Club to pay $4.5M after exerting 'overwhelming control' over dancers it called independent

Dive Brief:

A class of exotic dancers at a Philadelphia gentlemen's club were employees, not independent contractors, and a jury's award of $4.5 million for unpaid minimum wages and unjust enrichment was proper, the 3rd U.S. Circuit Court of Appeals said (Verma v. 3001 Castor, Inc., No. 18-2462 (3rd Cir. Aug. 30, 2019)).
Although each dancer signed a contract confirming she was an independent contractor, the employer exerted "overwhelming control" over the terms of the dancers' work, said the 3rd Circuit. The club established available shift times; fined dancers for tardiness; gave instructions on physical appearance and dictated hair, dress, and makeup choices; established several dance-floor rules; banned changing into street clothes before the end of shifts; and set the price and duration of all private dances.
Because "the dancers' relationship to the Club falls well on the 'employee' side of the line," the 3rd Circuit upheld the jury verdict in favor of the dancers.

Dive Insight:

Government agencies and courts use many different tests when evaluating whether a worker is an employee or an independent contractor, but they all ultimately come down to how much control the employer exerts (or retains the right to exert) over the work and working conditions. The more control, the more likely it is that the worker will be deemed an employee.

As this case illustrates, a signed agreement stating that a worker is an independent contractor has little to no bearing on the analysis. The 9th U.S. Circuit Court of Appeals, for example, recently ruled that a trial court incorrectly relied on an agreement between 7-Eleven and its franchisees rather than focusing on the actual amount of control 7-Eleven exerted. Similarly, a federal court in Alabama ruled that a delivery driver was actually an employee, despite the existence of a signed independent contractor form.

Misclassifying employees as independent contractors, whether deliberately or inadvertently, can be a costly mistake for employers. One employer is on the hook for $9 million to settle allegations that it misclassified its employee distributors as independent contractors. The employer's level of control over all aspects of the distributors' relationships with the company and their customers supported a finding of employee status.

Independent contractor status has been in the headlines in California lately, as the state thrashes out whether to make a new legal standard apply retroactively. Even employers without a Golden State presence, however, would be well-advised to review their classification practices and ensure they pass legal muster.