It’s official: Strippers are employees, says the 4th U.S. Circuit Court of Appeals.
The June 8 ruling upheld an earlier district court decision in McFeeley v. Jackson Street Entertainment.
Writing for the unanimous appeals court, Judge J. Harvie Wilkinson III wrote that the lower court “properly captured the economic reality of the relationship here, and we now affirm its judgment.”
Taking center stage in this case was the oft-debated question of whether exotic dancers were, as they claimed, employees of the establishments in which they worked or, as the establishments claimed, independent contractors.
Plaintiff Laura McFeeley and several other dancers sued their dance clubs, Fuego Exotic Dance Club and Club Extasy Exotic Dance Club, alleging that the Prince George’s County clubs failed to comply with the federal Fair Labor Standards Act and Maryland wage and hour laws by not paying the entertainers an hourly wage.
Both clubs are owned by defendant Uwa Offiah, who denied that the plaintiffs were employees at any point during their working relationship. He raised counterclaims for breach of contract, unjust enrichment, conversion and fraud; all claims were unsuccessful.
According to the court’s opinion, the clubs faced a similar lawsuit in 2011 and soon after began having hired dancers sign agreements explicitly categorizing them as independent contractors. Offiah used an attorney to draft the agreement.
The plaintiffs, whose primary duty was to dance on stage and in other areas of the clubs, were compensated by performance fees and patrons’ tips.
Dancers also paid a “tip-in” fee to the club for each shift.
On Jan. 3, 2014, the plaintiffs filed a motion for partial summary judgment. The district court granted the motion in part, finding that the dancers were employees under both state and federal law, emphasizing the degree of control that the clubs has over the manner in which the work is performed.
The plaintiffs were awarded $265,000 in February 2015, when Senior District Judge Deborah Chasanow found that the clubs “exercised significant control over the atmosphere, clientele, and operations of the clubs.”
The reality of the situation
Wilkinson noted in the 4th Circuit’s unanimous opinion that to determine whether a worker is an employee under the FLSA, courts consider the “economic realities of the relationship between the worker and the putative employer.”
The economic realities test, used to determine whether a worker is economically dependent on a business or is in business for himself, turns on six factors: the degree of control that the putative employer has over the manner in which the work is performed; the worker’s opportunities for profit or loss dependent on his managerial skill; the worker’s investment in equipment or material, or his employment of other workers; 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.
After the district court deemed the dancers employees, the defendants appealed after an unsuccessful motion for a new trial.
Wilkinson noted that whether a worker is an employee or an independent contractor under the FLSA is a question subject to de novo review.
He said, she said
Wilkinson wrote, quoting from the 1999 4th Circuit decision in Benshoff v. City of Va. Beach, that Congress enacted the FLSA to protect “the rights of those who toil, of those who sacrifice a full measure of their freedom and talents to the use and profit of others.”
With such a variety of working relationships today, Wilkinson said, the court must adapt its analysis to the particular relationship, workplace and industry in each FLSA case.
The parties here could not disagree more about their relationship.
According to the dancers, the clubs closely regulated all aspects of their work, including hours, earnings and conduct.
According to the clubs, the dancers were freelancers who rented space and came and went as they pleased.
Wilkinson called the “dueling depictions” reminders that the distinction is “not a bright line, but a spectrum.” Courts must struggle with matters of degree rather than issue categorical pronouncements, he wrote.
“Even given that we must view the facts in the light most favorable to defendants, 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,” he wrote.
Control is the key
Like Chasanow, the appeals court found that the first factor of the economic realities test—how much control an alleged employer holds—was the most telling here. Nothing existed on record to support the defendants’ claims of a relaxed working relationship with the dancers.
In addition to having dancers sign in and pay an entrance fee when they arrived, court records show that the clubs dictated the dancers’ schedules and imposed rules to be obeyed during working hours.
The clubs also set fees, dictated how they and tips would be handled, and made all the decisions regarding the club’s atmosphere and clientele.
“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,” Wilkinson wrote. “We agree.”
The court was clear that it wasn’t the control or restrictions that convert a contractor into an employee, but the degree to which those are exercised.
“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,’” Wilkinson wrote. “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.”
As for the other five test factors, the court found that they were either neutral or tended to point to an employment relationship.
Similar SC ruling
Blake Hewitt, an attorney with Bluestein, Nichols, Thompson & Delgado in Columbia, believes that the court got this decision right. A different result, he said, would have been “surprising.”
Hewitt was not involved in this case, but once represented a dancer injured when, in 2008, shots rang out in the club where she worked.
In LeAndra Lewis v. L.B. Dynasty, Supreme Court Justice Kaye Hearn wrote for the majority in finding that Lewis was an employee of the Boom Boom Room Studio 54 and could therefore collect workers’ compensation from the state’s Uninsured Employers’ Fund.
Hewitt said the facts of the instant case appear to be very similar to those of Lewis; the same facts that “show up over and over again, around the country.”
After the Lewis ruling, Marti Bluestein of Bluestein Nichols said that the industry has gotten away with treating women as independent contractors.
“I think this decision is going to be significant because, hopefully, some of these clubs are going to look at how they run their businesses and will have to get comp coverage,” Bluestein said then.
Hewitt said that the “regular” business community has understood these concepts for a long time.
“I’m convinced this industry has been able to lag behind and escape scrutiny because the industry is viewed as unseemly,” Hewitt said. “Thankfully, the court system is holding this industry’s feet to the fire and making people follow the law.”
Patrick Martin of Eller Tonnsen Bach in Greenville, South Carolina, wasn’t involved in the Lewis case but blogged about the decision in 2014. He told Lawyers Weekly that he is unaware of a similar ruling in North Carolina, where he is also licensed.
Martin believes the McFeeley decision could lead clubs in both states to modify contract terms to create an independent contractor relationship.
“This is a case-by-case analysis,” Martin wrote in an email. “If the clubs were to modify certain terms of the work including pay structure, termination, and what equipment the dancers are expected to provide, and how dances are scheduled, it may shift the Court’s analysis.”
Hewitt said that while it’s possible to envision this sort of scenario, it’s unlikely. Most establishments, he said, follow the same practices and end up with the same legal results.
The employment test has hinged on control, Hewitt said, and since the club’s financial success “depends on the rapport and hospitality of dancers,” the club always retains control.
“You don’t hire people to perform the mission critical task of your business and not retain the right to tell them what to do,” Hewitt said. “Every waitress has a boss. Always.”
Follow Heath Hamacher on Twitter @SCLWHamacher