In Milano’s v. Kansas Department of Labor, the Kansas Supreme Court determined that exotic dancers were employees, not independent contractors, for purposes of unemployment insurance.

Milano’s had purchased the club in 2002.  In 2004, Milano’s began treating the exotic dancers as independent contractors, rather than employees. The Supreme Court, affirming the rulings of the Court of Appeal, the trial court and Kansas Department of Labor, found that the dancers were in fact employees under Kansas law.

The Court based its ruling upon the common-law definition of employment under Kansas law, which focuses primarily upon the right to control the employer has over the employee and his or her work. The Court found that substantial evidence demonstrated that Milano’s had the right to control, rendering the dancers employees.  Most telling, from the Court’s point of view, was the fact that Malino’s set various rules — specifically prohibiting illicit or illegal conduct and regulating interaction among the dancers and between dancers and customers, as well as enforcing minimum tips for various dancers.  The dancers’ violations of those rules were punishable by fines and termination.  This, the Court concluded, demonstrated a right to control.

Comment: In many states, including California, the right to control is the most important factor in determining the existence of an employment relationship.  But there are different ways of interpreting what “the right to control” means as a practical matter, and this case demonstrates how such interpretations can vary from state to state.  For example, California law allows for a principal to exercise a certain level of general supervision over an independent contractor with respect results without transforming the relationship to into one of employment.  In sum, although we could not predict with certainty how the same fact scenario would have played out outside of Kansas, it is possible this case might have had a different result in California.

Nevertheless, a business must carefully consider any decision to designate a worker as an independent contractor, as this case illustrates.  More and more often, disgruntled workers are filing lawsuits claiming to be employees.  The consequences for making a mistake in classification (including liability for overtime, wage and hour violations, unemployment insurance, taxes, and attorney fees) can be substantial.  Thus, it is advisable for an employer to obtain good legal advice before deciding to classify a worker as an independent contractor.