Individual Employment Status: Dancing Around Employment Qualifications
The problem of whether an individual qualifies as an employee or an independent contractor has plagued employers for quite some time. An employer undoubtedly may believe that an individual they contract with is not an employee of the business; however, the Courts have taken a liberal approach in defining the factors that qualify that person to be "employed."
In a rash of recent cases in the DC metro area, exotic dancers have filed suit against the owners of the bars and clubs where they dance, claiming they are owed wages pursuant the Fair Labor Standards Act and Maryland Wage and Hour Law. These women might only dance a few nights a week at a club, may dance at several different establishments, and may make well over minimum wage in tips, yet this does not defeat the test for whether they qualify as an employee.
The Supreme Court has directed courts to look at "economic reality" rather than "technical concepts" to determine employment status under the FLSA. The "test considers the extent to which typical employer prerogatives govern the relationship between the putative employer and employee." Henthorn v. Department of Navy, 29 F.3d 682, 684 (D.C.Cir.1994). In Henthorn, the court explained that it will ask "whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records.
What an employer must take great concern with is that their misclassification of an individual as an independent contractor comes at a great price. Damages under the Fair Labor Standards Act and Maryland Wage and Hour Law can include not only unpaid wages for all hours worked, an amount equal to that in liquidated damages, and the opposing party's legal fees. Legal fees that -- in a case that was recently decided in the United States District Court for the District of Columbia - exceeded six figures.
As always, it is best to consult with an attorney before determining how to pay and classify individuals hired by a business.