You’re a savvy business owner. You make good investment decisions, hire good people to work for you and you watch your costs. You are a fair person. You’re not racist or sexist. You try to keep things simple. Then you have a difference of opinion with someone who works for you. S/he sues, alleging discrimination until Title VII of the Civil Rights Act. You’re confident your lawyer can get the case dismissed, because s/he not an employee. But maybe s/he is. I’ve written about classification issues before (Click here, and here for review). Those posts focused primarily on IRS and FLSA (wage and hour) issues. This is different though. Let’s look at this classification issue through the civil rights lens.
Today I want to use two cases to illustrate my point. On the surface they seem very different. The facts are different, and the specific legal arguments in each appear very different. The underlying point of each one though, in my opinion tie in rather nicely though, so bear with me while I describe each one.
The first case, arguably the more sensational one is EEOC v Danny’s Restaurant, LLC, d/b/a Danny’s Downtown Cafe. Many refer to this case either as the “exotic dancer” case or the “stripper” case. In a nutshell, the EEOC sued Danny’s Downtown Cafe on behalf of five female African-American dancers, alleging that they were treated worse than white dancers. According to the EEOC, the black dancers had to work at a related club, Black Diamonds, that didn’t have air conditioners, that allowed patrons to smoke, use illegal drugs, and grope the dancers. If they wanted to work at the same club as the white dancers they had to pay a $100-per-shift fee. The club where the white dancers worked apparently had air conditioning and didn’t allow groping, smoking or use of illegal drugs and allegedly white dancers did not need to pay a fee to work there.Danny’s allegedly fired one dancer who refused to pay the shift fee. The EEOC argued that such disparate treatment of black versus white dancers was racial discrimination and violated Title VII.
Danny’s does not appear to have disputed the allegations. Instead, Danny’s argued that it was not liable for racial discrimination under Title VII because the dancers were independent contractors and not employees. Danny’s cited the fact that it didn’t pay the dancers a salary, or a minimum wage, or overtime. Danny’s is not the first employer to use that argument in an attempt to escape Title VII liability. It probably won’t be the last one either. The US District Court for the Southern District of Mississippi didn’t buy it though. The court relied on a prior federal appeals court decision under the Fair Labor Standards Act. In particular the court noted that Danny’s exercised a degree of control over the dancers that made them economically dependent on the club. Danny’s set the dancers’ hours, the fees they could charge for private dances and even controlled what music they could choose. The judge, in refusing to dismiss the case, said that the evidence “destroys any arguments that they were independent contractors,” . The judge also noted that Danny’s didn’t cite a single case or statute to support their legal argument.
Danny’s also argued that any bias against the black dancers occurred before it bought the club in 2016 and that it can’t be liable for its predecessor’s actions. While that motion has yet to be decided, but the EEOC has convinced other courts that successors can be liable even when the acquisition is an asset purchase, structured to disclaim liability for a predecessor’s employment law violations. It’s not looking good for Danny’s…
OK, let’s look at Smith v Castaways’ Family Diner. Cyndee Smith, a part-time waitress sued the diner and its owner, alleging sex, race and national origin discrimination as well as retaliation in violation of Title VII. The owner did not work at the restaurant, but did hire her husband and her mother to run the restaurant. Initially, the US District Court in Indiana agreed with the owner that the diner were not subject to Title VII, because the owner’s mother and husband were not ’employees’, bringing the diner under the 15-employee minimum that would subject it to Title VII. (Basically, the argument was that Mom and Hubby exercised so much independence that they were employers and not employees of the restaurant.)
On appeal the 7th Circuit reversed. Essentially the court appears to have focused on the fact that Mom and Hubby had no ownership interest in the diner and that any authority they had was delegated by the owner. They had no inherent right, as the owner did, to control the business. As such, Mom and Hubby are employees, the 15-employee threshold is met and Castaways can be sued under Title VII.
OK, what’s the common thread here? Yes, there’s the discrimination issue. Yes, there’s the fact that the employers are each alleged to have blatantly engaged in and allowed discrimination. There’s another one, though: both employers, tried to escape liability using technical legal arguments. Neither of them appear to have disputed the underlying allegations. Neither appeared interested in addressing them in any way.
Now, sometimes a business owner will escape Title VII liability because their workers are properly classified as independent contractors, or because they have fewer than 15 employees. That just means they’ll dodge the bullet for the time being. An employer that allows discrimination in its workplace is all but begging to be sued by an employee at some point. Remember, state laws will often apply to smaller employers. The point is, these employers could have avoided their problems if they had either been proactive in ensuring a discrimination-free workplace, or had at least taken meaningful steps to address their employees complaints. (Danny’s could also have consulted legal counsel before classifying its dancers as independent contractors. Danny’s is likely facing legal issues under the FLSA and the Internal Revenue Code as well as Title VII, but I digress). These employers did what I have often cautioned employers (and my kids) against: Don’t get cute!
That’s all I’ve got for now. See you next week!
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