Gruntled Employees

Strippers take it off ... off payroll, that is

Everyone knows that strippers are properly considered independent contractors. Right?

Yeah, right.

A Massaschusetts court this week ruled that a strip club had violated state wage laws when it improperly classified its exotic dancers as independent contractors. Instead, they should have been treated as W-2 employees. (Although to be fair, the IRS hates it when you get glitter on your tax returns.)

The Boston Globe reported that Massachusetts superior court Judge Frances McIntyre granted summary judgment on liability in favor of the clothing-challenged professionals (look: how many different ways can you say "stripper"?) working at King Arthur's Lounge in Chelsea, near Boston. The case, which the judge certified as a class action (oh, there's gotta be a pun there somewhere), now proceeds to trial to determine the damages, which could run into the thousands of dollars per ecdysiast (helpful Wikipedia definition included in a somewhat NSFW entry).

The Globe explained how it all worked:

King Arthur’s Lounge, a club that has been the scene of more than one notorious crime, did not pay the strippers any salaries, required each to pony up $35 to perform each night, and kept $10 of every $30 that each made for “private dancing’’ in secluded booths, according to a state judge who granted a stripper’s motion for summary judgment on the issue of liability.

Apparently, the performers were allowed to keep the singles that patrons tucked in their garters, or whatever, while they performed on the open stage. But they had to turn over a third of their "private dancing" (read: lap dance) tips to management.

The club argued that the dancers were independent contractors because of the independent discretion they exercised. Writes the Globe:

In arguing that the strippers were independent contractors, King Arthur’s said that Chaves got to pick her own music, costumes, partners, and routines. The club also said it never gave her written rules to follow or documentation that she was an employee.

Uh ... no written rules means you're not an employee? As if.

This case was a loser from the start. Most of the time, when an employer tries to pass an employee off as an independent contractor, it is violating the law. This is especially so in Massachusetts, where a statute says that an employee whose trade is the same as the business's cannot be an independent contractor. To get around this, the club argued that it was in the alcohol business, and that strippers were just something extra. You know, like darts.

The judge basically called that ridiculous:

A court would need to be blind to human instinct to decide that live nude entertainment was equivalent to the wallpaper of routinely televised matches, games, tournaments, and sports talk in such a place. The dancing is an integral part of King Arthur’s business.

As we've said here before (see "How to lose a wage-and-hour case"), you can't win a wage case if you mess up an employee's pay. There's no defense if you got it wrong. Our advice to employers: make sure you get the pay right. Or be prepared to settle if you don't.

And bring plenty of singles.

How to lose a wage-and-hour case

In our last post, we talked about eight ways for an employer to lose a noncompete case. Today, we cover something much simpler: how to lose a wage-and-hour lawsuit. It's really quite easy to do:

Just screw up an employee's pay.

That's all! No fussing, no mussing. You see, unlike in most any other kind of employee lawsuit, your employment counsel has no lawyer tricks to pull to defeat a wage claim. Either you paid the correct wages or you didn't.

In a disability-discrimination case, I can make technical, legalistic arguments about whether the employee is really disabled, whether he was otherwise qualified to do the job, whether a particular accomodation was reasonable, and so on. In a sexual-harassment case, I can argue that the sexual conduct wasn't egregious enough to alter the employee's working conditions, or that the conduct wasn't unwelcome (typical lawyer double negative), or that it wasn't even sexual conduct at all. Even in an overtime case, I have a shot. The federal Fair Labor Standards Act has so many exemptions and exceptions to exemptions and so forth that you can sometimes dodge that bullet.

But in a straight wage case, if the right wages weren't paid, it's "Goodnight, Irene." You're on the hook for the lost wages, and probably the employee's attorney's fees. In Massachusetts, you're looking at automatic triple damages. (See "Massachusetts: Closed for business.")

States take the payment of wages so seriously that they've created criminal penalties in addition to civil remedies (again, raise your hand, Massachusetts). The message is clear: don't mess with wages. Pay what you owe, pay it on time — especially around termination — and keep careful track of it. Otherwise, you're likely to pay a lot more.

Massachusetts: closed for business

States spend skitillions of dollars (a skitillion is one followed by a wad of zeroes, or ten to the wad) on catchy slogans and jingles to lure gullible businesses to open plants and offices there. If you're from Massachusetts and of a certain age (that is, you now enjoy your federal age-discrimination rights), you probably still suffer from that dreaded 1970s earworm, "Makin' It in Massachusetts." Oh, those clever double entendres!

Anyway, the Commonwealth can stop spending tax dollars on musical lures for businesses because they're leaving and they ain't coming back. Why?

Treble damages. (Not to be confused with "treble entendres.") ("Treble" is a slightly fancy way for lawyers to say "triple." As in, "Jacoby Ellsbury just trebled to the triangle at Fenway. He's wicked good.") (Hey, it's a Massachusetts-themed post, OK?)

Here's the 411: The Massachusetts legislature passed Senate Bill No. 1059 into law on April 14, making treble damages mandatory for an employer’s violation of the Commonwealth’s wage-and-hour laws. Employees bringing claims over the payment of wages, minimum wage, or overtime could win three times the actual damages they suffered — even when the violation is inadvertent. The law, which passed when Governor Deval Patrick declined to veto it, overturns a 2005 decision of the Supreme Judicial Court that limited treble damages to cases involving an employer’s “willful misconduct.”

Previously, the statute left it up to the judge to determine whether an employer had maliciously violated the wage law before awarding treble damages. This allowed the court to distinguish between employers who intentionally deprived workers of their earned wages and employers who stumbled over the confusing technicalities of the wage laws. In Wiedmann v. The Bradford Group, the Massachusetts high court confirmed that the law gave judges the discretion to award treble damages to willful offenders. It was this case that the legislature overturned with the amended statute.

The new legislation becomes effective on July 13, 2008, and will govern all cases filed thereafter. What is uncertain is whether the law will have retroactive effect over earlier cases. Language in the legislation says that it was intended to “clarify the existing law and to reiterate the original intention of the general court that triple damages are mandatory.” (Ironically, the old statute’s legislative history makes clear that this was not the “original intention.") This language will encourage plaintiffs’ attorneys to argue that the law should be applied retroactively. If this argument prevails, all pending wage claims — and perhaps even those that have not yet been filed — would be subject to mandatory treble damages. We expect there will be hard-fought litigation over this issue.

With the passage of this new law, Massachusetts becomes the first state in the nation to make treble damages mandatory in wage-and-hour cases. With wage claims and class-action lawsuits already on the rise, Massachusetts now becomes the jurisdiction of choice for plaintiffs. (At least someone will be makin' it in Massachusetts.) Employers must be more careful than ever to ensure that they are complying with the Commonwealth’s wage laws.

What employers can do

• Pay your employees on time — especially when they depart.
• Make sure they’re properly classified as exempt or nonexempt.
• Have your employment counsel audit your pay practices.

In the meantime, Go Sox!

[Shout out to Steve Reed for his spot-on legal analysis.]

Employee satisfaction for $2.40 a day

Have you gotten your iPhone yet? As a Mac fan (our entire law firm runs on Macs), I had no problem waiting in line for an hour at my local AT&T store last Friday evening. When I got there (about an hour after the iPhones went on sale), I was about fortieth in line. When I was seventh, they sold out. Would it have killed the AT&T store people to come out and count the people in line, and tell me, the six people in front of me, and everyone behind me that we were out of luck? Maybe.

Fortunately, a friend texted me that the Apple store near where I live had plenty. I went there, waited in no line, and had my new gadget in about five minutes. And I'm happy to report that it lives up to all the hype.

While there have been about a skitillion stories written about the iPhone (that's one followed by a wad of zeroes, or ten to the wad), one of the most interesting to me as an employer evangelist is this: Apple reportedly is giving each of its employees a free 8-gigabyte iPhone. I first read about this in John Moore's excellent marketing blog, Brand Autopsy. John is a brand guru who's worked with Starbucks and Whole Foods. His post on "Marketing to Employees" described the Apple employee giveaway, which was reported in the San Jose Mercury News. John writes:

Apple is doing a lot of things right in marketing the iPhone. But amidst all the iPhone hubbub, one vital marketing nugget is getting lost:

Apple is giving all its full-time U.S.-based employees an iPhone.

I am a huge proponent of companies spending marketing money on employees. It's simple. Astonish employees and they will, in turn, astonish customers. Giving every full-time employee a $600 (retail value) iPhone is an astonishing act that will only help to feed the already vibrant evangelical corporate culture within Apple.

[Other reports (MacRumors, Ars Technica) add that the iPhone giveaway also includes part-time employees who have been with Apple for at least a year.]

John's key line — "Astonish employees and they will, in turn, astonish customers" — reminds me of our post from last month, "Put your employees first and your customers second." In that piece, I described a recent British study that showed that employee satisfaction — more than customer satisfaction — was a leading indicator for company growth. The study talked about "emotional contagion," where the employees' good feelings rubbed off onto the customers.

This also reminds me about the Cornell study showing that bonuses were ten times more effective than merit increases in raising employee performance. (See "Bonuses: more bang for your buck.") If bonuses are more effective than raises, then iPhones and other employee giveaways are even more effective. Think about it: each 8 GB iPhone retails for $599. Ignore the fact that it costs Apple something less than that to make. Giving each Apple employee a $599 bonus would be nice, but it wouldn't really generate any excitement. And if you convert that $599 to a raise, it works out to less than 30 cents an hour for full-time employees, or $2.40 a day. Big whoop.

Instead of giving employees a 30-cent raise, Apple gave them a status symbol and a story to tell their friends and family. (And it got another news story out of the deal.)

The lesson for employers: find creative, surprising ways to reward your employees, instead of just a 3% merit increase. Your employees in turn will reward you with better performance.

Making it in Massachusetts? Merit increases up slightly

Yesterday's Boston Globe reported that Massachusetts employees can look forward to merit pay raises averaging 3 to 4.5 percent this year, a slight increase over last year's raises. These figures came from a survey  of 223 employers that Associated Industries of Massachusetts conducted. (On the other hand, 13% of employers surveyed froze pay last year, and 2% put in a salary-reduction program.) According to AIM's accompanying press release, "Merit increase budgets are beginning to slowly ramp up in 2007."

Survey respondents also said that their top three compensation priorities were:

1. "Managing top performers,"
2. "Addressing market competitiveness," and
3. "Communicating the total compensation program to staff."

Quite an inspiring goal, Number 3. I'm getting chills. But ignoring the almost-Churchillian total-compensation-program-staff-communication aspiration ("I have nothing to offer but blood, sweat, and a plan to communicate the total compensation program to all the staff"), the other two goals make sense: paying our best people enough so that they don't go make more with our competitors.

I'm reminded of our April post "Bonuses: more bang for your buck," which discussed a recent Cornell School of Hotel Administration study showing that bonuses were almost ten times more effective than merit increases. Communicate that.

[And yes, I know that the Churchill quote is "blood, toil, tears, and sweat." It's kind of like "Play it again, Sam." Only not so much.]

Wage-discrimination claims don't last forever

Late last month, the Supreme Court ruled that wage-discrimination claims are like other discrimination claims under Title VII: they expire in 180 days (or sometimes 300 days — distinction not important here). Now Congress is trying to undo that ruling.

In Ledbetter v. Goodyear Tire & Rubber Co. (PDF), Lilly Ledbetter sued for sex discrimination under Title VII of the Civil Rights Act. She argued that the pay she received over the course of her years at Goodyear was discriminatorily low, and a federal jury agreed. Goodyear then appealed to the Eleventh Circuit, arguing that pay decisions that occurred more than 180 days before she filed at the EEOC were time barred. The Court of Appeals agreed (PDF), and reversed the jury verdict. Ledbetter then took her case to the Supreme Court, which affirmed the Circuit's decision. Justice Alito wrote the opinion, joined by Justices Scalia, Thomas, Kennedy, and Chief Justice Roberts.

According to the decision, Ledbetter argued that earlier discriminatory decisions (outside the 180-day filing limit) carried forward their effects into paychecks delivered during the filing period. In other words, each paycheck was a discrete discriminatory act, rather than the mere result of an earlier discriminatory act (the pay-rate decision). The Court nixed this argument. The Court also noted that Ledbetter made no claim that intentionally discriminatory conduct occurred during the filing period, nor did she claim that she hadn't learned of the pay decisions until the filing deadline had passed. Bottom line, as the Court put it:

[C]urrent effects cannot breathe life into prior, uncharged conduct ... such effects in themselves have "no present legal consequences."

In her dissent, Justice Ginsburg (joined by Justices Stevens, Souter, and Breyer) concluded her argument in Ledbetter's favor with the following:

Once again, the ball is in Congress’ court.  As in 1991, the
Legislature may act to correct this Court’s parsimonious
reading of Title VII.

Now Rep. George Miller (D-CA) has picked up the ball and introduced the "Ledbetter Fair Pay Act of 2007" (PDF), designed to reverse the Court's decision (press release from the House Committee of Education and Labor here). We'll have to see whether Congress decides to punish employers for years-old employment decisions. Employers: call your legislators to put a stop to the Ledbetter Act, or plan on defending stale discrimination claims.

Shout out to Chris McKinney's excellent HR Lawyer's Blog for his post "Congress Responds to Ledbetter Decision," which called it to my attention. Good work, Chris!

Bonuses: more bang for your buck

Guy Kawasaki's world-class How to Change the World blog picked up on an interesting study showing that bonuses are much more effective than merit raises in encouraging better employee performance. The study, conducted by the Cornell School of Hotel Administration, concluded that a one percent merit raise increases employee performance by about two percent. But a bonus of the same dollar amount improves performance by almost 20 percent.

Same buck, more bang.

Michael Sturman, a professor at the school, wrote the report, which you can download here. Guy's post is here. The study was reported on in Science Daily here.

Wal-Mart: Rolling back prices ... and employee pay

Wal-Mart's in the news again as a model employer. A Pennsylvania jury assessed a $78.5 million damage award against the world's largest retailer for violating state wage laws. The court concluded that Wal-Mart had required employees to work off the clock and through breaks. Plaintiffs' lawyer Michael Donovan, who represented about 187,000 current and former employees in the class action, told reporters that the award could rise to $162 million including bad-faith damages and attorneys' fees. The AP story (via the San Francisco Chronicle) is here.

In his WSJ Law Blog, Peter Lattman has this quote from the company, showing how it wasn't really their fault:

"Many employees testified that they skipped, or cut short, their breaks by their own choice,'’ said a Wal-Mart spokesman in an e-mailed statement. “Wal-Mart strongly discourages this practice and should not be penalized when an employee chooses to do this on his or her own.'’

Poor Wal-Mart. Having its employees take advantage of it by "choosing" to work for free. No fair.

It's too easy to pile on Wal-Mart over treating its workers poorly. What's more interesting to me as a management lawyer is the plaintiffs' attorneys' using electronic evidence to help prove their case. Apparently, the jury saw evidence that showed employees logged on to their registers when they were not on the clock.

Payment-of-wage cases are very hard for employers to win. You either paid the workers or you didn't. It's stupid to try to get away with not paying employees. It's even stupider to think that plaintiffs' lawyers aren't going to find out.