COURT OF APPEALS OF VIRGINIA
Present: Judge Annunziata, Senior Judges Cole and Baker *
Argued at Richmond, Virginia
YARD BIRD, INC., T/A TZERS
OPINION BY
v. Record No. 2237-97-2 JUDGE MARVIN F. COLE
AUGUST 18, 1998
VIRGINIA EMPLOYMENT COMMISSION
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Theodore J. Markow, Judge
A. Robinson Winn (Outland, Gray, O'Keefe &
Hubbard, on brief), for appellant.
William A. Diamond, Assistant Attorney
General (Mark L. Earley, Attorney General, on
brief), for appellee.
Yard Bird, Inc., t/a Tzers ("Yard Bird"), appeals the
circuit court's order denying its petition for judicial review
and affirming the Virginia Employment Commission's ("VEC" or
"Commission") ruling that Jackie Pulliam and other exotic dancers
who perform for Yard Bird, are employees, not independent
contractors. On cross-appeal, the VEC asserts that the circuit
court erred when it found that Pulliam and the other dancers were
free from Yard Bird's control. For the reasons that follow, we
affirm in part and reverse in part.
I.
On July 5, 1995, Jackie Pulliam, who formerly performed as
*
Judge Baker participated in the hearing and decision of
this case prior to the effective date of his retirement on July
31, 1998 and thereafter by his designation as senior judge
pursuant to Code § 17-116.01.
an exotic dancer for Yard Bird, filed for unemployment benefits
and listed Yard Bird as one of her former employers. While
processing Pulliam's claim, the VEC discovered that Yard Bird had
not been paying unemployment taxes on Pulliam or any of its other
dancers. Following an investigation, a VEC tax representative
issued a letter opinion finding that the dancers were Yard Bird's
employees. Yard Bird appealed this determination to the
Commission. A VEC special examiner conducted a hearing on the
matter and issued a decision affirming the earlier letter
opinion.
The Commission found that Yard Bird operates a restaurant,
bar, and lounge in Chesapeake, Virginia, where it engages
approximately fourteen exotic dancers each day. Dancers were
generally engaged by verbal agreement until September 1995, when
Yard Bird began employing an "Independent Contractor Agreement."
Prior to that, Yard Bird had, at least on occasion, utilized
written employment applications. Yard Bird offered into evidence
an employment application completed by Pulliam in July 1994,
attached to which was a form indicating that Yard Bird considered
the applicant-dancer to be an independent contractor.
Dancers are paid five dollars per twenty-minute set and work
three sets per shift. Most of the dancers' income is derived
from tips from patrons. Yard Bird prepares a schedule of
available sets, and dancers call in to schedule their own
performances on a first-come, first-served basis. Dancers are
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not required to work a minimum number of hours each week and are
not penalized for turning down work. The average dancer works
fours hours per week for Yard Bird and is engaged there for
approximately eight to ten weeks. Some dancers, however, will
have as short a tenure as one week, and others will only work
around the Christmas season in order to earn additional money for
the holidays.
Dancers are not told by Yard Bird how to perform on stage
but are required to comply with Virginia Alcoholic Beverage
Control ("ABC") laws and regulations applicable to Yard Bird's
licensing status. Yard Bird has authority to order a dancer from
the stage during a set if the dancer violates an ABC regulation.
On the advice of ABC, Yard Bird also requests that dancers not
leave the building between sets, and the Commission found that
Yard Bird "attempts to enforce such a rule." Yard Bird is a
"pasties and t-bar" club, and dancers provide their own
performance outfits.
Yard Bird owner Shirley Stephenson testified that dancers
will frequently work at other clubs in the Tidewater area.
Dancers generally have their own "business" cards listing their
dance schedules. Yard Bird offered into evidence three such
business cards and also submitted as evidence an application for
business license for the City of Virginia Beach that had been
completed by dancer Janet Taylor. Yard Bird began "requiring"
its dancers to secure local business licenses in approximately
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1995. Nevertheless, Stephenson testified that she does not
enforce this requirement and uses dancers who do not have
business licenses. The only evidence presented concerning
details of the dancers' business activities outside of Yard Bird
was an affidavit from one woman stating that she was "currently
employed by more than one establishment in the Greater Tidewater
area."
Dancers are told when they audition that Yard Bird does not
withhold taxes from their earnings and that as soon as the
dancers earn $600, they are issued 1099s. The dancers are also
required to fill out a form W-9 Request for Taxpayer
Identification Number and Certification form. This latter
requirement is imposed by the Internal Revenue Service in
connection with Yard Bird's use of 1099s. In a 1995 opinion
letter solicited by Yard Bird, an IRS group manager advised Yard
Bird that the IRS considered certain Yard Bird workers to be
employees, not independent contractors. 1 The group manager
explained, however, as follows:
Section 530 of the Tax Reform Act of 1978
provides a safe haven for taxpayers who can
show (1) judicial precedent, (2) prior audit
by the IRS, or (3) industry practice. Since
you meet the requirements of Section 530, we
will not change the way you report the
earnings of the below mentioned worker[s].
1
Although the letter is silent on the jobs performed by the
workers, Yard Bird presents the letter as an opinion on the
employment status of its dancers. The VEC does not challenge
this assertion, and we will assume that the letter does indeed
refer to Yard Bird's dancers.
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The dancers generally use their residential addresses for these
tax forms and their business licenses.
The special examiner ruled that Pulliam and the other
dancers were employees, not independent contractors. The special
examiner held that Yard Bird had not met its burden of proving it
did not exert control over the dancers and had not proved the
dancers were engaged in independently established businesses.
The Commission further rejected Yard Bird's argument that the
"safe haven" granted Yard Bird by the IRS was binding on the VEC,
or at least should be dispositively persuasive.
Yard Bird filed a timely petition for judicial review with
the circuit court. The circuit court disagreed with the
Commission on the issue of control, but it concurred that the
dancers were not engaged in independent businesses. The circuit
court also rejected Yard Bird's "safe haven" argument.
II.
"Initially, we note that in any judicial proceedings `the
findings of the commission as to the facts, if supported by
evidence and in the absence of fraud, shall be conclusive, and
the jurisdiction of the court shall be confined to questions of
law.'" Israel v. Virginia Employment Comm'n, 7 Va. App. 169,
172, 372 S.E.2d 207, 209 (1988) (citation omitted). In accord
with our usual standard of review, we "consider the evidence in
the light most favorable to the finding by the Commission."
Virginia Employment Comm'n v. Peninsula Emergency Physicians,
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Inc., 4 Va. App. 621, 626, 359 S.E.2d 552, 554 (1987).
Our review of questions of law on the definition of
"employment" is guided by the following:
The meaning of "employment" in the
unemployment compensation context is
controlled by statute. . . . The Act is to
be liberally construed to effect its
beneficent purpose and in borderline cases
"employment" should be found to exist.
Exemptions in the Act should be strictly
construed against the alleged employer, the
rule requiring liberal construction in favor
of the taxpayer not being applicable. As
defined in the Act, the term "employment"
should be accorded a broader and more
inclusive meaning than in the common-law
context of master and servant.
Virginia Employment Comm'n v. A.I.M. Corp., 225 Va. 338, 345-46,
302 S.E.2d 534, 539 (1983) (citations omitted). Employment, in
the context of unemployment compensation and taxation, is defined
by Code § 60.2-212(C) as follows:
Services performed by an individual for
remuneration shall be deemed to be employment
subject to this title unless:
1. Such individual has been and will continue
to be free from control or direction over the
performance of such services, both under his
contract of service and in fact; and
2. Such . . . individual, in the performance
of such service, is engaged in an
independently established trade, occupation,
profession or business.
The VEC has the initial burden of proving that the services
are performed by individuals for remuneration; 2 however, once the
2
Yard Bird concedes that the dancers perform services for
remuneration.
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VEC has met its burden, the burden shifts to the putative
employer to prove, by a preponderance of the evidence, that it
qualifies for an exemption under Code § 60.2-212(C). See
Virginia Employment Comm'n v. Thomas Regional Directory, Inc., 13
Va. App. 610, 612, 414 S.E.2d 412, 414 (1992). If the employer
does not meet its burden of proof, then an employment
relationship will be found to exist. See id. Further, "the
failure to produce evidence on a factor is held against the party
having the burden of proof, not against the party that does not
have the burden of proof." Id. at 616, 414 S.E.2d at 416.
III.
"The power of control is the most significant indicium of
the employment relationship . . . ." Richmond Newspapers, Inc.
v. Gill, 224 Va. 92, 98, 294 S.E.2d 840, 843 (1982). We look not
only to actual control but also the potential control an alleged
employer can exert over the putative employee. See Thomas
Regional Directory, 13 Va. App. at 614, 414 S.E.2d at 416.
"[T]he individual's status in relation to the alleged employer is
to be determined from all the facts and circumstances adduced by
the evidence, including[, but not limited to,] the provisions of
any written agreement." A.I.M. Corp., 225 Va. at 347, 302 S.E.2d
at 539.
The power of control includes not only the power to specify
the result to be accomplished but also to control the manner in
which the service is performed. See id. at 347, 302 S.E.2d at
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540. In determining "whether a right to control exists, a court
must determine whether instructions have to be obeyed by an
individual and whether either party has the right to terminate
services at will without incurring liability to the other party."
Thomas Regional Directory, 13 Va. App. at 614, 414 S.E.2d at
416. "[I]f the alleged employer [has] the power to discharge the
alleged employee from its service because of disobedience, then
the alleged employer [has] the right to control and the service
is 'employment' under the statute." Virginia Employment Comm'n
v. Porter-Blaine Corp., 27 Va. App. 153, 164, 497 S.E.2d 889, 895
(1998).
Yard Bird attempts to enforce its rule that dancers not
leave the premises between sets. While the dancers are
responsible for providing their own costumes, the fact that Yard
Bird is a "pasties and t-bar" establishment, as a practical
matter, places significant limits on the dancers' discretion in
choosing a costume. The dancers may choose the times they work
but only in conformity with the schedule established by Yard
Bird. See Cy Investment, Inc. v. National Council on
Compensation Ins., 876 P.2d 805, 807 (Or. App. 1994) (factors
indicating control include defining the length of a dancer's
shift). Finally, Yard Bird requires dancers to comply with ABC
laws and regulations that govern Yard Bird's licensing status.
Yard Bird also failed to prove it could not terminate the
services of any of the dancers at will. The "Independent
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Contractor Agreement" was silent on this matter, and Stephenson
conceded she could not envision a situation where she would sue a
dancer for leaving Yard Bird. The agreement sets no limits on
how long the dancers will perform for Yard Bird and guarantees
them no minimum amount of service. Stephenson also indicated she
could order a dancer from the stage, mid-performance, if she felt
the dancer had committed an act of lewdness or disorderly
conduct. While dancers are paid a flat rate for dancing, they
are paid for a set of fixed duration. For all intents and
purposes, therefore, this payment constitutes a guaranteed hourly
rate of pay. Cf. Elizabeth River Tunnel District v. Beecher, 202
Va. 452, 459, 117 S.E.2d 685, 691 (1961) (the existence of an
agreement providing for the performance of a job at a fixed price
is indicative of independent contractor status).
The evidence proved that, in several significant aspects,
Yard Bird exercised actual or potential control over the dancers.
Accordingly, based on the totality of the circumstances,
including the "Independent Contractor Agreement," we hold that
Yard Bird failed to meet its burden of proving that Pulliam and
the other dancers were free from its control.
IV.
Even were we to hold that the dancers were free from Yard
Bird's control, Yard Bird still had the burden of proving that
the dancers were engaged in independently established businesses
in order to be exempt from paying unemployment taxes on them.
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See Code § 60.2-212(C)(2).
"[I]t is elemental that one engaged in an independent
enterprise, business or profession has a proprietary interest
therein to the extent that he can operate it without hindrance
from any individual or force whatsoever." Life & Casualty Ins.
Co. v. Unemployment Compensation Comm'n, 178 Va. 46, 55-56, 16
S.E.2d 357, 361 (1941). Furthermore, the alleged employer has
the burden of proving that the putative employee's business is
independently established. See Thomas Regional Directory, 13 Va.
App. at 615, 414 S.E.2d at 416. "An [independently]
'established' business is one that is permanent, fixed, stable,
or lasting." Unemployment Compensation Comm'n v. Collins, 182
Va. 426, 437, 29 S.E.2d 388, 393 (1944).
Yard Bird failed to present sufficient evidence proving that
any of the dancers were engaged in "permanent, fixed, stable, or
lasting" business enterprises. Some dancers will dance at Yard
Bird for only a week; others will dance only during the holiday
season to earn additional money for Christmas. The average
dancer stays at Yard Bird for eight to ten weeks. Little
evidence was presented as to how long dancers continue in the
"business" of exotic dancing after leaving Yard Bird. The
evidence suggests that the exotic dancing "enterprises" of Yard
Bird's dancers are temporary and short-lived.
Yard Bird presented only one business license and three
"business" cards in support of its position that the dancers are
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independent contractors. Yard Bird's owner conceded that,
although the "Independent Contractor Agreement" indicates the
dancers must have business licenses, not all of the dancers have
licenses and this "requirement" is not enforced. While business
licenses and business cards are both indicia of independently
established businesses, the fact that an individual has a
business license and a business card is not dispositive. This
conclusion is especially true where the worker obtains the
business license only at the request of the putative employer.
The evidence that the dancers perform at other clubs does
not conclusively prove they are engaged in independently
established businesses. The other clubs might treat the dancers
as employees. Yard Bird presented a single affidavit from one
dancer to corroborate Stephenson's testimony regarding the
dancers' activities outside of Yard Bird. Moreover, the
affidavit suggested the dancer was not an independent contractor
because she indicated she was "employed" by more than one
establishment. The fact that a person may work several part-time
jobs, even in the same industry, does not necessarily make him or
her an independent contractor.
Finally, the fact that Yard Bird issues 1099s to its dancers
is largely immaterial under the circumstances. Yard Bird's own
evidence proved that the IRS allows the dancers to be considered
as independent contractors merely because of a special exemption
in the tax code. The IRS specifically found that it considered
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the dancers to be employees.
Accordingly, Yard Bird's evidence falls short of proving
that the dancers were engaged in independently established
businesses.
V.
"[T]he fact that an exemption [from employment] may exist
under federal law is not determinative of whether an exemption
exists under the Virginia [Unemployment Compensation] Act."
Peninsula Emergency Physicians, 4 Va. App. at 627, 359 S.E.2d at
555. We are governed by the definition of "employment" contained
in Code § 60.2-212. Accordingly, we reject the contention that
we are, or should be, bound by the "safe haven" granted to Yard
Bird by the IRS.
VI.
For the reasons stated above, we hold that Pulliam and the
other dancers were under the control and direction of Yard Bird,
that they were not engaged in independently established
businesses, and that the VEC correctly determined they were
employees. Accordingly, we reverse the circuit court's judgment
that the dancers were free from Yard Bird's control, but we
affirm its ruling that the dancers were employees. The matter is
remanded for further proceedings consistent with this opinion.
Affirmed in part,
reversed in part,
and remanded.
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