Court Allows Counterclaim To Set Off Fees Paid To Independent Contractors Alleging Misclassification
When an independent contractor alleges s/he was misclassified and seeks alleged unpaid minimum wage and overtime, a significant issue is whether a prevailing plaintiff can receive a windfall. Simply put, can an independent contractor alleging misclassification under the FLSA (or state law) keep fees for services already collected, and also collect a damages award for unpaid minimum wage and overtime? In one recent decision, a federal judge has found the answer to be “not necessarily”. Doe v. Cin-Lan, Inc., 2010 U.S. Dist. LEXIS 16447 ( E.D. Mich. Feb. 24, 2010)(Note: Jackson Lewis partner Allan Rubin represents Cin-Lan in this matter).
Cin-Lan concerns the classification of exotic dancers as independent contractors at a Michigan nightclub. The named Plaintiff entered into an independent contractor arrangement under which she danced at the defendant club in exchange for a portion of “dance fees” collected from patrons; the balance of the dance fee went to the club. The club did not pay Plaintiff minimum wage or overtime, though she often collected dance fees at a rate approaching $75/hour. Significantly, the parties’ agreement called for the dance fees to serve as an offset to any wage liability if Plaintiff were ever found to be an employee.
In rejecting Plaintiff’s motion to dismiss the counterclaim, the Court first rejected Plaintiff’s argument that the contract itself was “repugnant to the FLSA” and thus invalid. The Court further observed that “the parties agreed that if there was ever a legal determination that their business relationship was in fact an employment relationship, then the alternative provisions of the [contract] would apply to define the parameters of that relationship. The counterclaim alleges that Doe agreed to such an arrangement” and therefore the Court declined to reject such an arrangement as a matter of law. Finally, the Court rejected Plaintiff’s argument that all “dance fees” should be re-characterized as tips for purposes of the FLSA (and thus not credited against wages owed).
While this decision is based on a very-specific fact pattern involving dancers in the nightclub industry, it highlights the importance and value of a well-drafted independent contractor agreement. Even if such agreement does not support the independent contractor classification, potentially it can limit damages.