Exotic performers are not independent contractors

Strippers are not independent contractors, and therefore are eligible for workers’ compensation benefits, said a New York court in a recent case. Although this ruling doesn’t make every stripper in New York an employee, it does present an interesting set of facts to explore the often hazy line between “employee” and “independent contractor” for workers’ compensation purposes.

The Judge in Hart v. Ricks Cabaret (decided December 30, 2010) found that although the cub owner classified the exotic dancers as independent contractors the club was the employer. The club argued that the dancers were not employees as they paid the club to perform there (the performers paid the club “shift fees” to dance there). By classifying the strippers as independents the club avoided numerous regulations and avoided having to pay workers’ comepnsation premiums for these dancers.

The exotic dancers argued that the club controlled and directed their performances. For example, the club required them to cover all tattoos while performing, banned gum chewing, specified the height of the heels worn by the performers, and selected the music.

The ruling is expected to impact nearly 1,700 exotic performers and the clubs that employ them in New York, who may be subjected to the New York Labor Laws and Workers’ Compensation Act.

The case illuminates the often hazy definition of employee and independent contractor.

Who is an Employee?
A common question before the WCB is whether or not an injured claimant is an ‘employee’ or an ‘independent contractor.’ Most individuals providing services to a for-profit business will be deemed an employee of that business and therefore must be covered by the employer for workers’ compensation insurance. This applies unless those services are specifically excluded. N.Y. Work. Comp. Law §3. ‘Employee’ includes day laborers, leased employees, borrowed employees, part-time employees, unpaid volunteers (including family members) and most subcontractors. In this case, the club owner was calling all the exotic dancers independent contractors to avoid paying workers’ compensation premiums and other costs associated with employees.

The Board considers the following factors in determining whether an injured claimant is an employee or was an independent contractor (and therefore not eligible for benefits):

Who has the ‘Right to Control’ the claimant?
What was the degree of direction and control the ‘alleged employer’ exercised over the claimant? A person or organization controlling the manner in which the work is to be performed indicates that the task is being performed by an employee. If the person doing the labor controls the time and manner in which the work is to be done this may indicate that the task is being done by an independent contractor.
Rule of thumb: If an individual is truly independent, the individual generally works under his/her own operating permit, contract or authority.

Was the ‘Character’ of the work performed by the claimant the Same as the Employer?
Work done consistent with the primary work performed by the hiring business indicates that the labor was done by an employee. Work done by a person that is different than the primary work of the hiring business may indicate the task is being performed by an independent contractor. (For example, someone paving a driveway for a driveway contractor is generally considered the employee of that paver. Conversely, a plumber hired on a one time basis to fix a broken pipe for a retail store owner is generally considered an independent contractor – the character of the plumber’s work is different than the work done by the retailer.) In this case, the “character of the work” performed by the dancers is essentially the same as the services offered by the employer.

What was the Method of Payment?
Employees tend to be paid wages on an hourly, daily. weekly, or monthly basis. Similarly, employment is indicated if the hiring business withholds taxes and/or provides other employee benefits (Unemployment Insurance, health insurance, pensions, FICA, etc.) Whether the labor is paid using a W2 or 1099 Form for tax purposes does not matter in determining an employer/employee relationship for workers’ compensation purposes. A business paying cash to an individual for services usually indicates that the individual is an employee. Payment made for performance of the task as a whole may indicate the task is being done by an independent contractor.

Who Furnished the Equipment/Materials for the job?
A business providing the equipment and/or materials used by people in performing the work tends to indicate an employer-employee relationship.

Who has the right to Right to Hire/Fire at the worksite?
A business retaining the authority to hire and fire the individuals performing the work indicates an employee is performing the work. An independent contractor retains a degree of control over the time when the work is to be accomplished and is not subject to be discharged by the hiring entity because of the method he chooses to use in performing the work. Naturally, an independent contractor’s services may be terminated if the services rendered do not meet contractual requirements,)

All factors may be considered and no one factor alone determines whether a person will be considered an employee under the WCL.

Independent Contractors
To be considered an independent contractor, and thus not an employee, an individual must meet and maintain all ten of the following conditions:

  1. Obtain a Federal Employer Identification Number from the Federal Internal Revenue Service (IRS) or have filed business or self-employment income tax returns with the IRS based on work or service performed the previous calendar year;
  2. Maintain a separate business establishment from the hiring business;
  3. Perform work that is different than the primary work of the hiring business and perform work for other businesses;
  4. Operate under a specific contract, and is responsible for satisfactory performance of work and is subject to profit or loss in performing the specific work under such contract, and be in a position to succeed or fail if the business’s expenses exceed income.
  5. Obtain a liability insurance policy (and if appropriate, workers’ compensation and disability benefits insurance policies) under its own legal business name and federal employer identification number;
  6. Have recurring business liabilities and obligations;
  7. If it has business cards or advertises, the materials must publicize itself, not another entity;
  8. Provide all equipment and materials necessary to fulfill the contract;
  9. Control the time and manner in which the work is to be done; and
  10. The individual works under his/her own operating permit, contract or authority.

Greg Lois is the managing partner of LOIS LLC, a 19-attorney law firm dedicated to defending employers and carriers in New York and New Jersey workers' compensation claims. Greg is the author of a popular series of "Handbooks" on workers' compensation, and is the co-author of the 2016 Lexis-Nexis New Jersey Workers' Compensation Practice Guide. Greg can be reached at 201-880-7213 or glois@lois-llc.com