Equipment or Materials and Employment of Workers
As discussed above, Plaintiffs were permitted to hire individuals on their own to accomplish their cleaning tasks but were not required to do so. D.E. 56–2, ¶ 5; D.E. 68–1, ¶ 5. During their fourteen-month tenure with Emmaculate, Plaintiffs Robles and Ulloa hired an individual only one time to help with their cleaning work. D.E. 56–2, ¶ 27; D.E. 68–1, ¶ 27. Plaintiffs’ investment in additional labor was minimal—even aberrant—and not indicative of independence. See Usery, 527 F.2d at 1312 (“Occasional exercise of the right to hire helpers also has not been found sufficiently indicative of independence to allow a finding of nonemployee status.”)…
Here, Plaintiffs made admittedly minimal purchases rather than large-scale investments in supplies and equipment. The lack of Plaintiffs’ substantial investment in equipment and materials tips in the direction of finding employee status.
4. Whether the Service Rendered Requires Special Skills
As other courts have found, cleaning services such as those provided by Plaintiffs require no special skills. See Quinteros v. Sparkle Cleaning, Inc., 532 F.Supp.2d 762, 770 (D.Md.2008); see also Usery, 527 F.2d at 1314 (“Routine work which requires industry and efficiency is not indicative of independence and nonemployee status.”). Defendants’ arguments to the contrary are unpersuasive. To the extent that Defendants suggest experience is required to do Plaintiffs’ work, D.E. 67 at 7, the Court does not agree that experience is, or is equivalent to, a specialized skill, and Defendants point to no authority that suggests otherwise. See Lauritzen, 835 F.2d at 1537 (citing Brock v. Lauritzen, 624 F.Supp. 966, 969 (E.D.Wis.1985) (holding that the development of occupational skill through experience “is no different from what any good employee in any line of work must do”). Put another way, one can quickly and easily develop experience at routine, unspecialized tasks…
Accordingly, this factor weighs in favor of finding employee status.
5. Permanency and Duration of the Working Relationship
The ability to readily reject jobs is not reflective of the permanency found in an employee-employer relationship and supports finding an independent-contractor relationship. On balance, the duration and permanency factor tips slightly in favor of Defendants.
6. The Extent to Which the Service Is an Integral Part of the Alleged Employer’s Business
Next, the Court considers the extent to which Plaintiffs’ cleaning services were an integral part of Defendants’ business. It is undisputed that Emmaculate is a “commercial cleaning business specializing in restaurant cleaning.” D.E. 56–2, ¶ 1; D.E. 68–1, ¶ 1. As Plaintiffs provide the cleaning services that Defendants’ offer, Plaintiffs’ services are indisputably integral, if not essential, to Defendants’ business. While Defendants attempt to cursorily dismiss this factor as “not determinative of one’s employee’s status,” D.E. 56–1 at 11, the reality is that this factor informs the inquiry as much as any other factor listed here. Freund, 185 F. App’x at 784;
Scruggs v. Skylink, Ltd., 2011 WL 6026152, at *8 (S.D.W.Va. Dec.2, 2011) (“Generally, the more integral the work, the more likely the worker is an employee, not an independent contractor.” (citation omitted)). Consequently, this factor weighs strongly in favor of finding an employee relationship.
Having weighed each of the factors, the court concluded that the commercial cleaner workers were defendant’s employees, as a matter of law:
Upon consideration of the six factors above and the circumstances as a whole, the Court finds that Plaintiffs were dependent on Defendants in their economic relationship and are considered employees under the FLSA. The fact that Robles and Ulloa worked exclusively for Emmaculate during their fourteen-month association highlights Plaintiffs’ economic dependency on Defendants. Further, Defendants’ significant control and supervision of Plaintiffs’ work habits and methods, Plaintiffs’ minimal capital investments and nonexistent risk of loss, Plaintiffs’ dependence on Emmaculate to find and engage restaurants to be cleaned, the lack of a need for specialized skills, and the integral and essential nature of Plaintiffs’ services to Defendants’ business all describe a relationship with the character of one between an employee and an employer, notwithstanding the few indicia of independent-contractor status found on the record. Taken together, these facts demonstrate that Plaintiffs were not in business for themselves but were, instead, dependent on Defendants for their continued employment in the restaurant-cleaning business. Accordingly, Plaintiffs’ motion for summary judgment is granted on this point, and Defendants’ motion is denied.
Click Robles v. RFJD Holding Co., Inc. to read the entire Order on Motions for Summary Judgment.
11th Cir.: Cable Installers May Be Employees; Summary Judgment For Employer Reversed
Scantland v. Jeffrey Knight, Inc.
The final case was before the Eleventh Circuit on the appeal of cable installer employees, following the district court’s order in which it held that the installers were independent contractors rather than employees, notwithstanding many cases holding to the contrary on similar facts. Applying the economic realities test discussed above, and taking the facts in the light most favorable to the plaintiffs (as the non-movants), the Eleventh Circuit held that a reasonable jury could find that the cable installers were employees under the FLSA. As such, the court reversed the decision below and remanded the case for trial on the issue.
Weighing the various factors, the court explained:
The first factor considers the nature and degree of the alleged employer’s control as to the manner in which the work is to be performed. Control is only significant when it shows an individual exerts such a control over a meaningful part of the business that she stands as a separate economic entity. Usery, 527 F.2d at 1312–13. The facts, viewed in the light most favorable to plaintiffs, indicate that Knight exercised significant control over plaintiffs such that they did not stand as separate economic entities who were in business for themselves.
Technicians were required to report to a Knight facility by 7:00 to 7:15 each morning. Technicians would turn in equipment from the previous day and submit their work orders, which included the billing codes that determined their pay for particular jobs. These billing codes were set by Knight, and managers could unilaterally change the codes that technicians reported, thereby reducing a technician’s pay.4 Plaintiffs would also receive a route detailing the current day’s work orders, which were generally assigned in two-hour timeslots. Though plaintiffs’ Independent Contractor Service Agreements provided that they could decline any work assignments, plaintiffs testified that they could not reject a route or a work order within their route without threat of termination or being refused work in the following days. Thus, while a technician might consider a specific route or work order unprofitable, because, for example, it was low-paying or far away, plaintiffs had no power to decline the assignment. Technicians also might be required to attend quality control meetings and classes on new equipment or participate in a monthly equipment inventory conducted by BHN, which required technicians to unload their trucks and account for all BHN equipment. This morning routine could last up to two hours. Plaintiff Sperry testified that he had to arrive by 5:30 a.m. in order to make it to his first job assignment on time. During occasional downtime, technicians could request additional jobs; they could also be required to assist other technicians or be assigned additional jobs that they could not refuse. Technicians might be required to stay on the job until all the technicians in their area had completed their work; they could also be called back to jobs long after completing them to address problems. Plaintiffs could upsell by convincing customers to add additional BHN services, but those orders had to be approved by Knight. Plaintiffs could not sell non-BHN services to customers and could not work for other companies, either because they were told they could not do so or because the schedule Knight imposed prevented them from doing so. Plaintiffs could, according to their contract, employ others to help them, but any such employees had to be technicians already engaged by Knight, and were therefore bound by Knight’s policies. Plaintiffs were subject to meaningful supervision and monitoring by Knight. Technicians routinely communicated with dispatch during the day and were required to log in and out of Work Force Management—a service on their cellular phones that they paid for via payroll deductions—to indicate when they arrived on a job, when they completed a job, and what their estimated time of arrival was for their next job. Knight or BHN also conducted site checks of technicians’ work, and Knight tracked technicians’ quality control discrepancy rate. Technicians with consistent quality control issues could be given remedial training at a mock house or they could be terminated. An installation manager also might counsel a technician regarding his physical appearance or the appearance of his vehicle. Knight levied uncontestable fines called chargebacks for not meeting specifications, not using Work Force correctly, misplacing inventory, or being late to a job. Typically, $100 would be deducted from the technician’s pay for chargebacks on residential jobs and $150 for commercial jobs. Plaintiff Downs testified that chargebacks could mount up to the point where they surpassed the amount of money a technician could earn on a job. Technicians could also be downloaded, i.e., fired, for consistently misbilling, fraudulently billing, stealing, having a bad attitude, having consistently low quality control ratings, and being rude to customers, other technicians, or Knight employees. Knight’s Jill Williams testified that she and another installation manager had downloaded more than one hundred technicians. Plaintiff technicians worked five to seven days a week; some were required to work six days a week and sometimes seven days a week because of a requirement that they work rotating Sundays. Plaintiffs regularly worked more than forty hours a week.7 Technicians either had to inform their supervisors that they would be taking time off or request time off in advance, sometimes in writing.
In sum, Knight controlled what jobs plaintiffs did, how much they were paid, how many hours they worked, how many days they worked, their daily work schedule, whether they could work for others, whether they could earn additional income from customers, and closely monitored the quality of their work. Plaintiffs could not bid for jobs or negotiate the prices for jobs. Their ability to hire and manage others was illusory. This alleged control strongly suggests that the plaintiffs were economically dependent upon Knight…
B. Opportunity for Profit or Loss
The second factor considers the alleged employee’s opportunity for profit or loss depending upon his managerial skill. The facts, taken in the light most favorable to plaintiffs, indicate that plaintiffs’ opportunity for profit or loss depended more upon Knight’s provision of work orders and technicians’ own technical skill and efficiency than their managerial skill.
Plaintiffs’ opportunity for profit was largely limited to their ability to complete more jobs than assigned, which is analogous to an employee’s ability to take on overtime work or an efficient piece-rate worker’s ability to produce more pieces. An individual’s ability to earn more by being more technically proficient is unrelated to an individual’s ability to earn or lose profit via his managerial skill, and it does not indicate that he operates his own business. As the Supreme Court has explained, a job whose profits are based on efficiency is more like piecework than an enterprise that actually depend[s] for success upon the initiative, judgment or foresight of the typical independent contractor. Rutherford Food, 331 U.S. at 730, 67 S.Ct. at 1477. Technicians could not negotiate or otherwise determine the rates they were paid for jobs. In fact, the billing codes they submitted were subject to unilateral change by Knight. They were also subjected to uncontestable chargebacks that could wipe out their earnings from a single job.12 Knight’s argument that plaintiffs could control losses by avoiding chargebacks is unpersuasive. Chargebacks relate to the quality of a technician’s skill, not his managerial or entrepreneurial prowess. Plaintiffs’ ability to earn additional income through their own initiative was limited. Though plaintiffs could upsell, any jobs added to a work order by a technician had to be approved by Knight, and plaintiffs testified that the extra income was minimal and often not worth the additional effort. Plaintiffs could not sell non-BHN services to customers, nor work for other companies because of either a flat prohibition or because the schedules demanded by Knight prevented them from pursuing other work. Plaintiffs were able to exert some control over their opportunity for profits by pairing up to complete jobs and trading jobs among each other, but this ability was ultimately limited by the number and types of jobs Knight assigned them and whether Knight’s assigned schedule permitted them time to do so. Furthermore, as previously discussed, though the parties’ contract provided that technicians could hire helpers, this authority was illusory. Any helpers were required to be contracted with Knight as technicians, thus precluding the exercise of any real managerial skill over such helpers.
Assuming factual inferences in favor of plaintiffs, and in light of the minimal opportunity for profit (and that being little different from the usual path of an employee), this factor suggests economic dependence, and points strongly toward employee status.
C. Investment in Equipment or Materials
The third factor considers the alleged employee’s investment in equipment or materials required for his task, or his employment of workers. This factor favors independent contractor status, although it does so only weakly.
As previously discussed, technicians’ ability to employ workers was illusory. As regards investment in equipment and materials, Knight provides, via BHN, the hardware that is actually installed in customers’ homes and businesses, such as cable boxes, DVRs, and cable modems. Technicians are required to have vehicles, auto insurance, tools and safety equipment, and commercial general liability insurance. However, in light of the fact that most technicians will already own a vehicle suitable for the work and that many technicians purchased specialty tools from Knight directly via payroll withholdings, there seems to be little need for significant independent capital and very little difference from an employee’s wages being increased in order to pay for tools and equipment. Furthermore, even though a technician who initially bought his tools from Knight and paid for them via withholdings has some economic independence when the tools are paid for, it is analogous to the independence any employee has who has gained experience and the ability to market himself to competing employers.
In sum, these expenditures seem to detract little from the worker’s economic dependence on Knight, which is the lens through which we evaluate each of the several factors. Thus, to the extent that this factor weighs in favor of independent contractor status, the weight in that direction is minimal.
D. Special Skill
The fourth factor considers whether the service rendered requires a special skill. This factor favors independent contractor status, but it does so only weakly.
Plaintiffs were clearly skilled workers. The meaningfulness of this skill as indicating that plaintiffs were in business for themselves or economically independent, however, is undermined by the fact that Knight provided most technicians with their skills. Technicians could come to Knight from other installation outfits or be completely inexperienced. Most technicians, however, were inexperienced and underwent some length of unpaid training by Knight, which was followed by some period of unpaid ride-alongs with experienced technicians, before performing work on their own. Robert Collins, a former Knight installation manager, testified that Knight generally provided about two weeks of training and technicians did about a week of ride-alongs, and he estimated that only 10 to 15 percent of technicians did not require training.
Plaintiffs were, therefore, dependent upon Knight to equip them with the skills necessary to do their jobs. The skills attained by technicians point toward a degree of economic independence insofar as a highly trained technician could gain economic independence by the ability to market his skills to a competing employer. This does not, however, significantly distinguish such a worker from the usual path of an employee. To the extent that this factor favors independent contractor status, it does so weakly.
E. Permanency and Duration
The fifth factor considers the degree of permanency and duration of the working relationship. This factor points strongly toward employee status.
Named plaintiffs worked for Knight for an average of more than five years. Their contracts were for year terms, were automatically renewed, and were terminable only with thirty days’ notice. These facts suggest substantial permanence of relationship…
Assuming factual inferences in favor of plaintiffs, and looking through the lens of economic dependence vel non, long tenure, along with control, and lack of opportunity for profit, point strongly toward economic dependence. Thus, this factor strongly indicates employee status.
F. Integral Part of Alleged Employer’s Business
The sixth and final factor considers the extent to which the service rendered is an integral part of the alleged employer’s business. This factor weighs clearly and strongly toward employee status.
Approximately two-thirds of Knight’s business consists of the telecommunications installation and repair services it performs for BHN. Knight relies on approximately five hundred technicians to perform installations and repairs in BHN customers’ homes and businesses. Knight’s website described its Installation Services department as the backbone of its business.
The integral role played by technicians in Knight’s business shows that the arrangement follows more closely that of an employer-employee relationship than an independent contractor dynamic. If Knight had truly outsourced such a large portion of its business, as would be true if plaintiffs were independent contractors, then the company would retain far less control over the business. However, because of Knight’s concern with the quality of the services it provides through this arrangement, it does, as one might expect, control the relationship in much the same way a company would control its employees. The technicians’ integral part in Knight’s business follows the usual path of an employee.
Assuming factual inferences in favor of plaintiffs, this factor points strongly toward employee status.
Given these factual circumstances, the Eleventh Circuit concluded:
When all the facts are viewed in the light most favorable to the plaintiffs and all reasonable inferences are drawn in their favor, four of the six factors weigh strongly in favor of employee status. The two factors that do not—investment and special skill—weigh only very slightly toward independent contractor status. Neither contributes in any significant manner to the workers’ economic independence or to distinguishing the workers from the usual path of an employee. Thus, we conclude that, viewing the facts most favorably toward plaintiffs and with all justifiable inferences drawn in their favor, plaintiffs were employees—not independent contractors—under the FLSA. Because there are genuine issues of material fact, and because plaintiffs were employees if all reasonable factual inferences are found in plaintiffs’ favor, the district court erred in granting summary judgment to Knight.
Click Scantland v. Jeffrey Knight, Inc. to read the entire Opinion and DOL Amicus Brief to read the brief submitted by the Department of Labor in support of the Plaintiffs-Appellants.
Click independent contractor misclassification for more information on industries where employees are frequently misclassified as independent contractors.
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.
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.”
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.
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.”
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.