Other than discouraging drivers from attending a strip club, most of trucking companies would not be concerned that their drivers have anything in common with exotic dangers. Yet in recent decisions the status of an exotic dancer as an employee, rather than independent contractor, may significantly impact the way trucking companies do business.
A few years ago, I posted a blog about the Sperls case in which a major broker was deemed to be an employer because the amount of control imposed on the driver and the trucking company. In Sperls, the broker was found to be vicariously liable for the actions of the truck driver.
Many trucking companies hire "independent contractors" and the United States Department of Labor is closely monitoring IF
designated “independent contractors” should be employees.
Companies may think that hiring independent contractors rather than employees saves them money. If you hire an independent contractor, you avoid having to withhold FICA and state and federal income taxes and paying for workers’ compensation, health insurance and other benefits that are otherwise available to your employees.
Of course, not all independent contractors are really employees. In many other cases, however, it is not so easy to tell if someone is an independent contractor or really an employee. Take exotic dancers. Strip clubs in Phoenix and elsewhere around the country are being sued by exotic dancers for alleged violations of the Fair Labor Standards Act (FLSA), a federal law that requires employers to pay their employees minimum wages and overtime pay. These dancers claim that strip club owners have misclassified them as independent contractors and that, because they are really employees, the owners have violated the FLSA and similar state laws by failing to pay them as employees entitled to minimum wages and overtime pay. So what makes them employees and not independent contractors?
Obviously, there can
be far-reaching implications and costs if someone is actually deemed to be an “employee.”
This was the exact type of issue that caused so many problems
for the broker in the Sperls case that I analyzed a few years ago in the blog site: www.truckingalong-markperkins.blogspot.com.
In Sperls the issue was whether the broker exhibited enough control over the
day to day operations of the driver to be deemed an employer for vicarious
liability purposes, but another important factor is whether The DOL will make enforcement a priority and may soon be asking
questions at your place of business.
You can’t call an employee an independent contractor if the
employee is not really an independent contractor – if it looks like a duck,
etc. If you do, and any one of a number
of government agencies finds out, you could
be liable for years of unpaid payroll withholdings, insurance benefits and even
on-the-job injuries that should have been covered by workers’ compensation. One government agency talks to the other,
and, if found guilty by one, you can bet the others will be in quick
pursuit. Before you know it, you’re
dealing with the DOL, the IRS, the Arizona Department of Economic Security and
some government agencies you’ve never even heard of.
The following was
posted by David Ferren of Jabrur Wilk :
An independent contractor is hired on a contract basis to do
work that is typically independent, unsupervised and limited in time, scope and
duration. An employee is hired on an
at-will or contract basis to do work that is typically supervised, regular and
ongoing and is only generally limited in scope by the kind of work she is hired
to do. Payments to independent
contractors are reported on 1099s.
Payments to employees are reported on W-2s.
There are various “tests” that courts and government
agencies use to determine whether someone is an employee or an independent contractor. Each test is somewhat different, but all of
them share a common goal of protecting the rights of workers who look like, but
are not treated like, employees.
Arizona’s “Right to Control” Test
Arizona courts and state agencies use a “right to control
test.” This test, found in A.R.S.
¶23-902, examines: (1) whether an employer “procures work to be done for the
employer by a contractor over whose work the employer retains supervision or
control,” and (2) whether “the work is a part or process in the trade or
business of the employer.” A.R.S. ¶23-902(B).
If these criteria are met, the person doing the work is an
employee. Conversely, if someone is “not
subject to the rule or control of the business for which the work is done, but
is engaged only in the performance of a definite job or piece of work, and is
subordinate to that business only in effecting a result in accordance with that
business design,” the person doing the work is an independent contractor. A.R.S. ¶23-902(C).
Courts consider the “totality of the circumstances of the
work and various indicia of control between the parties” to apply this
test. Reed v. Indus. Comm’n, 23
Ariz.App. 591, 593, 534 P.2d 1090, 1092 (1075).
The “indicia of control between the parties,” or factors that agencies
and courts consider when applying the test, include:
(1) The duration of
the employment;
(2) The method of
payment;
(3) Who furnishes
necessary equipment;
(4) The right to
hire and fire;
(5) Who bears
responsibility for workmen’s compensation insurance;
(6) The extent to
which the employer may exercise control over the details of the work; and
(7) Whether the
work was performed in the usual and regular course of the employer’s business.
Read, 534 P.2d at 1092, citing Home Ins. Co. v. Indus.
Comm’n, 123 Ariz. 348, 350, 599 P.2d 801, 803 (1979). It is important to remember that it is the
existence of the right to control, not the actual control of, a worker’s
activities that determines the issue.
Scott v. Rhyan, 78 Ariz. 80, 82, 275 P.2d 891, 892 (1954).
The FLSA “Economic
Reality” Test
Federal courts and government agencies use what they call
the “economic reality” test to determine employee status under the FLSA. See Goldberg v. Whitaker House Co-op., Inc.,
366 U.S. 28, 33 (1961) (the “economic reality” of an employment relationship,
rather than “technical concepts,” determines whether someone is an employee
under the FLSA); Hale v. State of Ariz., 993 F.2d 1387, 1393-94 (9th Cir. 1993)
(same). The stated goal of this test is
to determine the economic reality of the parties’ relationship. The Ninth Circuit Court of Appeals, which
decides federal case appeals filed in Arizona, has applied six factors to make
that determination:
(1) The degree of
the alleged employer’s right to control the manner in which the work is to be
performed;
(2) The alleged
employee’s opportunity for profit or loss depending upon his managerial skill;
(3) The alleged
employee’s investment in equipment or materials required for his task, or his
employment of helpers;
(4) Whether the
service rendered requires a special skill;
(5) The degree of
permanence of the working relationship; and
(6) Whether the
service rendered is an integral part of the alleged employer’s business
Collinge v. IntelliQuick Delivery, Inc., 2015 WL 1292444,
2-3 (D.Ariz. 2015), citing Real v. Driscoll Strawberry Associates, Inc., 603
F.2d 748, 754 (9th Cir. 1979). These six
factors mimic the Arizona right to control test factors.
Federal courts have said that the most important factor in
the economic reality test is the crux of the Arizona right to control test –
the right of an employer to control the work.
See Maddock v. KB Homes, Inc., 631 F.Supp.2d 1226, 1234 (C.D.Cal. 2007).
The Title VII Common
Law Agency Test
Federal courts and government agencies use what they call a
common law agency test to determine employee status under Title VII, a
collection of federal laws that protect employees from discrimination,
harassment and retaliation on the basis of sex, race, religion, disability and
other protected classes. See Nationwide
Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992); Murray v. Principal Fin.
Grp., Inc., 613 F.3d 943, 945 (9th Cir. 2010).
This common law agency test has 12 factors:
(1) The skill
required;
(2) The source of
the instrumentalities and tools;
(3) The location
of the work;
(4) The duration
of the relationship between the parties;
(5) Whether the
hiring party has the right to assign additional projects to the hired party;
(6) The extent of the hired party’s discretion
over when and how long to work;
(7) The method of
payment;
(8) The hired
party’s role in hiring and paying assistants;
(9) Whether the
work is part of the regular business of the hiring party;
(10) Whether the
hiring party is in business;
(11) The provision of
employee benefits; and
(12) The tax
treatment of the hired party.
Murray, 613 F.3d at 945-46.
Here again, these factors mimic the Arizona right to control test
factors – although we have now jumped from six or seven factors to 12 factors –
and the most important factor is the right of an employer to control the
work. See Drottz v. Park Electrochemical
Corp., 2012 WL 1344729, 5 (D.Ariz. 2012) (commenting that the Title VII common
law agency test factors all point to the employer having “complete control over
the manner and means of Plaintiff’s work”).
The IRS 20-Factors
Test
Federal courts and government agencies use the multi-factor
test published by the Internal Revenue Service (IRS) to determine employee
status for income tax and payroll withholding purposes. See IRS Rev.Rul. 87-41 (1987); United States
v. Kahre, 737 F.3d 554, 580-81 (9th Cir. 2013), cert. den.¸ 135 S. Ct. 59
(2014). As we can expect from our
favorite government bureaucracy, we have now jumped from six or seven factors
to 12 factors to the following “non-exhaustive” 20 factors:
(1) Whether the employer
has the right to control how the work results are achieved, and if there are
instructions regarding when, where, and how to work;
(2) Whether the
employee has been trained to perform services in a particular manner;
(3) Whether the
services are integrated into business operations, showing the employee is
subject to direction and control;
(4) Whether the
services are rendered personally, showing the employer is interested in the
methods as well as the results;
(5) Whether the
employer or the worker hires, supervises, and pays the assistants;
(6) Whether the
employee has a continuing relationship with the employer, even if work is
performed at irregular intervals;
(7) Whether the
employee has set hours of work established by the employer;
(8) Whether the
employee ordinarily devotes full time service to the employer or the employer
may have a priority on the employee’s time;
(9) Whether the
work is performed on the premises of the employer or at a location determined
by the employer;
(10) Whether the
employee is required to perform services in the order or sequence set by an employer;
(11) Whether the
employee must submit reports to the employer;
(12) Whether the
employee is paid by the hour, week, or month; or instead, paid as an
independent contractor by the job or on a straight commission;
(13) Whether the
employee’s business and travel expenses are generally paid by the employer and
are subject to the employer's regulation and control;
(14) Whether the
employee is furnished with significant tools, materials, and other equipment;
(15) Whether the
independent contractor has a significant investment in the facilities she uses
in performing the services for someone else;
(16) Whether the
independent contractor can make a profit or suffer a loss;
(17) Whether the
independent contractor is free to provide her services to two or more unrelated
persons or firms at the same time;
(18) Whether the
independent contractor makes her services available to the general public;
(19) Whether the
employee can be fired, or whether the independent contractor cannot be fired so
long as she produces a result that meets the specifications of the contract; and
(20) Whether the
employee has the right to quit her job at any time without incurring liability.
Walker v. Apfel, 1999 WL 1000436, 2, n. 1(N.D.Cal. 1999)
(omitted factor added); see Rev. Rul. 87–41; 40 T.A.C. §821.5 (1998). Once again, these factors mimic the Arizona
right to control test factors, though in a far more expansive and detailed way,
and, once again, the primary concern is the right of an employer to control the
work. See United States v. Kahre, 737
F.3d 554, 580-81 (9th Cir. 2013). cert. denied, 135 S. Ct. 59 (2014) (when the
IRS 20-factor test is applied, the relationship of employer and employee
generally exists when “the person or
persons for whom the services are performed have the right to control and
direct the individual who performs the services . . . .”).
CONCLUSION
The exotic dancers who have sued strip clubs claim they are
employees rather than independent contractors because they have to follow the
owners’ rules that seem to make them look like employees. They are “hired and
fired,” they are economically dependent on their continued employment, they are
disciplined, their works hours and performances are scheduled, they are
supervised and instructed about when, where, and how they perform their work,
and their dancing is an integral part of the owner’s business. Many
state and federal courts that have addressed this hot topic have agreed and
have found them to be employees who are entitled to employee wages and
benefits. See, e.g., Hart v. Rick’s
Cabaret Int’l, Inc., 967 F.Supp.2d 901, 912-13 (S.D.N.Y. 2013) (citing
cases). The Hart Court recently awarded
nearly $11 million in unpaid minimum wages to a class of dancers. Even exotic dancers have a right to earn a
decent living.
Without any doubt, no one would confuse a truck driver with an exotic dancer, but the legal principles are the same.
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