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.
