Dawn Brotherton Jun. 23, 2016, 2:56pm


RICHMOND, Va. (Legal Newsline) — A recent ruling that two Maryland dance clubs had misclassified exotic dancers as independent contractors is significant for all businesses that have agreements with independent contractors, an attorney says.

In McFeeley et al v. Jackson Street Entertainment, LLC et al., the plaintiffs brought suit against the dance clubs for failure to comply with the Fair Labor Standards Act (FLSA). The dance clubs argued that the plaintiffs were independent contractors, citing an agreement known as the “Space/Lease Rental Agreement of Business Space.”

In its ruling, the U.S. Court of Appeals for the Fourth Circuit applied a six-part economic realities test to determine whether the employees were economically dependent on the dance club or were in business for themselves, rather than using the agreement between the employer and contractor. 

The test relied on six factors, including the degree of skill required, the permanence of the working relationship, and the opportunity for profit and loss of the worker.

The strongest factor in determining the distinction between an independent contractor and an employee is the degree of control that the employer has over the worker, according to the court, but it was clear in its ruling that “the court must adapt its analysis to the particular working relationship, the particular workplace, and the particular industry in each FLSA case.” 

Each of the six points of the economic realities test must be applied to each case.

Michael T. Marr, an attorney with Sands Anderson PC, told Legal Newsline the ruling underscores the scrutiny by the federal government of a significant misclassification problem.

“It’s reflective of David Weil’s (Administrator of the Wage and Hour Division, U.S. Department of Labor) Administrator’s Interpretation No. 2015-1,” which relates to the application of the FLSA as it applies to independent contractors, he said.

“Uber raised the visibility of (these types of cases). It wouldn’t surprise me to see more cases popping up,” he said. 

“In Virginia, the government is cracking down on the construction industry.” 

According to Marr, Halliburton, GrubHub, DoorDash, Lyft and Fed Ex have all faced similar problems in determining whether their independent contractors are truly contractors or de facto employees.

According to the Department of Labor (DOL), “When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.”

“I do find it interesting that the judge permitted a good faith defense," Marr said.

"The FLSA allows (employers) to use a good faith defense. Employers may be able to mitigate their damages by running through their independent contractor contract with an attorney an applying the economic realities test that the court used to ensure compliance. It’s much less expensive to contact an attorney that go through litigation.

“This problem is not going away, but the Court’s decision guides the nine federal district courts in Maryland, Virginia, West Virginia, North Carolina, and South Carolina and from federal administrative agencies by telling them what tests to apply in future cases.”

Organizations in this Story

United States Court of Appeals for the Fourth Circuit
1100 E Main St
Richmond, VA 23219

U.S. Department of Labor
200 Constitution Ave NW
Washington, DC 20210

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