Two recent cases involving strippers and interns have made headlines involving entitlement to minimum wage and overtime wages under the Fair Labor Standards Act ("FLSA"). And while employers may discount the importance of these cases as being inapplicable to their business, let me suggest that you should take time to consider how these cases may actually impact your business.
Just this month, the United States Court of Appeals for the 2nd Circuit rejected the United States Department of Labor's six-factor test to determine whether an individual qualifies as an intern or an employee for purposes of the FLSA. Instead, the court employed a flexible "primary beneficiary" test to make such determinations. The case, Glatt v. Fox Searchlight Pictures, Inc., involved claims by college interns class/collective action case filed against Fox Searchlight Pictures, Inc. and Fox Entertainment Group, Inc. The primary beneficiary test adopted by the court (1) focuses on what the intern receives for engaging in the internship; and (2) provides the courts flexibility to examine the "economic reality" between the intern and the employer. The court provided the following non-exhaustive considerations that should be weighed and balanced by the trial courts when determining if an intern at a for-profit employer is an "employee:"
- Extent to which there is an expectation of compensation;
- Extent to which the internship provides training similar to that which would be given in an educational environment;
- Extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit;
- Extent to which the internship corresponds to an academic calendar;
- Extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning;
- Extent to which the intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
- Extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
While the Court did not rule that the interns were employees, it did send the case back to the trial court to apply the primary beneficiary test to make such a determination.
And while this decision was being rendered, another class action case involving strippers in Florida was settled for $6 million. In Adonay Encarnacion et al v. J.W. Lee Inc. et al., the plaintiffs alleged that he owners of Scarlett's clubs in Hallandale Beach, Tampa and Toledo, Ohio, misclassified the dancers as independent contractors rather than employees. Plaintiffs sought back wages. Plaintiffs maintained the dancers should be considered employees entitled to minimum wage under the federal Fair Labor Standards Act.
While the case was settled before a ruling, it is important to note that in other cases that have resulted in rulings, courts have held that the dancers are "employees" as opposed to "independent contractors." They have looked to the fact that clubs typically set the prices for tableside dances, set the dancer's schedules, create rules of conduct, discipline the dancers, and otherwise control the method and manner in which the dancers worked.
So what's the takeaway from these cases? Employers must be cognizant of the fact that it littles not what they call their staff, but only on what the realities of the relationship are. Calling someone an intern when that person is providing valuable benefits to the employer or calling someone an independent contractor when, in fact, they are controlled in all aspects in the manner they perform their work, will not suffice.
The consequences of misclassifying your employees and underpaying them are significant. Aside from potential penalties from the Secretary of Labor, a private plaintiff (or in some cases a class of private plaints) may seek damages (the unpaid amount of minimum wages and overtime wages), plus liquidated damages equal to the same amount, attorney's fees and costs.
The distinguished team at Rosenthal Law Group has a deep and broad experience within the field of employment and labor law. Contact us for valuable and comprehensive legal counsel.