By Giselle Donado and Sara Eber

Continuing the trend of courts closely scrutinizing the classification of workers in discrete industries, the Supreme Court of Nevada recently reversed summary judgment in favor of a gentlemen’s club and found that the Club’s performers were employees entitled to be compensated at a minimum wage.

In Terry et al. v. Sapphire Gentlemen’s Club, the Court considered a class action claim brought by six performers at the Sapphire Gentlemen’s Club (the “Club”) claiming they were entitled to a minimum wages under Nevada law.  The Club did not pay wages to its performers — who were classified as independent contractors; rather, they were compensated entirely through tips and dancing fees.  The performers signed independent contractor agreements and, according to the Club, set their own schedules, fees for private performances, controlled the “artistic” aspects of their performance, and could work at other venues.

At the outset, the Court echoed the decision of numerous courts throughout the country, reasoning that the performers’ “entertainment agreement” could not trump the realities of the working relationship.  After determining that Nevada should follow the federal Fair Labor Standards Act’s “economic realities” test to analyze its state minimum wage law claims, the Court set out to determine whether the Club’s 6,600 performers were properly deemed employees.  Specifically, the Court examined the Club’s degree of control over the performers, the performers’ opportunity for profit, any special skills required, and whether the performers’ services rendered were an integral part of the Club’s business.

Regarding control, although the Club did not set the performers’ schedules and the decision whether to perform ultimately lay with the performers, the Court reasoned that the option to perform was really a false choice, citing two key reasons.  First, when the performers did work, the Club required them to work for a minimum of six hours.  Second, while working, if the performers refused to dance on stage, they would have to pay the Club a fee.  Thus, the Court determined that the “choice” to work was “a coercive choice.”   The Court also emphasized that the performers technically had artistic discretion in their work, but the Club controlled what music they danced to and had rules governing movement styles.  And, the Court emphatically noted that, after touting itself as the “World’s Largest Strip Club,” the performers were undeniably integral to the Club’s business, counseling in favor of according them employee status.

The Court rejected the Club’s hallmark independent contractor arguments.   The Club contended that the performers’ freedom to work at other venues favored their status as independent contractors.  The Court, however, analogized the performers to waiters, ushers and bartenders, all of whom may work at other clubs and are generally still considered employees.  The Court also was unpersuaded by the fact that performers had an independent contractor agreement and were “customarily” considered contractors in the adult entertainment industry.

Although its ruling analyzed the specific business practices of the Club, the Court’s ruling reflects a continuing trend finding positions traditionally considered to be independent contractors have been misclassified.  And, while your workers may not be tipped for their dancing skills, these cases emphasize important tips to bear in mind when classifying positions.

To be sure, having an independent contractor agreement is a best practice — but, like the Court noted, it cannot override the realities of the contractor’s experience.  To stave off these high exposure lawsuits, control is key.  Contractors should be given bona fide control over their schedules—not only when they are scheduled, but howand should have true control over how they do their job.  In this climate, relying on the industry-standard classification of a position and an independent contractor agreement will not be dispositive of whether workers are properly classified as contractors.