We keep talking about this, but the cases keep coming up, which means it is still an issue…whether a worker is an “employee” or an “independent contractor.” First, let us talk about why so many businesses want to classify certain workers as independent contractors rather than employees. Simply put, they think it will save them money—they will not have to pay for benefits, they will not have to pay various payroll and unemployment taxes, they will not have to worry about overtime, and the list goes on. While those things are generally true, they only apply if you actually employ independent contractors. Just because you call them independent contractors does not make them independent contractors. The truth of the matter is, if you are wrong you may owe a lot of money in unpaid taxes, etc.

This very thing came true once again when, on September 4, 2008, the Oklahoma Court of Civil Appeals upheld a decision that a gentleman’s club should have been paying unemployment taxes for its exotic dancers. Club Paradise, Inc. v. Okla. Employment Security Comm’n., 2008 OK CIV APP 110. Club Paradise operated a gentleman’s club in Tulsa. The club classified the dancers as independent contractors, and thus did not pay unemployment taxes on the dancers. But, the Oklahoma Employment Security Commission showed up, determined the dancers were really employees, and assessed the club back unemployment taxes.

In determining the status of the dancers, the Court reviewed the various aspects of the employment relationship. The dancers all signed agreements saying they were independent contractors, but the club did not sign it. The dancers were paid a percentage of the money earned on the drinks sold at the club, but the club controlled the prices of the drinks. The dancers could create their own performances and use their own music, but the club enforced rules on non-intoxication and covering certain body parts, and regularly asked dancers to leave if it felt they were acting inappropriately.

The Court focused on whether the club maintained control over the dancers’ work. A major consideration was whether either party could terminate the relationship without any liability. According to the Court, “[i]t is the power of control, not the fact of control.” In other words, if an employer can discharge the employee without any liability, chances are they “control” the relationship.

The Court also considered whether the dancers could operate their “business” without the club, or some similar employer. In other words, could they “put up a shingle” and conduct business, or were they dependent on the club’s place of business to make money from their skills. According to the Court, “Their endeavor exist[s] only by reason of their employment by [Club Paradise], and subject to [its] willingness to retain them and constantly subject to discharge, at which time they were out of employment.” The fact that the dancers could dance at other clubs did not change the Court’s mind.

The moral of the story is, as Janet Jackson would say, “Control”—if the dancer looks like an employee, acts like an employee, and you can fire her like an (at will) employee, then she is an employee and not an independent contractor. Be careful to understand the difference now, and save your money later.

By Sharolyn C. Whiting-Ralston, swhiting@dsda.com.