Every now and then we need a reminder to illustrate  the dangers of misclassifying employees as "independent contractors."  Last week, the Montana Supreme Court provided such a reminder, ruling that exotic dancers were employees, not independent contractors.  Click here to read the opinion in Smith v. TYAD Inc. d/b/a Playground Lounge & Casino. 

In Playground, the employer required each dancer to sign a contract acknowledging that she would be considered an “independent contractor" who would pay a "stage fee" to “rent” the stage and a dressing room for every night she worked. In return, each dancer would retain all tips and dance fees.  According to the Montana Supreme Court, not only were the dancers actually employees entitled to payment of minimum wage for all hours worked, but the "stage fees" were illegal kickbacks.  It held the dancers were entitled to payment of hourly wages, overtime, repayment of the "stage fees" and penalties. 

Does Playground have any lessons for the 99.99% of employers that don’t employ exotic dancers?  Absolutely: all employers should be careful when classifying anyone as an "independent contractor."  Whether an individual is properly classified as an employee or an independent contractor is a complex question of both state and federal law.  Besides being held liable for back pay and overtime, employers who misclassify employees can be charged with unpaid wage withholdings and unemployment insurance premiums.  Worse yet, employers who don’t pay workers’ compensation insurance on misclassified employees can find themselves in a world of hurt if one of those employees sustains an on-the-job injury.  (The Playground Lounge should be thankful none of its dancers fell off the stage.)  For more information on the criteria courts and agencies use, check out this page on the IRS’ Independent Contractor Status Test.