Eastern District of Pennsylvania Holds that Exotic Dancers are Employees and Not Independent Contractors

One of the critical issues in employment law is the determination of whether an individual worker should be classified as an employee or an independent contractor.  As David Anthony noted last month in his interview with Family BusinessCast, many employers either purposefully or mistakenly classify workers as independent contractors in order to avoid the requirements of laws like the Fair Labor Standards Act ("FLSA")[1], which mandate wage and hour requirements for employees.
 
One June 30, 2014, Verma v. 3001 Castor, Inc., et al.[2], the U.S. District Court for the Eastern District of Pennsylvania addressed the pressing issue of whether exotic dancers working at the Penthouse Club in Philadelphia were properly classified as employees or independent contractors.  The Court applied the well-settled “economic realities” test to determine the true nature of the relationship between the dancers and the club:

1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; 2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; 3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; 4)  whether the service rendered requires a special skill; 5) the degree of permanence of the working relationship; [and] 6) whether the service rendered is an integral part of the alleged employer’s business.[3]

Applying these factors and analyzing them at some length, the Court found that the plaintiff and her fellow exotic dancers, who had been classified as independent contractors by the club, were in fact employees:

Considering all the preceding factors in combination, I conclude that as a matter of economic reality that the dancers at the Defendant’s club are employees, not independent contractors. Defendant exerts significant control over its dancers’ behavior and appearance; Defendant dominates the key levers driving the dancers’ opportunity for profit; the dancers have no specialized skills and a limited real investment; and the dancers are integral to the success of the Defendant’s club. Measured against these factors, the transient and non-exclusive nature of the dancers’ employment carries limited weight. Under the FLSA test, five [out of six] factors lopsidedly favor a finding that the dancers are employees.[4]

The Court denied defendants’ motion for summary judgment and permitted the plaintiff’s FLSA claims to go forward.
 
Whatever one’s opinions of the industry in question, the opinion is worth reading because of its in-depth analysis of an unusual economic structure.  One could conceive of a club being run differently such that the analysis would favor a finding that the dancers were independent contractors; however, as the court noted, most courts looking at this industry have found that clubs treating their dancers as independent contractors had engaged in misclassification, often with severe financial penalties.

[1] 29 U.S.C. § 201 et seq.

[2] Verma v. 3001 Castor, Inc., et al., C.A. No. 13-3034 (E.D. Pa. June 30, 2014).

[3] Verma, mem. op. at 9 (citing Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 1382-3 (3d Cir. 1985); Donovan v. Sureway Cleaners, 656 F.2d 1368, 1370 (9th Cir. 1981)).

[4] Verma, mem. op. at 19.

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