We mentioned early last year that the U.S. Department of Labor intended to start cracking down on the (mis)classification of workers as independent contractors. All is not lost however, as we also recently discussed a New York case where a court found that the employer properly classified its 200 drivers as independent contractors and dismissed their claims, indicating that there remains (when done very carefully) ways to properly use independent contractors. Within this context, over the last several years, dancers at gentlemen’s clubs around the country have brought numerous Fair Labor Standards Act and related state law wage and hour suits challenging their classification as independent contractors, and a gentlemen’s strip club in Nevada recently ended up on the wrong side of one of these challenges.

The decision from the Nevada Supreme Court reminds us that, whether in a Fortune 1000 setting or the more, we’ll say “intriguing,” adult entertainment industry, there is a very fine line between classifying someone as an employee or an independent contractor, and getting it wrong can be very costly. In the recent Nevada case, the gentlemen’s club contracted with over 6,000 performers who provided semi-nude entertainment for the Club’s customers. The dancers received no compensation from the Club, instead relying exclusively on tips and dancing fees from patrons. Six performers filed a class action complaint in 2009, claiming they were employees because they had to abide by the Club’s rules, including, among other requirements, a minimum heel height for shoes, a minimum shift of six hours, and paying a fee if they refused to perform on stage twice per shift. The Club argued that it properly classified the performers as independent contractors because they determined their own schedules, set their own prices for private performances, were permitted to perform at other venues, controlled the “artistic aspects” of their performances, and signed an independent contractor agreement.

Finding that the “economic realities test” of the Fair Labor Standards Act ran parallel with the state’s five-factor test, the Nevada Supreme Court concluded that the performers were in fact employees of the Club and due at least minimum wage for all hours worked. First, the Court found the agreements between the performers and the Club clearly set forth an employment relationship, as it was an express contract of hire, regardless of the fact that the Club claimed it had no intent to employ the performers. The Court then applied a non-exhaustive list of six factors, including the degree of the Club’s control over the work performed, the performers’ opportunity for profit, the performers’ investment in tools or equipment, whether the performers applied a special skill, the degree of permanence of the relationship, and whether the services were an integral part of the Club’s business. On the basis of these factors, the Court decided that the Club did in fact closely monitor the performers’ schedules, attire and performances, satisfying the “control” factor, and further held that the performers’ ability to “hustle” for tips was not such a special skill that distinguished them from employees. Most importantly, the Court found that the performers provided a service to the Club that was integral to the business, as “the women strip-dancing there are useful and indeed necessary to [the Club’s] operation.”

The recent Nevada decision, while emanating from a tabloid-like context, nonetheless again reminds all employers that it is a balancing act to determine whether a group of individuals should be classified as employees or independent contractors fraught with serious risk. So how do employers navigate this tricky area, particularly when independent contractors represent a company’s brand and thus employers generally have a need to take steps to assure quality control? There are a variety of tests and factors that a state or federal court may apply, and it is imperative that businesses assess the applicable factors to determine which designation may be appropriate. At a general level though, unless a company can give general guidance to a worker on what is needed and then take a largely hands-off approach from there, the company is dancing (whether in a ballroom or a more exotic setting …) to a dangerous beat. As always, it is a good idea to consult with employment counsel whenever independent contractor use is at play or under consideration.