In October, a group of possibly 30 or more exotic dancers employed by four Texas adult entertainment clubs recovered $1.1 million in back wages and damages against their former employers. The basis of the claim filed against D.N.W. Houston, Inc., which owns and operates the clubs, is that the dancers had been misclassified as independent contractors, when they should have actually been classified as employees entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (FLSA), a federal law that establishes private sector and government employment standards. The complaint filed by the dancers alleges that they were not compensated for all hours worked, and thus, they were owed additional pay by their employers for time they had been suffered or permitted to work. Wage theft is a problem that happens nationwide—yes, it even happens in Tennessee.
The misclassification of employees as independent contractors is widespread and can be especially damaging to workers entitled to minimum wage and overtime pay protections under the FLSA. Unfortunately, many employers and employees alike lack the legal savvy to properly determine the difference between an independent contractor and an employee. In fact, the problem of misclassification grew so serious that in July 2015, the United States Department of Labor issued guidelines clarifying common misconceptions. However, for many employers, the misclassification of employees as independent contractors goes beyond mere misunderstanding—many employers intentionally misclassify workers as independent contractors in an attempt to avoid greater financial responsibility to the worker.
Tennessee law stipulates that there is no single determining factor as to whether a worker is an independent contractor as opposed to an employee; instead, Tennessee courts have held that several factors are relevant in determining how a worker should be classified. Under the FLSA, determination of the employment relationship can be made pursuant to the following factors, with specific attention to whether the worker is economically dependent on the employer or in business for himself or herself:
- Is the work performed integral to the company’s business?
- Does the worker exercise managerial skill?
- Is the worker paid by the job/hour, or pursuant to a salary?
- Does the company cover the expenses, or have expenses already been figured into the cost of the job?
- Does the worker exercise independent business judgment?
- Is the employment relationship long-term or short-term/finite?
- Does the company set work hours or control how work is performed?
There are several misconceptions workers have as to whether they should be classified as independent contractors or employees. It is important to note that, under the FLSA, the employee vs. independent contractor classification is different than other laws. For example, receiving a 1099 does not automatically make a worker an independent contractor under the FLSA, nor does signing an independent contractor agreement (which is what the judge in the Houston dancers’ case found). Even having an employee identification number (EIN) or operating as a Limited Liability Company (LLC) does not automatically make a worker an independent contractor.
Although to many workers it may initially seem that they may earn more money as independent contractors, many, like the dancers in Houston, find that they are actually owed more as employees, rather than independent contractors, due to the protections afforded them in the FLSA. The FLSA contains many exemptions for certain types of employees, so it is important to consult with a knowledgeable attorney as soon as possible. Nevertheless, the FLSA is clear: employers cannot misclassify employees, and employees do have rights to a minimum wage for all hours worked as well as overtime pay protections for every hour worked over 40 hours in a workweek.