Earlier this month in McFeeley v. Jackson Street Entertainment, LLC, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) concluded that exotic dancers were employees entitled to minimum wages and overtime. The clubs where the plaintiffs danced had classified them as independent contractors not subject to the Fair Labor Standards Act.

In making the employee/independent contractor distinction, the Fourth Circuit applied an “economic realities” test, focusing on whether the worker is economically dependent on the business to which he/she renders service, or in reality is in business for him or herself. Applying this test to the dancers, the court determined that the clubs closely controlled most aspects of their work, including scheduling, detailed rules of conduct, setting of customer fees and the overall work atmosphere. Based on the totality of the circumstances, the Fourth Circuit concluded that the defendant, and not the dancers, managed the business.

Most employers in the Fourth Circuit may not be particularly concerned over the court’s conclusions with regard to the employee status of exotic dancers. However, the court’s reasoning can be equally applied to a large number of workers currently classified as independent contractors. The requirement that the workers essentially manage their own businesses contradicts many arrangements whereby the contractor provides focused services within an established business structure. For example, Uber and Lyft drivers may have difficulty meeting the Fourth Circuit’s test given the fact that those companies establish qualifications and rules for drivers, set fees and provide an app without which the drivers’ services are impractical.

The federal Department of Labor filed an amicus brief supporting the plaintiffs in this case. Last year, DOL issued an Administrator’s interpretation taking a very restrictive position on which workers qualify as true contractors under the FLSA. This position and the Fourth Circuit’s endorsement should caution businesses to reexamine their contractor relationships to determine if they can withstand an economic realities challenge.