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INDEPENDENT CONTRACTOR CENTRAL UNIT
DECISION AND JUDGMENT
Appeal Dismissed w/Prejudice 1/8/02
Summary: Town Tavern in Great Falls hires exotic dancers to provide adult entertainment. It enters into a written agreement with dancers. While the dancers are free to determine their clothing, dance routines and music, and are paid by customers, the agreement requires dancers to perform on days and times fixed by Town Tavern, fixes rates the dancers may charge for table dances, requires a portion of the table dance fees to be remitted to the bartender and bouncer, and requires that all private parties at which the dancers perform be arranged by Town Tavern. The agreement also prohibits prostitution, use of illegal drugs, consumption of more than one alcoholic drink per hour, and disclosure of dancer's real names and other personal information. The Unemployment Insurance Division of the Department of Labor and Industry alleges that the dancers are employees and that Town Tavern is therefore subject to unemployment taxes.
Held: (1) The Workers' Compensation Court has jurisdiction to determine employment status for purposes of unemployment insurance taxes. (2) The dancers are employees not independent contractors.
¶1 This matter is before the Court for a second time. The issue presented is whether exotic (topless and nude) dancers performing at the Town Tavern in Great Falls are independent contractors or employees. The dancers claimed they are employees and submitted a claim under the Wage and Wage Protection Act, Title 39, Ch. 3, MCA. Town Tavern responded that the dancers are independent contractors. The matter was referred to the Independent Contractor Central Unit (ICCU) of the Department of Labor and Industry (Department). The ICCU found that the dancers were employees and Town Tavern appealed the determination to this Court. I found that this Court lacked jurisdiction over independent contractor issues arising under the Wage Act and remanded the matter to the Department for a contested case hearing. Glen A. Mortensen, d/b/a TOWN TAVERN v. Dawn M. Hugi et al., 2000 MTWCC 43.
¶2 Following remand, the matter before the ICCU was expanded to include a claim by the Unemployment Insurance Division. On October 5, 2000, the ICCU issued a Determination finding that the dancers were employees for purposes of unemployment insurance. This appeal by Town Tavern followed.
¶3 In Art v. Independent Contractor Central Unit, 2000 MTWCC 37, I determined that the Workers' Compensation Court has jurisdiction over appeals to ICCU determinations regarding independent contractor status under the Montana Workers' Compensation Act and the Unemployment Insurance Act. That jurisdiction is based on section 39-51-1109, MCA (1997-99), which provides in relevant part:
Section 39-71-415, MCA, which is referenced by section 39-51-1109, MCA, in turn provides in relevant part:
The ICCU, which is the unit designated by the Department to make initial determinations regarding independent contractor status, ARM 24.35.201 through 24.35.203, made its determination under unemployment insurance provisions, thus the matter on appeal is within the Court's jurisdiction. As provided in section 39-71-415, MCA, review of the Department's determination is by way of petition to this Court, thus it is a de novo matter to be heard and finally determined by the Court.
¶4 Town Tavern moved for summary judgment. The ICCU followed with its own summary judgment motion. The parties then filed a stipulation submitting the case for decision based upon the "exhibits and briefs filed in support of and in opposition to their respective motions for summary judgment." Stipulation (February 28, 2001.) The stipulation further provided, "The parties do not object to the other's statement of uncontroverted facts." (Id.) Following the stipulation, the parties filed a Combined Statement of Uncontroverted Facts.
¶5 I do not set forth all facts tendered by the parties as some of those facts are not essential to the decision in this matter. I also summarize many of the facts.
¶6 Glen Mortensen owns and operates Town Tavern in Great Falls, Montana. Town Tavern provides adult entertainment for its customers. The entertainment is provided by exotic dancers who may, but are not required, to remove their clothing while dancing.
¶7 Dancers are required to sign a contract with Town Tavern. (UEF Ex. 107.) The contract was prepared by Mortensen. It is short and provides inter alia:
(UEF Ex. 107.) The contract also incorporates written rules which are set out in a separate document entitled "TOWN TAVERN GENERAL RULES." (Ex. 108.) The contract provides:
(Ex. 107, emphasis added.) Each dancer is required to sign the agreement. Above the signature line is the following statement:
(Id., emphasis added.)
¶8 The GENERAL RULES begin with the following statement:
(Ex. 108, emphasis added.) The rules go on to provide:
¶9 Some of the uncontroverted facts set forth by the parties appear to be in derogation of the contract and the attached rules. Specifically, the parties agree:
The parties also agree that dancers can and do dance at other establishments in Montana while under contract with Town Tavern. (Fact 16.)
¶10 The Unemployment Insurance Act defines an independent contractors as follows:
§ 39-51-201(15), MCA. The test set out in the section is know as the AB test.
¶11 As an initial matter, the designation of the dancers as "independent contractors" is not conclusive as to their status. "It is well established that the fact that a contract designates a party as an independent contractor is not dispositive of a worker's status: A party must have been an independent contractor in fact." Lundberg v. Liberty Northwest Ins. Co., Inc., 268 Mont. 499, 503, 887 P.2d 156, 159 (1999). Moreover, there is a presumption, so to speak, in favor of employment status: "Independent contractor status requires a convincing accumulation of evidence from the statutory test, whereas employee status may be found based on one part of the statutory test. (Id. at 503, 877 P.2d at 159-160.)
¶12 In Lundberg, which is cited above, the Part B of the AB test was conclusive as to employment status since the facts failed to establish that the claimant was engaged in an independent occupation. To meet the Part B test, the dancers in this case must in fact be engaged in their own business "independently" from their relationship with Town Tavern, Lundberg at 504, 887 P.2d at 159. Arguably they are. The stipulated facts indicate that while working at Town Tavern the dancers were free to dance for other establishments and in fact did so. Analysis is therefore required under Part A.
¶13 Under Part A, the ultimate question is whether the hiring party has control over the individual hired. Four factors are considered in determining control:
Phoenix Physical Therapy v. Unemployment Ins. Div., 284 Mont. 523, 527-28, 943 P.2d 523, 527-28 (1997).
¶14 The right of control, not the amount of control actually exercised, is the critical element in applying the control test of Part A. Sharp, 178 Mont. at 424, 584 P.2d at 1301. In this case the dancers and Town Tavern entered into a standard contract. That contract provides the most direct evidence of the right of control.
¶15 In many respects, the dancers in this case are free from control by Town Tavern. Town Tavern exercises no control over their performances. Dancers are free to choose dance routines, their costumes, and their music. On the other hand, Town Tavern has retained the right of control in a great many respects.
¶16 Initially, dancers are also subject to a strict code governing their interaction with customers. They are prohibited from giving their real names, addresses, and phone numbers to customers, and from leaving the Tavern with customers. They are also prohibited from using drugs. Their use of alcoholic beverages while working is also limited to one drink per hour.
¶17 Town Tavern points out that the restrictions it imposes on dancers are for their safety and to prevent illegal acts by dancers, e.g., prostitution;
(Brief in Opposition to the Respondent's Motion for Summary Judgment at 4; emphasis added.) It cites Potter v. Dept. of Labor and Indust., 258 Mont. 476, 481-82, 853 P.2d 1207, 1211 ( 1993), as supporting its position that the employer of an independent contractor "is entitled to as much control of the details of the work as is necessary to ensure that he gets the end result that he bargained for."
¶18 Given the nature of its enterprise, Town Tavern's argument regarding the foregoing restrictions is not easily dismissed. The nature of its business exposes dancers to uninvited approaches and Town Tavern to potential liability in the event of an assault, hence the requirement that dancers be accompanied to their cars by the doorman. This requirement and the prohibitions regarding dancers giving out their real names, addresses, and phone numbers are also reasonably calculated to prevent Town Tavern from possible accusations of involvement in prostitution. The rule against use of illegal drugs and prostitution simply prohibit what the law already prohibits. The rule limiting alcohol may be reasonably justified as preventing the entertainers from becoming intoxicated while working. These rules are reasonably related to the end product bargained for and are not sufficient in themselves to establish an employment relationship.
¶19 However, some of the contractual provisions go far beyond considerations of illegal conduct and protection of the dancers. Under the contract, Town Tavern had the right to fix days and hours of work and to penalize dancers for not showing up as scheduled or for showing up late. It could regulate prices charged by dancers for table dances ($10 for topless, $20 for nude). It also had the right to require dancers to arrange their performances at private parties through Town Tavern, and by implication control rates charged for private parties. Paragraph 9 of the agreement provided:
Finally, it required its dancers to share their earnings from table dances with the bartender ($1 per dance) and bouncer ($2 per dance). Whether or not Town Tavern ever exercised these rights, the fact that it retained the rights is determinative. Sharp, 178 Mont. at 424, 584 P.2d at 1301.
¶20 Town Tavern urges that the degree of control it exercised was only that necessary "to ensure the employer gets the result he bargained for." Brief in Opposition to the Respondent's Motion for Summary Judgment at 4. It cites Walling v. Hardy Construction, 247 Mont. 441, 807 P.2d 1335 (1991), a case in which the general contractor instructed its concrete subcontractor as to many details, including the days of work, how much concrete to pour, when to pour, and the method and nature of concrete surfacing. However, that case involved a $6.5 million construction contract with lengthy specifications and 15 subcontractors. The Supreme Court found that the degree of control exercised by the contractor was not sufficient to establish an employment relationship. It noted that it was necessary for the contractor to schedule the sequence of work by its subcontractors, and that its control over the sequence was necessary to the end product. Ordering the subcontractor to pour cement during bad weather was merely part of its control over the sequence. An order that the subcontractor change its screening method was necessitated by a change made in the method of setting forms, a task for which the contractor was responsible. Designation of the type of surface pertained to the end result. The subcontractor was paid on a per square foot basis, hired and paid its own employees, provided its own valuable equipment, and could not be fired unless the contractor terminated the contract and incurred liability for the work performed. Not surprisingly, the Supreme Court held that the subcontractor was an independent contractor.
¶21 This case differs from Walling. Some, but not all, of the rights reserved by Town Tavern are reasonably necessary for obtaining the end result. Certainly, the safety requirements and the prohibition of illegal conduct are not inconsistent with independent contractor status. Scheduling of dancers may also be essential to assure that adequate numbers of dancers are working and to prevent too many from being there at the same time. But disciplinary provisions, exercised at the discretion of Town Tavern, for failing to show up for work as scheduled or for showing up late goes beyond a mere right to terminate the agreement for breach of contract. Moreover, control over dancers' pricing for table top dances and control over the scheduling and prices of their private parties goes beyond what was necessary to provide customers with entertainment. Requiring dancers to remit part of their table dance commissions to the bartender and bouncer is also unrelated to the end product. The degree of control reflected in these matters is incompatible with independent contractor status.
¶22 Payment of the dancers was made by customers on a per dance basis. Payment on a piece-work or commission basis is consistent with either employment or independent contractor status. Walling v. Hardy Const., 247 Mont. 441, 448, 807 P.2d 1335, 1339 (1991). However, Town Tavern retained the right to regulate the charges for table top dances and private parties, and also required dancers to remit part of their earnings for table top dances to the bartender and bouncer. This retention of control is incompatible with its argument that the dancers merely rented space from Town Tavern and is inconsistent with a claim that they were independent contractors free to bargain with customers for compensation.
¶23 While dancers furnished their own costumes, Town Tavern furnished the stage and tables for their performances, a disc jockey to play music, drinks for their customers, and a bouncer to protect them. These items were far more substantial than the costumes furnished by the dancers. This factor tends to support a finding of employment.
¶24 Town Tavern retained the right to terminate dancers who did not show up for scheduled shifts. This factor is compatible with both independent contractor and employment status.
¶25 Town Tavern has cited several non-Montana cases as supporting its position that the dancers are independent contractors. Those cases are distinguishable.
¶26 Marlar, Inc. v. USA, 151 F.3rd 962 (9th Cir. 1998), dealt with a dancing arrangement similar to but not identical to the one in the present case. However, the Court of Appeals did not hold that the dancers were in fact independent contractors. Rather, it found that the strip club was entitled to protection under a "safe harbor" provision in the tax code of the United States. The safe harbor provision provides that a taxpayer is not liable for employment taxes where "(a) the taxpayers' treatment of the workers as non-employees was reasonable reliance on industry practice, and (b) the taxpayer filed all requisite federal tax returns consistent with the treatment of the workers as non-employees." 151 F.3rd at 965. The only issue addressed was whether the club's reliance on industry practice was "reasonable" within the meaning of the safe harbor provision. While there is language in the decision pointing out that there were substantial arguments supporting characterization of the employees as independent contractors, the Court did not in fact decide that they were.
¶27 Deja Vu Entertainment Enterprises of Minnesota, Inc. v. USA, 1 F. Supp. 2d 964 (D.C. Minn. 1998), and JJR Inc. v. United USA, 950 F. Supp. 1037 (W.D. Wash. 1997), are safe harbor cases similar to Marlar. They do not apply the AB test nor do they finally determine the dancers' employment status.
¶28 Redmond v. Chains, Inc., 996 P.2d 759 (Colo. 2000), similarly does not resolve the employment-independent contractor issue. It turns on a statute of limitations, on whether the employer willfully violated wage laws and on the employer's good faith. Moreover, the claimant in that case was a "private booth dancer;" there are significant factual differences between the contract for hire in that case and the contract for hire in this case.
¶29 State ex rel. Roberts v. Acropolis McLoughlin, Inc., 945 P.2d 647 (Or. App. Ct. 1997), is closer on point than the foregoing cases. That case arose under a state minimum wage statute and the Oregon Court of Appeals reached and decided the nature of the employment relationship. That case, however, is factually inapposite to this case. There, the dancers were supplied by an independent agency, which scheduled dancers and was responsible for notifying the club of cancellations. The agency auditioned and hired dancers and set terms and conditions of their employment. Not only were the facts of that case different from those of the present case, but the test employed by the Court was an "economic realities" test different from the Montana AB test.
¶30 Reich v. Circle C. Investments, Inc., 998 F.2d 324 (5th Cir. 1993), held that an arrangement similar to that in the present case constituted employment. Town Tavern attempts to distinguish the case. I find it unnecessary to discuss the case since it also applies an "economic realities" test.
¶31 Ultimately, as the cases discussed about show, each case must be decided based upon its unique facts and the particular laws invoked.
¶32 The right of control is the most important factor in determining employment status. Loos for Loos v. Waldo, 257 Mont. 266, 271, 849 P.2d 166, 169 (1993). The degree of control retained by Town Tavern, even though it may not have been exercised, is inconsistent with independent contractor status. I find and conclude that the dancers are employees.
¶33 The exotic dancers in this case are employees for purposes of unemployment statutes.
¶34 This Decision and Judgment is certified as final for purposes of appeal. ARM 24.5.348.
¶35 Any party to this dispute may have twenty (20) days in which to request a rehearing from this Decision and Judgment.
DATED in Helena, Montana, this 12th day of July, 2001.
c: Mr. Karl K. Rudbach
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