A number of our blog posts since October 2010, including our monthly updates beginning in November 2012, have included reports on class action lawsuits by exotic dancers against strip clubs.  This industry has, by far, the most such lawsuits involving allegations and findings of independent contractor misclassification.

In the last year alone, we reported in our December 2014 update that a strip club in Texas agreed to settle an independent contractor misclassification class action in Texas for $2.3 million; in our November 2014 update that a strip club in New York was ordered to pay $10.9 million for misclassifying exotic dancers; in our September 2014 update that the Nevada Supreme Court reversed a lower state court decision that exotic dancers were independent contractors and not employees, that a New York strip club settled a misclassification case for $4.3 million, and that a Florida court granted class action status to a group of 500 dancers; in our June 2014 update that an Arkansas court ruled that exotic dancers classified as independent contractors were actually employees under the federal wage and hour laws; and in our January 2014 update that a Georgia court granted summary judgment in favor of a class of exotic dancers, concluding that they had been misclassified as independent contractors.

As recently as this past Thursday, February 5, 2015, a 41-page, ten-count class action complaint was filed in federal court in New York against Cheetah’s Gentlemen’s Club & Restaurant in midtown Manhattan. The lawsuit alleged that the club misclassified exotic dancers as independent contractors and, in so doing, violated the federal Fair Labor Standards Act (FLSA) and the New York Labor Law (NYLL) by failing to pay minimum wages and failing to pay overtime; and further violated the NYLL by, among other things, misappropriating tips, making unlawful deductions from the dancers’ pay, and requiring them to purchase and wear uniforms and failing to reimburse for laundering their outfits. Evelyn Rodriguez, Janine Bonderenko, Jennifer Eller and Kayla Atkins v. Three Amigos SJL Inc., Times Square Restaurant No. 1, Selim “Sam” Zherka and Dominica O’Neill, No. 15 CV 823 (S.D.N.Y. Feb. 5, 2015).

Legitimate Independent Contractor Relationships Remain Lawful

All but a few industries are capable of operating in a manner consistent with independent contractor laws in general. As the Administrator of the Wage and Hour Division of the U.S. Department of Labor, Dr. David, Weil, has stated recently, while misclassification of employees as independent contractors “deprives workers of rightfully earned wages and undercuts law-abiding businesses,” business models that “attempt to change . . . the employment relationship through the use of independent contractors are not inherently illegal, . . . [and] legitimate independent contractors are an important part of our economy . . . .”

Exotic dancers who provide services as 1099ers, like other workers retained on an independent contractor basis, want to have flexibility in their choice of working hours or days, wish to be able to legitimately deduct business expenses, and prefer to decide how they will perform their services consistent with what is expected in their particular industry.

It is evident, however, that some businesses that use independent contractors to supplement their workforce or are built on a 1099 model, including many exotic dance clubs, have not structured, documented, and implemented their operations to comply with federal and state labor, employment, tax, and benefit laws governing independent contractors. The question arises: can those businesses, even exotic dance clubs, be operated in compliance with such laws?

Yes. Businesses Can Comply With Independent Contractor Laws and Effectively Avoid or Defend Against Class Actions – Even Exotic Dance Clubs.

The answer to that question, of course, depends on which federal and state laws govern and how the independent contractor relationship in a particular company is structured. As set forth in our White Paper, most laws governing independent contractors, including those recently enacted by many states, permit the continued use of independent contractors. Nonetheless, lawyers and legal commentators routinely advise businesses to cease using independent contractors if their current structure is inconsistent with such laws and to reclassify their independent contractors as employees going forward to avoid the potential for misclassification liability.

There are, however, a number of alternatives that permit companies to minimize or avoid future liability. Those alternatives include bona fide restructuring and re-documenting of the relationship between a business and its independent contractors; re-distribution of independent contractors through a reliable and knowledgeable workforce management or staffing company; or reclassification, either voluntarily or under a governmental program.

In deciding which alternatives are suitable for any particular business, an assessment of the specific business, its current structure, and the states in which it operates must first be conducted. “One size fits all” solutions are generally likely to be ill-fitting for most businesses and do not meaningfully minimize or eliminate independent contractor misclassification liability. Many businesses prefer a customized and sustainable approach   to enhance their independent contractor compliance, such as IC Diagnostics™.

There is no question that some businesses are neither willing nor interested in any of the foregoing alternatives, preferring instead to maintain the status quo.  Such businesses, like those that have been sued in the exotic dance club industry, remain highly susceptible to becoming a target of a plaintiffs’ class action lawyer or some state or federal workforce agency. Although optimally designed to minimize the likelihood of future legal challenges, IC Diagnostics™ can also be useful in formulating comprehensive and effective defenses to new and existing court and administrative challenges to a company’s classification of certain workers as independent contractors.

Absent change among many businesses in industries where misclassification of employees as independent contractors has been and remains prevalent, state legislation may well be enacted to further curtail misclassification in those industries – such as the passage of recent independent contractor laws focused on the construction industry, the commercial goods transportation industry, the landscaping industry, and other industries that have drawn the attention of legislators.