Nov 05, 2007

Strip Club Should Have Had Workers' Comp Coverage

Last month, the Indiana Court of Appeals upheld an exotic dancer's claim for workers' compensation. The dancer, Angela Hobson, was "performing a pole trick" when she "felt a pull in her neck." For the next several weeks, she felt pain and numbness in her neck, shoulder, and arm. She was diagnosed with a herniated disc, for which she underwent surgery. She filed a workers' comp claim against her employer, the Shangri-La.

The Shangri-La argued that it didn't know of Hobson's injury. But the Court wasn't impressed by this claim, especially because the Shangri-La didn't have workers' comp insurance (and wasn't approved as a self-insured employer) and didn't even have procedures in place for keeping track of workplace injuries.

Because the Shangri-La had no insurance, it will have to pay higher damages. In addition to reimbursing Hobson's medical bills, paying her $548 per week for the time when she was totally disabled, and paying her $10,4000 for the permanent impairment caused by the injury, the Shangri-La will have to pay an additional 5% of the total award as a penalty for failing to have coverage. In fact, it could be required to pay twice the total award and all of Hobson's attorney fees as a further penalty.

The outcome of this case didn't really surprise me: If you look beyond the setting, this is a fairly straightforward claim involving an on-the-job injury. What did surprise me was the club's defense. The owner of the Shangri-La has said that it missed a payment on its insurance, and that's why the club had no coverage when Hobson was hurt. I expected the club to raise a different argument: that Hobson wasn't an employee at all, but an independent contractor who isn't entitled to workers' comp benefits. 

Many adult entertainment venues classify their dancers as contractors and require them to pay a fee to use the stage. This means the clubs don't have to pay the minimum wage, chip in for the employee's Social Security, provide employee benefits, or pay for unemployment or workers' comp insurance. A number of class actions and individual cases have been brought to challenge this practice, with mixed results. Often, the issue comes up in precisely this setting: A worker who was classified as a contractor files a claim for unemployment or workers' comp, and the state agency has to decide whether the classification was correct.

Of course, classifying workers as contractors is a two-edged sword, especially when it comes to workers' comp coverage. Although employers don't have to provide workers' comp for contractors, and therefore save money on premiums, they also stand to lose big if the worker files a lawsuit. Unlike employees, who are limited to workers' comp benefits, contractors can sue for personal injuries. If they can show the employer was at fault, contractors can collect damages for pain and suffering, all lost compensation, and even punitive damages. Sort of makes workers' comp premiums look like a small price to pay.

Lisa Guerin