The Federal District Court for the District of Maryland recently determined in Braxton v. El Dorado Lounge, ELH-15-3661 (Oct. 27, 2017), that exotic dancers are employees under the federal Fair Labor Standards Act and Maryland's state law version, the Maryland Wage and Hour Law. The court applied a many-factor test, known as the "economic realities test," and determined that the relationship between the nightclubs at issue and the dancers is consistent with an employer-employee relationship, not an independent contractor relationship.

There are benefits to classifying workers as independent contractors, the largest of which is cost savings. If a worker is an independent contractor, the employer avoids needing to pay overtime or benefits, the employer's share of Social Security and Medicare taxes, and other taxes.

However, misclassifying employees as independent contractors expose employers to fines and penalties from state and federal Departments of Labor and the IRS, as well as requiring the employer to pay back wages and taxes.

Courts use a six-factor test to determine if a person is an employee or an independent contractor. The factors include:

1. The degree of control the employer has over the manner in which work is performed;
2. The worker's opportunity for profit or loss;
3. The worker's investment in equipment or material, or his employment of other workers;
4. The degree of skill required;
5. The permanence of the working relationship, and;
6. The degree to which the services performed are integral to the employer's business.

According to Texas lobbyist and attorney Jake Posey, no one factor is more important than the others. Rather, the court looks at all the factors to determine the economic realities of the relationship. Do you have questions about how to appropriately classify your workers? Contact us today!