Strippers are ‘Employees’

When is a worker  an employee who is entitled to a salary and unemployment benefits?

This question was at issue in a Kansas case that sheds light on the exploitative world of strip clubs and so-called gentlemen clubs.

Shortly after Milano’s, Inc. purchased a Topeka strip club called Club Orleans in 2002,  company President John Samples began treating the club’s exotic dancers as independent contractors rather than employees.  This meant the dancers were no longer paid even a nominal weekly wage, instead earning only tips paid by customers of Club Orleans. And they were not paid health or insurance benefits.

In 2005,  one of the dancers filed an unemployment claim, prompting the state to assign an auditor to investigate Milano’s. The auditor concluded  the dancers were not independent contractors but were employees under Kansas law.

Milano’s challenged the auditor’s determination on various technical grounds and two  lower courts upheld the determination. The case finally reached the Supreme Court of the State of Kansas.

Earlier this month, the Kansas Supreme Court  ruled that the determinative question was whether the dancers had the status of employees under common law rules that determine the employer-employee relationship. The Court said in Milano’s, Inc. v. Dep’t of Labor that the critical common-law factor in the analysis was the employer’s right of control over the employee and her work.

The record showed that the dancers were required to sign what was essentially  a “contract for hire” in the form of an application to work at Milano’s. The contract required the dancers to  abide by the house rules and gave Milano’s the right to fine or terminate the dancers.  Furthermore,  Milano’s, without consulting the dancers, adopted a  minimum tip policy for various types of dances and required the dancers to accept drinks from customers. Milano’s enforced the house rules.

According to the Court:

“Ample substantial competent evidence in the record before us, as echoed in the factual findings below, demonstrates that Milano’s possessed such a right of control over the dancers at Club Orleans. Most telling, the house set various rules, and dancers’ violations of those rules were punishable by fines and termination.”

The Court concluded that exotic dancers subject to a right of control by the owner of the club where they perform are employees under the “usual common law rules” incorporated into K.S.A. 44-703(i)(1)(B) of the Kansas Employment Security Law.

Although the ruling was limited to unemployment insurance benefits, it could have an impact on other independent contractors who seek employee status to be eligible for employment benefits such as workers compensation, disability benefits, etc.

Wage theft is epidemic  in the United States, according to the Progressive States Network (PSN),  a non-partisan, non-profit organization dedicated to supporting the work of progressive state legislators around the country and to the advancement of state policies that support issues that matter to working families.

Wage theft occurs when employers  misclassify workers as exempt employees when they are actually non-exempt employees (who are entitled to overtime)  or  misclassify workers as  independent contractors when they are truly employees.

The PSN estimates that more than 60 percent of low-wage workers suffer wage violations each week. On average, the PSN reports, low-wage workers lose $51 per week to wage theft, or $2,634 per year.  For low-wage workers, that amounts to 15 percent of their annual income, at average earnings of $17,616 per year.

Chicago’s Innovative Effort to Stop Wage Theft


The city of Chicago this month  became the second, and biggest, city to pass an ordinance addressing the problem of  wage theft.

The Chicago ordinance appears to be an innovative and potentially highly effective initiative to combat a  problem that disproportionately affects low wage workers and undocumented immigrants.

  The ordinance states any licensee that is in the business of debt collection must comply with federal and state wage and hour laws. It states that failure to comply with these laws  can result in the revocation of the company’s business license for at least four years.  The ordinance potentially covers most licensees, since most  companies  engage in debt collection in the ordinary course of business. This includes everything from licensed day care centers to hotels and beauty parlors.

 Last fall, the Broward County Commission in Florida passed an ordinance that allows employees who are owed $60 or more for work done in the county to turn to the county for help.  Before filing the complaint, however, the employee must write a letter to the employer outlining how much is owed. If the paycheck shows up within 15 days, the complaint wouldn’t be filed.


Wage theft is widely considered to be epidemic in the United States.

Aaccording to a report released last year by the Progressive States Network (PSN ) state laws are grossly inadequate to combat  “wage theft” by unscrupulous employers. Some states levy no fines at all for wage theft, according to the report, while most others invoke penalties smaller than a speeding ticket.

 There is, of course,  an overarching  federal law that prohibits wage theft – the Fair Labor Standards Act (FLSA) – but it largely relies upon voluntary compliance.

 The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour and overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.

 The FLSA is technically “enforced” by the Wage and Hour Division of the U.S. Department of Labor (DOL) but, as the PSN report notes, the DOL has only one enforcement agent for every 141,000 workers, down from one per 11,000 workers in 1941.

 The PSN estimates that more than 60% of low-wage workers suffer wage violations each week.  On average, the PSN reports, low-wage workers lose $51 per week to wage theft, or $2,634 per year. For low-wage workers, that amounts to 15% of their annual income, at average earnings of $17,616 per year.

Misclassification of Employees

Rogue employers often evade complying with wage and hour laws by classifying non-exempt employees as exempt under the FLSA and thus not entitled to overtime.

I once worked for an organizaton that misclassified administrative assistants  as exempt, requiring them to work long periods of uncompensated overtime at conferences and events. After years of this, one employee filed an anonymous complaint with the DOL. The organization was forced to pay affected employees who were  then on the payroll minimal amounts to supposedly compensate them for their loss.  This was an insignificant penalty for the employer,  considering the years of abuse that had occurred and the many uncompensated victims who were no longer working at the company.

To qualify for an  exemption from the FLSA, an employee must be paid on a salary basis at a rate not less than $455 per week, must perform work directly related to the  management or business operation of the employer, and must be responsible for exercising independent judgment or discretion with respect to matters of significance.

 Another way that employers circumvent the FLSA is to classify employees as independent contractors. This is not inherently illegal but it can be if the purpose of the independent contractor classification  is to deny the employee access to benefits and protections – such as family and medical leave, overtime compensation, minimum wage pay and unemployment compensation.

 In 2011, the DOL launched a “Misclassification Initiative” to address the problem with respect to independent contractors. Thus far, the states of Iowa, California, Colorado, Connecticut, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington have signed memorandums of agreement to join the DOL initiative. The agreements will enable the DOL to share information and coordinate enforcement efforts with the participating states.

 Misclassification creates economic pressure for law-abiding business owners, who find it difficult to compete with those who are skirting the law. Employee misclassification also generates substantial losses for state Unemployment Insurance and workers’ compensation funds.

 Alderman Ameya Pawar spearheaded the Chicago effort to pass the wage theft ordinance is quoted as stating: “I sponsored this ordinance because it’s something that’s deeply personal to me.  I’ve worked with refugees in the past and I’ve seen how vulnerable populations have become victims to wage theft.”