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Courts Continue to Clarify What Constitutes an Employee

SapphireThe economic downturn that began in 2008 changed a lot of things about the job market. Apart from the jump in unemployment rates, may of the jobs that were available were no longer the full-time positions that traditionally served as the norm for the workforce. More roles were converted to part-time or temporary jobs that didn’t include the benefits of full-time positions. Many of these positions also came with a certain degree of instability and no guarantee of hours, while many of the temporary workers being staffed by employment agencies were ceding a significant chunk of their potential earnings to the agencies.

Emerging from this came a rise in independent contractors (“1099 workers” to the IRS), who were often completely competent employees forced out during tough times who remained un- or under-employed for long periods and decided to cut out any middleman as they did piecemeal work where they could. The system worked out well for businesses using the independent contractors, since they were not obligated to offer benefits or even pay employment taxes on the 1099 pool of labor. As long as the workers could exercise a great deal of autonomy as to how they accomplished the assigned tasks and there was some level of impermanence, everyone–including the IRS–was happy.

Of course, such a seemingly beneficial system was destined for abuse, and, as we’ve covered in previous posts, some companies got too greedy and tried to reclassify large swaths of their workforces as independent contractors despite the fact that everything about the relationship showed that they were, in fact, employees. Courts and tax collectors started cracking down on businesses, and those moves are now being followed by more and more workers who feel they are independent contractors in name only, without the benefits and rights that should be afforded to them as the employees they really are.

Some unlikely recent victors in this very argument are a contingent of performers at the self-proclaimed “World’s Largest Strip Club” in Las Vegas. Six dancers sued the Sapphire Gentlemen’s Club on behalf of themselves and the class of around 6,600 other performers who contract with the club. They argued that they are employees of the club, not independent contractors, and should therefore be entitled to the minimum wage under state law. The Nevada Supreme Court agreed with them.

Using the “economic realities” test of the Fair Labor Standards Act (FLSA), the court looked at the totality of the circumstances to see if an employer-employee relationship existed. This considered six non-exhaustive factors:

  • An employer’s right to control the manner in which the work is performed;
  • A worker’s opportunity for profit or loss depending on how he or she manages the work;
  • The worker’s investment in required equipment;
  • Whether the service provided requires a special skill;
  • The degree of permanency in the working relationship; and
  • Whether the service provided is an integral part of the employer’s business.

The dancers were generally permitted to set their own schedules, as long as they committed to minimum six-hour shifts unless given permission to leave early, and they could choose whether to perform only on stage or accept requests for private dances with patrons. While these initially tend to suggest a great deal of independence, the court labelled it “false autonomy,” since the dancers face a “coercive choice” when they are forced to redraw “personal boundaries of consent and personal integrity” when deciding for whom they should perform. Furthermore, the court said, the club exercises a great deal of control and influence over the dancers’ appearance, customer interactions, schedules, and minute-to-minute movements while working. Even beyond the daily control of the dancers, the court also found that since all the promotion of the club and the capital expenses of the facilities were paid for by Sapphire, with dancers paying only for their costumes and house fees, the dancers were much more like any other employee rather than independent contractors “seeking a return on their risky capital investments.”

Sapphire countered that the degree of “hustle” a dancer brought to the job is a special skill that would dictate her earnings, but the court dismissed this as something setting them apart from regular employees, since “hustle” was not one of the skills considered during the dancers’ interview process. Perhaps most importantly, the court comically noted how integral the dancers were, writing that, for a company billing itself as “the ‘World’s Largest Strip Club” and not, say, a sports bar or night club, we are confident the women strip-dancing there are useful and necessary to its operation.”

(The court did acknowledge that many of the dancers’ working relationships were temporary in nature, but it was hardly enough to “tilt the scales” in the club’s favor.)

While this decision really only affects workers in Nevada, it’s part of a growing trend across the country to reclassify improperly claimed 1099 workers as actual employees, most notably in the recent court decisions deeming FedEx drivers as employees. Similar suits are being brought nationwide by workers at a number of companies, including many in new, so-called “sharing economy” businesses like Uber, Lyft, Homejoy, and Instacart.

As the tide shifts back to more traditional employer-employee relationships, it’s important for both workers and businesses to know where they stand in regards to rights and responsibilities. If you’re in Georgia or Tennessee and have questions, Mays & Kerr is here to help. To get answers from an experienced attorney in employment matters such as discrimination, wage and hour law, FMLA, and more, contact us today at 1-877-986-5529. With offices in Atlanta and Nashville, we offer a client-centered philosophy and strive to accomplish our clients’ goals as if they are our own.

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