Independent Contractor Misclassification Still a Concern for Colorado Companies

VCG Holding Corp., a company that owns strip clubs across the country was sued by more than 500 adult dancers for various violations of the Fair Labor Standards Act (“FLSA”) and Colorado Labor Code stemming from their misclassification as independent contractors.[1]   This case is one of many lawsuits in the last several years targeting strip club owners and other businesses, and forcing many businesses to reevaluate how they classify and compensate their workers. 

Background

The suit was brought by over 500 dancers working in adult entertainment establishments in Colorado, California, Florida, Illinois, Kentucky, Maine and North Carolina.  Plaintiffs, who were classified as independent contractors, allege that they were denied minimum wage, overtime pay, and the full retention of their earned tips, and were required to pay various fees and fines in order to work.  Classifying workers, such as plaintiffs, as independent contractors means they are not protected under the FLSA or other state labor laws, and thus not subject to minimum wage and overtime requirements. 

Plaintiffs argue in the lawsuit that the dancers are not independent contractors because the club exercises control over all aspects of their work and they do not exercise the skill and initiative of a person in business for themselves.  For example, the strippers had to wear approved outfits and high heels at all times, and were forbidden from using lotion, gels or glitter during performances.  As there is no specialized training and only a minimal level of skill required, the plaintiffs argue they do not qualify as independent contractors. 

Factors to Determine Independent Contractor Status

In order to determine whether workers are "customarily engaged in an independent trade, occupation, profession, or business," Colorado courts look to the nine factors set forth in statutory section 8-70-115(1)(c), which defines evidence that must be included in an independent contractor agreement to create a presumption that a worker is an independent contractor rather than an employee.[2]  Under the statute, many factors are set forth which may indicate the level of control an employer exercises over a worker to determine the legitimacy of the independent contractor designation.  In order to legally maintain the independent contractor classification, the statute provides that the employer for whom services are performed cannot, for example, oversee the actual work of the individual or instruct the individual as to how the work will be performed, provide more than minimal training for the individual, provide tools or benefits to the individual, or dictate the time of performance. 

Similarly, the IRS has set forth a 20-factor test designed to evaluate who controls how work is performed, looking at who sets the schedule for the completion of work, whether training is given for the work to be performed, and the level or instruction for when, where, and how work is done.[3]

Practical Takeaways

This case emphasizes that the evaluation of worker classification issues in Colorado and elsewhere remains complex, not only for the adult entertainment industry, but for all industries that utilize independent contractor relationships.  Campbell Litigation, P.C. encourages companies that have independent contractor agreements with their workers to evaluate both the contract itself and the manner in which the company and/or its managers interact with the independent contractor workers.  There are times when the completion of work may not fall in line with the independent contractor agreement.  After conducting the self-evaluation, if concerns are raised about whether an independent contractor relationship exists, employers should work with their legal counsel to analyze worker classifications.  If employees are improperly classified as independent contractors, any misclassifications should be remedied as soon as possible. 

[1] Georgina Santich, et al. v. VCG Holding Corp., et al., Civil Action No. 1:17-cv-00631 (D. Colo. March 10, 2017).

[2] Colo. Rev. Stat. § 8-70-115(1)(c)

[3] Rev. Rul. 87-41 (1987), 1987-1 C.B. 296.