Exotic Dancers Should be Classified as Employees

The 4th Circuit Court of Appeals ruled that exotic dancers at two Maryland night clubs, Fuego Exotic Dance Club and Extasy Exotic Dance Club, were misclassified as independent contractors, when they were in fact employees.

Six dancers brought suit, alleging they were owed back wage and damages as a result of improperly being treated as independent contractors.

Ultimately , money is a strong motivation for employers to classify workers as independent contractors versus as employees.  Designating workers as independent contractors allows employers to not pay minimum wage or overtime, carry workers compensation coverage for the worker or pay for unemployment insurance for the misclassified workers.

Courts generally look at several factors that determine if a worker is an employee versus an independent contractor and the most crucial of these is the amount of control the employer exerts over the worker (i.e., dictate schedules, how the work is to be done, etc.).  The 4th Circuit found that the amount of control the clubs had over the Plaintiffs was enough to create an employer/employee relationship.   Judge Wilkinson III noted in the Court’s opinion, “The clubs insist they had very little control over the dancers. Plaintiffs were allegedly free in the clubs’ view to determine their own work schedules, how and when they performed, and whether they danced at clubs other than Fuego and Extasy. But the relaxed working relationship represented by defendants — the kind that perhaps every worker dreams about — finds little support in the record.”

Possible New Overtime Rules On the Horizon

Under the Fair Labor Standards Act, approximately 5 million employees that are currently exempt will become eligible for overtime unless their salary is raised.  The current exemptions that will be affected are the “white collar” and the “highly compensated employee” exemptions.

The proposed rules propose to increase the salary level for “white collar” exemptions from the current minimum $23,660.00 per year a year up to approximately $50,440.00 per year.  The proposed rules impact the “highly compensated employee” exemptions by increasing the annual compensation level from $100,000.00 to $122,148.00. However, the “white collar” exemption likely has the potential to impact businesses the most.  Here are five things businesses can start doing now to prepare (as taken from http://www.foxbusiness.com/politics/2016/04/18/as-new-overtime-rules-near-businesses-need-to-prepare.html)

1. Check State versus Federal Regulations

Each state may enact regulations that differ from federal regulations. Businesses will be subject to whichever set of directives is more generous to employees.

2. Classify Employees by Salary

Employees making over the threshold amount may be exempt from overtime if their job duties primarily involve executive, administrative or professional duties, as defined under the regulations. Make a list of the employees whose salaries do not exceed the threshold because they may be entitled to receive overtime once the changes are enacted.

3. Calculate Employee Hours

Identify exactly how many hours per week each employee works.  If a previously exempt employee made $26,000 annually under the old rules, and actually worked 40 hours per week, then you can convert that salary into an hourly rate equal to their pay, or $12.50 per hour. Monitoring those employees’ work hours proactively with threshold reports and/or scheduling tools may help manage overtime costs or ensure that any work exceeding 40 hours per week is paid at the appropriate overtime rate.

4. Consider Changes to Salaries

Consider a different strategy for employees who make less than the proposed salary threshold, who were previously exempt from overtime and who typically work more than 40 hours per week.  You could raise these employees’ base salaries to at least the exemption threshold.  To determine if this is a more cost-effective approach, calculate the increased salary and compare it to the estimated overtime costs that would otherwise apply.

5. Monitor Overtime

Examine the ebbs and flows of your business and think about seasonal fluctuations.  You may find it’s more cost-effective to hire additional full-time, part-time or even temporary employees.  Or you may want to consider implementing an automated scheduling solution to help manage labor costs.

One final consideration – this rule change was endorsed by the Obama administration, and heavily backed by the Democratic legislators, as such, pundits are offering the opinion that it is possible that any finalized rules and changes could be repealed if a Republican win the White House this fall.