When Strippers Became Employees AND "Tip's" Became "Commissions"

Each year California regulators and judges adjust and interpret the laws and employment attorneys in particular scramble to remain current on the codes and ever-evolving case law. So, it’s no big surprise that 2018 ushered in a long-overdue newly minted definition of “independent contractor,” as opposed to employee. 

            The case in question, Dynamex Operations W., Inc. v. Super. Ct., 4 Cal. 5th903 (2018) (“Dynamex”), is trending - with Plaintiffs’ attorneys claiming victory and Defense attorneys crying foul over the California Supreme Court’s ABC test decreed by the court. This newly established standard automatically assumes workers to be employees. The employer has the burden of showing otherwise, using a narrowly drawn set of three factors. 

            Specifically, in order to prove that a worker is a contractor, the employer must establish that each and every one of these applies: (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and, (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and, (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. 

            Dynamex has been widely lauded as an attack on the “gig economy,” doubtless a consequence considered and intended by the court. A class of delivery drivers brought the case in question. However, it affects a lot of other professions, including hairdressers and strippers.  

            Almost two and a half decades have passed since I was first hired as a summer clerk to work on what was a cutting edge wage and hour lawsuit by erotic dancers challenging clubs that changed them from employees to independent contractor status. And, by news accounts, the court’s ruling in Dynamex has produced a hue and cry among some of the very workers it seeks to protect, strippers. 

            As reported by the San Francisco Examiner, strippers in North Beach are walking off the job as a result of being handed their first-ever paychecks that represent a much lower amount of money than their usual take-home cash. (http://www.sfexaminer.com/208300-2/Apparently, in an end-run of the Dynamex ruling, clubs are paying strippers an hourly wage and a “commission” on dance sales. What the article fails to mention is: this isn’t the first time that clubs have paid a paycheck to strippers. Indeed, prior to the mid-90’s, strippers were classified as employees who received minimum wage plus their take home in tips from customers.  

            From my first law school summer job, I learned that one house rule with which dancers had to take care was not soliciting the clients for money in exchange for performing sexual acts. Indeed, the line can be somewhat thin on the legal definition of prostitution and the type of things that might happen inside strip clubs. Because California Penal Code 647defines prostitution as “any lewd act between persons for money or other consideration,” the clubs managed to skirt the law (so to speak) by the dancers receiving only “tips” for their performances. By calling them “tips,” dancers could avoid prosecution as prostitutes – and, assumedly, clubs could avoid prosecution as pimps. 

             California law then contains specific rules related to “tips.” Most critically, California Labor Code 351 says that employers cannot take any portion of a tip left for services rendered by a specific employee or employees. Yet, somehow, clubs have turned the rules inside out by repurposing the same money from customers previously used for “tips” as “commissions.”  

             California law and regulations are dense with rules governing the acceptable treatment of various classes of workers. Most relevant here are the laws related to commissions and to tips. By conveniently “forgetting” that dancers don’t “sell” their performances, which can be considered lewd under California law, these North Beach strip clubs have entered the murky world of laws related to commissions. Enter the Division of Labor Standards Enforcement that defines “commission” as Compensation paid to any person for services rendered in the sale of the employer's property or services and based upon the amount or value thereof. If the employee's compensation is based on a percentage of the cost or sale price of the product or service, then the compensation plan is a commission. That’s a lot to unpack. 

            Taking this rule at its face value: Can dancers be compensated for their services that are rendered in the sale of their own time spent with a client? Then can a dancer’s time, energy and performance be considered the property or services of the club? Most importantly: By requiring that dancers solicit patrons who must pay the upfront costs to the clubs that are then partially paid out to the dancers, are clubs specifically foregoing the protections that they had set up against prostitution busts? 

            Given the ever-changing landscape on compensation regulation, I strongly suspect we have not yet seen the end of this issue that has now been ongoing for at least three decades.