Well, two dancers won their trial last March. So, now Tiffany’s Cabaret has settled with the remaining dancers. I previously wrote about this case and trial here. The dancers sought a collective action, which is the name for a class action under the Fair Labor Standards Act. About half the dancers could not join the collective action because they had previously signed arbitration agreements. But, the rest of the dancers, about half of the 45 who asked to join, were allowed to join the collective action. They settled their claims after the Magistrate Judge denied the employer’s motion to dismiss. See San Antonio Express News report here.

It looks like the employer realized it should settle. The two dancers who went to trial last March, after all, were awarded $250,000, plus attorney’s fees. At the time, Tiffany’s Cabaret said they would appeal. But, I expect a more sober assessment has changed that plan, as well,

The Department of Labor, Wage and Hour Division, has issued new interpretative guidance regarding independent contractors. As I have mentioned before, many employers are trying to stretch the limits of independent contractors to include as many employees as possible. See my post here. This trend has been ongoing for a decade or more. The Administrator’s Interpretation No. 2015-1 can be found here. The guidance makes it clear that the old common law test will not apply to cases under the Fair Labor Standards Act. Courts applying the FLSA should apply the “economic realities” test. DOL adds in a footnote that while many cases involve alleged independent contractors, many other cases involve purported “partners,” “owners,” or members of a limited liability company. In such instances, the economic realities test will still apply. The economic realities test essentially asks whether the worker is economically dependent on the employer. The Guidance addresses each factor in detail:

  • Is the work an integral part of the employer’s business? That is, if the employer is a grocery and it hires an electrician, then the electrician is likely to be found to be an independent contractor
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss? If the employer schedules the hours and work time for the worker, that indicates the worker depends on the employer for profit. But, if the work, such as a cleaning company, schedules its own workers based on its own needs, that suggests the worker is independent.
  • How does the worker’s investment compare to the employer’s investment? Essentially, this factor addresses who provides the material and equipment for the work. For example in one case, farm workers provided their own gloves. That investment did not compare to the farm owner’s investment in tools and equipment.
  • Does the work performed require special skills or expertise? Permanency or indefinite work assignment suggest the worker is an employee.
  • What is the nature of the employer’s control of the work? If the employer merely assigns work goals or end products allowing the worker to determine how to create or effect that end product, then that lack of control indicates the worker is acting with some independence. Who decides the goal and who decides how to reach that goal?

These factors are not new. But, the Guidance does pull together the better caselaw on this critical test.

San Antonio based restaurant China Sea, agreed to pay $504,577 to 82 former workers for minimum wage, overtime and record-keeping violations. China Sea used two sets of books, one real, one not so real. Some kitchen workers were paid a salary that did not equate to minimum wage. And some workers worked 60 hours per week, but their hours were not recorded. And, servers were not properly paid. The Department of Labor filed suit against the corporate owner, PCXAC LLC and WKHK Investment LLC, which own three China Sea restaurants. The suit originally sought over $1 million in damages on behalf of 164 workers.

The lawsuit was filed in 2012. The parties completed discovery and apparently agreed to a settlement after a mediation session. See Cause No. 12-CV-1210. See San Antonio Express News report.

President Obama announced that the administration will change regulations to allow overtime pay for managers who make up to $970 per week. The current level is $455 per week, which makes the overtime regulation largely meaningless. Indeed, this regulation has lost much of its effectiveness since 1975, when it applied to 65% of management. Now, under the current level, the overtime requirement only applies to 12% of managerial workers. See CNN news report. The increase to $970 per month means overtime will apply to 47% of managers.

For decades, this overtime provision has provided a scam for employers. They could often save money by re-naming a position as managerial, assign some minimal supervisory duties,  and thereby avoid having to pay overtime. The current salary level of $455 per week was set by Pres. Bush in 2004.

Minor league baseball layers work long days. Yet, they are paid perhaps $5,000 for a five month season. Some are paid generous signing bonuses. Some receive no bonus. That means a great many baseball players are paid less than minimum wage. Wages below minimum wage violate the Fair Labo Standards Act. Three former minor league players filed suit against their team owners and Major League Baseball for the violations. See USA Today report. There are thousands of players in the minor league. Most will never make it to that big paycheck in the majors. Yes, even minor league baseball has to pay minimum wage.

They were exotic dancers, but they were also workers, just like the rest of us. Alexis Alex and Nicolette Prieto formerly danced at Tiffany’s Cabaret, a gentleman’s club. They claimed they were not paid minimum wage. The employer’s records did not record their time. But, the club’s strongest defense was that the money paid them by patrons during table dances was a “service charge.” The club sought to count that as part of their wages. But, the dancers believed that money was tips. During the trial, the judge agreed with the dancers, a critical legal victory for the two ladies. The club’s second defense was that the two dancers were paid a few hundred dollars every night by patrons. But, countered the two workers, that money was paid directly by the customers, not by the club. Basic Fair Labor Standards Act law requires the employer to pay minimum wage, not the customers.

After a three day trial, the jury agreed with the two women and awarded $125,000 in lost wages. The judge then awarded liquidated damages of another $125,000. In awarding liquidated damages, the judge explained that the club’s actions were intentional. The club owners relied on 20 year advice from its accountants regarding the money paid during the table dances. Later, the court will also award attorney’s fees and court costs. I am sure the club owners now wish they had been more serious about trying to settle this case. A class action against the same club is still pending. See San Antonio Express News report here (account required).

Apparently at the conclusion of the trial, the lawyer for the club said the club would appeal the verdict. Replied Judge Lamberth, visiting from Washington, D.C., “I’ll offer you at least a beer” if the attorney is able to win an appeal.

I previously wrote here about the lawsuit against Lady Gaga for overtime pay.  Lady G did not do well in her deposition.  Now, the federal district court denied her ladyship’s motion for summary judgment (or some motion like that).  See New York Post report.  So, Lady G settled.  That is wise.  She would not have testified well.  Lady Gaga is the sort of defendant juries get upset with.  See Employment and Labor Insider post.  

So, the proposed bill vetoed by Gov. Perry was the subject of lobbying efforts by some retailers.  The bill, passed in both houses of the Legislature, would have allowed women and others to file suit when they learn of pay discrimination.  Now, they must file suit even though they may not learn of a pay discrimination violation until years too late.  I previously wrote about this veto here.  This veto leaves women and others in the position that to file suit, they must learn of the pay disparity within 180 days of the disparity.  But, since employees rarely discuss their pay, such knowledge will come far too late to allow any such lawsuit.  The U.S. Congress passed a statute to allow such lawsuits.  But, when Texas tried to pass an equivalent bill, Gov. Perry exercised his veto  power. 

It turns out that the governor was lobbied by Kroger’s, Macy’s, Brookshire Grocery Company, a Houston based grocer, Market Basket and the Texas Association of Business and the National Federation of Independent Businesses.  HEB, a San Antonio grocer, did not participate in the lobbying effort.  See Aug. 6, 2013 edition of the San Antonio Express-News.  Thanks to an open records request by the Houston Chronicle, we have better a idea regarding what actually motivated Gov. Perry’s veto.  As the bill’s sponsorrs mentioned, they had no idea the Governor was opposed to the bill.  The bill passed with bipartisan support.  

If the Governor had some particular issue with the bill, he could have made his intentions known.  But, in doing this stealth veto, the Governor ensured the bill would not pass in any form. 

At the time, Gov. perry said he opposed the bill to maintain Texas’ positive business support.  He also claimed that federal law provided an adequate remedy.  But, as I explained previously, federal courts are unfriendly to employees in many parts of the state. 

And, now, we know the rest of the story……

A frequent question arises regarding when an employee is an independent contractor and when is he just a regular employee.  Many employers have moved to using independent contractors instead of employees.  The status of independent contractor can save the employer significant amounts of money in employment taxes, social security payments, etc.

But, the IRS understands that employers have an incentive to stretch the truth regarding an employee’s status.  Department of Labor understands this and the courts understand this.  So, every entity has some test to determine whether an employee is truly independent.  Kevin Christensen has written a nice summary of the different tests to determine whether an employee might be considered an independent contractor at his California Employment Blog.  You can also look at a helpful summary provided by the DOL.  

Among the most important factors is 1) the degree and nature of control of the work by the supervisor.  If the supervisor simply asks that a wall outlet be installed, then that employee performing the work may be a true independent contractor.  But, if the same supervisor instructs the employee to use 220 gauge Romex, specifies where and how to tie into existing wiring and provides the Romex wire and tools, then that so-called independent contractor may actually be an employee.  

Another important factor is 2) how integral is the work to the business.  If the business is a bakery, then it seems unlikely they would also be in the business of installing new wall outlets.  A baker is more likely to let the electrician decide how he wants to install a new wall outlet. 

Another important factor is 3) the extent to which the employer provides the equipment and materials of the purported independent contractor.  If a stationery supplier hires truck drivers via a third party, but provides the truck, then it is less likely that the third party is the true employer.  That is, if a) ABC Stationery Supplies provides the truck, b) XYZ Trucking Co. claims to be the true employer but does nothing other than issue a pay check, then it appears that the truck driver is actually employed by ABC Stationery.  As the DOL notes, context is everything.  These tests depend a great deal on individual facts.  

Perhaps the least relevant factor is how is the alleged employee paid.  Obviously, a true independent contractor would be paid by the project, not by the hour.  But, the courts recognize that employers have incentive to "fudge" paychecks. 

The independent contractor distinction is very important. if an employer mis-classifies an employee as an independent contractor, then that employer could become liable for unpaid overtime for a time period of years. 

The nonpartisan Government Accountability Office looked into the Wage and Hour Division.  Wage and Hour is the division of  the Department of Labor that investigates violations of the Fair Labor Standards Act.  When your employer fails to pay you your wages, you can file a claim with Wage and Hour Division.  Unofrtumnately, GAO found wage and Hour provides very poor service.

GAO had fictitious employers and employees call Wage and Hour with various questions.  They found Wage and Hour provides inaccurate information, it discourages wage claimants from filing a claim and even ignored a fictitious report of child labor at a meat packing plant.  See the complete GAO report here.  Read Chris McKinney’s take on the report here.  As Chris says, you may be better off filing a lawsuit with an employment lawyer than relying on Wage and Hour Division.