Recently, there’s been a wave of Fair Labor Standards Act (“FLSA”) rulings adverse to employers in the adult entertainment industry. Early this year, a Southern District of New York judge approved an $8 million settlement for a class of dancers at an adult establishment who alleged that they were misclassified as independent contractors. See In re: Penthouse Executive Club Compensation Litigation, Case No. 1:10-cv-01145, 2014 U.S. Dist. LEXIS 5864 (S.D.N.Y. Jan. 14, 2014). And just last month, the court in Hart, et al. v. Rick’s Cabaret Int’l, Inc., Case No. 1:09-cv-03043, 2014 U.S. Dist. LEXIS 160264 (S.D.N.Y. Nov. 14, 2014) which previously had held that dancers at the New York club were employees under the FLSA, denied a motion to decertify the class and awarded almost $11 million in damages to the dancers for FLSA violations.
Similar outcomes are occurring in other jurisdictions. See, e.g., Stevenson, et al. v. The Great American Dream, Inc., No. 1:12-CV-3359-TWT, 2013 U.S. Dist. LEXIS 181551 (N.D. Ga. Dec. 31, 2013) (summary judgment granted in favor of certified class of adult entertainers who alleged they were wrongly classified as independent contractors under the FLSA); Verma v. 3001 Castor, Inc., No. 2:13-cv-03034, 2014 U.S. Dist. LEXIS 88459 (E.D. Pa. June 30, 2014) (conditional certification granted for dancers found to be employees).
In finding that dancers were employees and not independent contractors, the Verma court focused on one of the primary issues that—irrespective of industry—is at the heart of any independent contractor vs. employee determination: the employer’s degree of control over the manner in which the work is performed, and not simply the result. The court noted that, in addition to setting the price and duration of private dances, “Defendant dictates dancers’ choice of dress, hair, and make-up… the number of songs a dancer must dance to while on stage… [and forbids dancers] to smoke or chew gum anywhere in the club…use their cell phone while on the dance floor… [or] change into street clothes before the end of their shifts.” For these and other reasons, the court held that the dancers clearly were employees and not independent contractors.
Although most employers are not engaged in the exotic dancing business, these recent decisions have potentially broader implications for businesses of all types that use independent contractors. To the extent the courts have held that basic workplace rules such as required attire, grooming standards, and cellphone use restrictions may lead to an employment relationship, employers in other industries that have such rules for their contractors may be at risk. Given the high stakes and the increasing use of independent contractors, all employers should regularly reexamine the economic realities of their contractor arrangements.