Among the types of service providers who consistently challenge their classification as independent contractors are exotic dancers, who allege that they are employees of the night club or clubs at which they perform. This allegation can give rise to a host of claims relating to wage-and-hour law, including minimum wage, overtime and gratuities-based claims, as well as potential liabilities under state anti-discrimination, workers compensation and unemployment insurance laws. Kansas’ highest court recently adjudicated this latter issue, ruling that exotic dancers treated as independent contractors were properly employees under K.S.A. 44-703(i)(3)(D). Milano'S, Inc. v. Kan. Dep't of Labor, 2013 Kan. LEXIS 21 (Kan. Feb. 1, 2013).

Milano’S concerned dancers at Club Orleans, who were classified as independent contractors and accordingly worked exclusively for tips. Responding to a claim for unemployment benefits filed by a dancer, the Unemployment Tax Contributions Unit of the Kansas Department of Labor investigated the classification, determining after a hearing that the club controlled (i.e., “employed”) the dancers because:

  • the dancers were subject to house rules that prohibited illicit or illegal conduct and regulated interaction among the dancers and between the dancers and customers;
  • club management testified that a dancer's violation of the rules meant Milano's could fine or terminate the dancer;
  • the club the rules set minimum tips for various types of dances; and,
  • Milano's enforced the house rules on minimum tips.

On appeal, a district judge and intermediate appellate court each affirmed the agency’s decision, finding that the club maintained the right to control the dancers and that the dancers were integral to the club’s business. The Supreme Court also affirmed, taking issue with the lower courts’ technical application of the Kansas statutory provisions, but determining under “the [most] critical common-law factor . . . the employer's right of control over the employee and his or her work,” that “substantial competent evidence in the record . . . demonstrates that Milano's possessed such a right of control over the dancers at Club Orleans.” The Court found “[m]ost telling” the existence of various house rules applicable to the dancers, coupled with the fact that dancers' violations of those rules were punishable by fines and termination.

The independent contractor question is fact-intensive, and when issues arise the parties’ sharply disputed factual contentions are often viewed through a variety of jurisdiction-specific legal tests which can be frustratingly amorphous. Businesses contracting with independent contractors should analyze these issues prospectively, rather than in response to agency or private action.