The Kansas Supreme Court recently ruled exotic dancers are employees of the club where they work, not independent contractors for purposes of unemployment insurance. The Court's decision in Milano’s, Inc. v. Kansas Department of Labor concludes a seven-year legal battle over the employment status of dancers at Club Orleans, a Topeka gentlemen’s club owned by Milano’s, Inc.
A former dancer of the club filed a claim for unemployment benefits in 2005. The Department of Labor auditor assigned to the investigation determined the club’s dancers were employees entitled to benefits, not independent contractors as asserted by Milano’s. The hearing officer agreed, rejecting Milano’s’ assertion that a gentlemen’s club is merely a place with “good atmosphere, good lighting and good food” where the dancers entertain as independent contractors.
Milano’s challenged the determination. The issue ultimately went to the Kansas Supreme Court, which held the club’s dancers are subject to a right of control by the owner of the club, and are thus employees under Kansas Employment Security Law. Most tellingly, the Court said, “the house set various rules, and dancers’ violations of those rules were punishable by fines and termination.”
This case highlights that employers do not have the discretion to decide whether a worker is an independent contractor versus an employee—the law decides and the analysis can be complicated.
The distinction has consequences beyond eligibility for state unemployment benefits. Generally speaking, if a worker is an employee, the tax implications are different and the employer must make payments for Social Security, Medicare, and other costs such as workers’ compensation insurance. An employee typically has greater protection under discrimination and wage and hour laws than an independent contractor.
The test for determining when a worker is an employee rather than an independent contractor varies with respect to each law. However, a similar analysis to the “right of control” test applied in this case is often involved. Based on this decision, Milano's, Inc. well may have misclassified its dancers not only for purposes of unemployment insurance, but for purposes of other laws as well.
The bottom line is, if an employer mischaracterizes its workers, it likely will find itself in violation of numerous state and federal laws.