Under the Fair Labor Standards Act of 1938 (“FLSA”), virtually every business operating in America is required to furnish its employees the federal minimum wage and overtime compensation. There are a number of exceptions to the FLSA, however, and many employers will try to cubbyhole their employees into one of the many available exemptions. Among the exceptions most often cited by employers is the one that applies to “independent contractors.” Indeed, many employers will classify their employees as independent contractors and, in some cases, have them sign form agreements purportedly manifesting an intent to be bound by the terms of an independent contractor relationship. This dynamic was recently addressed by an Atlanta federal district court in Henderson v. 1400 Northside Drive, Inc., a case with facts involving whether strippers were the employees of a strip club.
Henderson was brought by a group of male adult dancers who worked at an adult nightclub that was owned and operated by 1400 Northside Drive, Inc. Each dancer was required to sign an “Independent Contractor Agreement,” which generally stated that the dancer understood that his compensation would be derived solely from customer gratuities and that the club was not responsible for compensating the dancer in any way. The dancers argued that they were misclassified as independent contractors and are therefore entitled to unpaid minimum wage and overtime compensation from the club.
At issue in this decision was the club’s motion for summary judgment. Likely realizing it would be hard to prove that the dancers were actually independent contractors, the club argued instead that they were still entitled to summary judgment because the dancers qualify as exempt under the “creative professional exemption” to the FLSA, and, alternatively, the money received by the dancers sufficiently offset any pay obligation it may have.
First, under regulations promulgated pursuant to authority vested by the FLSA, the creative professional exemption excludes from the FLSA’s coverage “an employee . . . (1) [c]ompensated on a . . . fee basis at a rate of not less than $455 per week . . . and . . . (2) [w]hose primary duty is the performance of work . . . [r]equiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” 29 C.F.R. § 541.300(a). Although exotic dancers dance, the district court determined that the dancers did not, as a matter of law, engage in an act requiring sufficient creativity to fall within the bounds of this exemption. Indeed, the regulations further provide that this exemption “does not apply to work which can be produced by a person with general manual or intellectual ability and training.” 29 C.F.R. § 541.302(a). At his deposition, the club’s manager admitted—perhaps unwisely—that the dancers did not actually need to know the dance, did not generally perform original moves, and did not need dancing ability to perform the job. In fact, the manager further admitted that applicants were not required to audition and that hiring decisions were made simply by assessing an applicant’s looks. Even though routines were unscripted, the court determined that the evidence did not establish that the dancers needed to exhibit any particular creativity in their routines. Accordingly, the court concluded that the job did not require sufficient creativity but rather could be performed by those with general ability and training.
Next, the club argued that the money received by the dancers was “service charges,” not “tips,” and accordingly the amount received by the dancers in service charges could be used to offset their liability. Under the applicable regulations, money provided to an employee qualifies as a “service charge” if it is (1) recorded in the employer’s gross receipts and (2) distributed by the company to the employee. See Hart v. Rick’s Cabaret Int’l, Inc., 967 F. Supp. 2d 901, 930 (S.D.N.Y. 2013). The court determined that the the overwhelming majority of the money furnished to the dancers was not service charges because it was not ever included in the club’s gross receipts. Although the club argued that at least the credit card payments made for time in the VIP rooms were included in the club’s gross receipts, the court found that the club’s decision to include the majority of similar types of payments in its gross receipts undermined their argument that the payments were in fact anything other than tips. See Reich v. Priba Corp., 890 F. Supp. 586, 594-95 (N.D. Tex. 1995). In addition, the majority of these payments were not furnished by the club to the dancers but rather directly to the dancers by patrons. Accordingly, the court determined as a matter of law that the payments could not be used to offset the club’s minimum wage obligations.
Although Henderson deals with employment practices in a particular type of business, the rules apply with equal force in many other types of settings. Indeed, employee misclassification is rather common, and many may not be getting the full compensation to which they are entitled. As Henderson demonstrates, employment litigation is often incredibly fact-intensive, and if you have a possible minimum wage or overtime claim, you should consider finding counsel that is not only experienced in the law—and its many exceptions—but also able to sort through all the facts implicated in your case. The Atlanta wage violations attorneys at Christopher Simon Attorney at Law have represented many under-compensated Georgians and are ready to help you assess the viability of your possible wage claim. If you have a possible claim and are curious about your legal options, feel free to contact us for a free case consultation.