This week, in Hart v. Rick’s Cabaret, the Southern District (per Judge Engelmayer) held that exotic dancers (or “strippers”) are employees, and not independent contractors, under both the federal Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL).
The distinction between an “employee” and an “independent contractor” is significant. Employees are entitled to the protections of the FLSA and the NYLL; independent contractors are not.
Fair Labor Standards Act – “Economic Realities”
The FLSA defines an “employee” as “any individual employed by an employer” and “employ” as “to suffer or permit to work.” The Second Circuit applies the “economic realities” test to determine whether one is an independent contractor or an employee for FLSA purposes.
The factors relevant to this inquiry, which is case- and fact-specific, are:
(1) the degree of control exercised by the employer over the workers,
(2) the workers’ opportunity for profit or loss and their investment in the business,
(3) the degree of skill and independent initiative required to perform the work,
(4) the permanence or duration of the working relationship, and
(5) the extent to which the work is an integral part of the employer’s business.
The court evaluated each factor in detail.
For example, with respect to the first factor, it pointed to Rick’s “Entertainer Guidelines”, which “regulated almost every aspect of the dancers’ behavior”, namely, the dancers’ conduct (e.g., no gum chewing or “having a bad attitude”); their work hours; fees and fines they were required to pay; and their appearance (such as clothing, weight, breath, and grooming).
In sum, the court concluded that the dancers were employees under the FLSA’s “economic realities” test:
Considering the preceding factors in combination … the Court comfortably concludes as a matter of economic reality that the dancers at Rick’s NY were employees, not independent contractors. Rick’s NY exerted significant control over its dancers’ behavior; Rick’s NY had the dominant opportunity for profit; the exotic dancers had no specialized skills and a limited real investment (essentially in their costumes and nightly fees); and the dancers were integral to the success of Rick’s NY. Measured against these factors, the transient and non-exclusive nature of the dancers’ employment is insufficient to remove them from the reach of the FLSA. See Harrell, 992 F. Supp. at 1349 (finding that dancer’s “freedom to work when she wants and for whomever she wants” did not “reflect economic independence,” and that these freedoms, in context, “merely mask[ed] the economic reality of dependence.”). Indeed, under the FLSA test, the five factors lopsidedly favor a finding that the dancers at the Club were employees. The Court so finds, as a matter of economic reality.
The fact that the parties had “an agreement with its dancers to the effect that they were independent contractors” was irrelevant:
[U]nder the economic realities test … [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 Act.
New York Labor Law – “Control”
The NYLL defines “employee” nearly the same, but not identically, as the FLSA:
New York courts apply the “common law” test — a test used not only in connection with wage-protection statutes, but also to determine such issues as respondeat superior liability in tort suits, eligibility for unemployment benefits, and compliance with tax laws. Although “substantially similar” to the FLSA … the common law focuses more on “the degree of control exercised by the purported employer,” as opposed to the “economic reality of the situation”[.] … Specifically, the New York Court of Appeals has stated that “the critical inquiry in determining whether an employment relationship exists pertains to the degree of control exercised by the purported employer over the results produced or the means used to achieve the results.”
The court cited the five factors, derived from the Court of Appeals decision in Byong v. Cipriani Group, that govern this analysis. They are whether the worker:
(1) worked at his/her own convenience;
(2) was free to engage in other employment;
(3) received fringe benefits;
(4) was on the employer’s payroll; and
(5) was on a fixed schedule.
Courts look beyond these factors with “control over the means used to achieve the results being the more important consideration.”
Applying this test, the court held that the dancers were “employees” under the NYLL:
For the reasons discussed in connection with the first FLSA factor, Rick’s NY’s control over its dancers was far more than incidental. The record … reflects that Rick’s NY exerted substantial control over the dancers. It did so through its distribution until February 2010 of the written Entertainer Guidelines, through the written threat of disciplinary action if a dancer failed to abide by Club rules, through the fines it imposed on noncompliant dancers, through the detailed and wide-ranging standards of dancer conduct and dress and performance style on which it insisted, and through its control of minimum prices charged to customers for performances. Because the common law test ultimately centers on control, these indicia of control — viewed separately, or in combination with the first and fifth Bynog factors, which also favor plaintiffs — comfortably establish employee status under the NYLL. …
In sum, the “actual working relationship” between the dancers and the Club was that of employer and employee. Plaintiffs were, therefore, employees under New York Labor Law.
Having concluded that the dancers were “employees”, the court turned to the issues of whether defendants properly compensated plaintiffs (through, for example, payment of “performance fees” to them).