presented by: bradley j. shafer matthew hoffer clyde dewitt all non-public documents copyrighted by...

FALA WINTER 2012

SAN DIEGO, CALIFORNIA

Presented By: Bradley J. ShaferMatthew Hoffer Clyde DeWitt

All Non-Public Documents Copyrighted by Shafer & Associates, P.C.

FALA Winter 2012 San Diego, California

1

FALA Winter 2012 San Diego, California 2

Money for dancers

Money for lawyers

Because of the tips/service charge legal dispute

NOT to convert dancers to employees

FALA Winter 2012 San Diego, California3

WHY CLUBS ARE SUED BY DANCERS

FIVE WAYS TO CHARACTERIZE EXOTIC DANCERS FOR LABOR PURPOSES

EMPLOYEE

LESSEE

INDEPENDENT CONTRACTOR

LICENSEE


FEE SPLIT(Joint Venture)

• Federal Labor Laws

• State Labor Laws

• Federal Taxation Laws

• State Taxation Laws• Tax of Lease and/or License Fees

• State Workers’ Compensation Laws

• State Unemployment Compensation Laws

• State Liquor Laws


ISSUES TO CONSIDER

• Special use taxes of lease/licensing fees are assessed by some states. These include:• Florida• Indiana• Tennessee

• This list is not complete. It only includes those states where we have clients and we have then examined the local laws. Check your own state statutes.


STATE TAXATION

FACTORS TO CONSIDER WHEN DECIDING WHAT BUSINESS STRUCTURE TO USE FOR YOUR ENTERTAINERS

• What is the competition doing?

• Has your jurisdiction ruled on the dancer employee/independent contractor issue?

• If so, can you successfully operate within the confines specified by the court or administrative

agency?

• Are your state laws conducive to using a non-employee relationship?

• Does your state have a use--or other--tax upon lease or license fees?

• Do you have a liquor license, and if so do, your liquor laws restrict the dancer relationship?

• Has your business or its predecessors ever treated its dancers as employees (which therefore

abrogates Section

• 530 relief)?

• Can you give up critical control of the entertainers?

• Do you have to pay the dancers due to economic considerations, regardless of how you categorize

them for labor

• purposes?

• Can you get your entertainers to adequately report their tip income to you?

• What is your risk for Title VII claims?

• Does your state extend sexual harassment and/or discrimination claims beyond the employment

relationship?

• Will your dancers revolt if you change?

• Have you been subject to prior audits or suits on dancer status?

• Are you willing to track and keep records of the number of dances performed, or dance fees

collected, by each

• entertainer?

• What do you find to be an acceptable risk?


To “Pay” Or Not To “Pay”The “Antecedent Question of

Employment”

PRO’S:• Satisfies Minimum

Wage Obligations (if Paid Enough)

CON’S:• Title VII Liability• Tax Liability• Worker’s

Compensation Liability

• Unemployment Liability

• Administrative Expenses


As Used in This Chapter – * * *(D) “Employer” Includes Any Person Acting Directly or Indirectly in

the Interest of an Employer in Relation to an Employee and Includes a Public Agency, but Does Not Include Any Labor Organization (Other Than When Acting As an Employer) or Anyone Acting in the Capacity of Officer or Agent of Such Labor Organization.

(E)(1) Except As Provided in Paragraphs (2), (3), and (4), the Term “Employee” Means Any Individual Employed by an Employer.

* * *(G) “Employ” Includes to Suffer or Permit to Work.


29 U.S.C. Section 203. Definitions

“. . . Employees are those who as a matter of economicreality are dependent upon the business to which

they render service.”

Donovan v. Brandel, 736 F.2d 1114, 1116

(6th Cir. 1984)

“[Economic reality] . . . Looks to whether the putativeemployee is economically dependent upon the

principal or instead in business for himself.”

Imars v. Contractors Manufacturing Services, Inc.,

1998 WL 598778,*2 (6th Cir. 1998)


“ECONOMIC REALITIES”

ONE TESTLook To:

1) the permanency of the relationship between the parties;

2) the degree of skill required for the rendering of the services;

3) the worker’s investment in equipment or materials for the task;

4) the worker’s opportunity for profit or loss, depending on his skill;

5) the degree of the alleged employer’s right to control the manner in which the work is performed; and

6) whether the service rendered is an internal part of the alleged employer’s business.

Imars v. Contractors Manufacturing Services, Inc., 1998 598778, *3 (6th Cir. 1998)

Continued on next slide


ECONOMIC REALITY TEST

THESE ELEMENTS MAY VARY BY JURISDICTION AND FEDERAL CIRCUIT.

“[N]o one [of the elements] is controlling nor is the list compete.”United States v. Silk, 331 U.S. 704, 716 (1947).

The “whole business activity” must be analyzed.Donovan v. Brandel, 736 F.2d 1114, 1116 (6th Cir. 1984).


ECONOMIC REALITY TEST

The I.R.S. now considers three aspects of control in determining whether a person is an employee or an independent contractor.

1. Behavioral control -- the right to direct or control how the worker performs the work for which he or she is hired. All of the following are types of instruction that demonstrate control: When and where to do the work. What tools or equipment to use. What workers to hire or to assist with the work. Where to purchase supplies and services. What work must e performed by a specified individual What order of sequence to follow.

2. Financial Control -- financial control is shown by a right to direct or control the financial aspect of the worker’s activities. The facts relevant for financial control include: The extent the worker has un-reimbursed business expenses. The extent of the worker’s investment. The extent to which the worker makes his/her services available to others. How the worker is paid by the business. The extent to which the worker can realize a profit.

3. Relationship of the parties -- generally shown by the agreements and actions between the two parties and how they perceive their relationship and represent it to others. Facts that the I.R.S. looks at include. Written contracts. Employee type benefits provided. Permanency of the relationship. The degree that the services provided are key to the regular business.


THE I.R.S. THREE PART CONTROL TEST

New Jersey Stat. Ann § 43:21-19

I. Threshold matter: the financial relationship of the parties.

Before reaching the 3 factors of the ABC test, a tribunal must first find that there were services “performed by an individual for remuneration under any contract of hire, written or oral, express or implied.” N.J.S.A. § 43:21-19(i)(1)(A)



NEW JERSEY’S “ABC TEST” FORDETERMINING EMPLOYMENT STATUS

II. If the Department meets its burden of demonstrating that services were performed for remuneration, it then becomes the club’s burden to show the individual is a independent contractor, by a preponderance of the evidence, under the ABC Test.

For an individual to be an independent contractor under the ABC Test, each of the following factors must be met.

A. The “Control Test”“Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;” and

B. The “Course-of-Business or Location-of-Work” Test(s)“Such service is either outside the usual course of business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed;” and



C. The “Independent-Business” Test

“Such individual is customarily engaged in an independently established trade, occupation, profession or business.”


SCHEDULING

MUSIC

LIGHTING

COSTUMES

PROPS

PRESENTATION (hair, makeup, etc.)

ABILITY TO PERFORM AT OTHER CLUBS

TRAINING


CONTROLFactors Which Courts Look To:

RANDOM DRUG TESTS

MANDATORY TIP OUTS

“FINING”

“FREE” DANCE

SELECTION OF CUSTOMERS

REQUIRED DANCING (stage rotation, bachelor parties, etc.)

REQUIRED PARTICPATION IN CLUB ADVERTISING AND PROMOTIONS

GOOD CONTROL:

• END RESULT

• Safety• No Violations of the Law• Protection of Club Licenses• No Damage to Property

BAD CONTROL:

• HOW THE WORK IS TO BE ACCOMPLISHED


CONTROL

ALLEGED EMPLOYER:• Did not treat the individual as an employee for any period;

and

• Filed all required federal tax returns (including 1099’s) with respect to such individual; and

• Had a reasonable basis for treating individual as a non-employee. Established by:

• Judicial precedent, published rulings, technical advice, or letter ruling; or

• Past IRS “no change” audit that looked at employment taxes; or

• Long-standing recognized practice of a significant segment of the industry.


Section 530 Elements

ARBITRATION

Pro’s

• Limit Class actions (? Of “Collective”)

• Faster • Possibly cheaper • “Industry Expert” as

arbitrator

Con’s

• Final: Generally no right of appeal

• Will be lawyer, not a poor juror who may not be sympathetic to dancers making lots of money

• Costs: Generally club bears all

• Lawyer arbitrator will read bad reported cases, unlike jurors


• Business Selection Document• Contract • Specifies rights and duties of parties • Limits control• Arbitration/waiver of class action

• Mandatory Dance Fees • Can be minimum (should not be maximum)• Can be flexible

• Track • Time in• Time out• How much earned in mandatory dance fees


DEFENSIVE PLANNING

FALA Winter 2012 San Diego, California

FLSA § 531.59 (Provisions per Section 3m)Employer can reduce amount paid to a tipped employee by $5.12 per hour.

Minimum Wage = $7.25 / hourMinimum Cash Wage = $2.13 / hourTip Credit = $5.12 / hour

(deemed tips)Employee notification required.

22

Tip Credits

§ 350 Definitions

As used in this article, unless the context indicates otherwise:

(e) “Gratuity” includes any tip, gratuity, money, or part thereof that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due the business for services rendered or for goods, food, drink, or articles sold or served to the patron. Any amounts paid directly by a patron to a dancer employer by an employer subject to Industrial Welfare Commission Order No. 5 or 10 shall be deemed a gratuity.


AB 2509(California)

1) NOTICE

2) EMPLOYEE GETS TO KEEP ALL OFHIS OR HER TIPS (except tip pooling)

Caveat: Cumbie v. Woody Woo

Note: Many States don’t allow aTip credit against minimum wage.


Ability to Take FLSATip Credit

presented by: bradley j. shafer matthew hoffer clyde dewitt all non-public documents copyrighted by...

Documents

san diego

employees fala winter

california1 fala winter

slidefala winter

tax law seminar fala

labor organization

state statutes

local laws