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Milano's, Inc v. Kansas Department of Labor

February 1, 2013

MILANO'S, INC., APPELLANT,
v.
KANSAS DEPARTMENT OF LABOR, CONTRIBUTIONS UNIT, APPELLEE.



Appeal from Shawnee District Court; CHARLES E. ANDREWS, JR., judge.

SYLLABUS BY THE COURT

SYLLABUS BY THE COURT 1. Interpretation of a statute raises a question of law reviewable de novo on appeal. 2. Exotic dancers subject to a right of control by the owner of the club where they perform are employees under the "usual common law rules" incorporated into K.S.A. 44-703(i)(1)(B) of the Kansas Employment Security Law.

The opinion of the court was delivered by: Beier, J.

Review of the judgment of the Court of Appeals in 43 Kan. App. 2d 779, 231 P.3d 1072 (2010).

Judgment of the Court of Appeals affirming the district court is affirmed. Judgment of the district court is affirmed.

The opinion of the court was delivered by BEIER, J.: Milano's, Inc., appeals the Kansas Department of Labor's determination that its exotic dancers are employees rather than independent contractors for purposes of unemployment insurance.

This case, arising on petition for review, involves the relationship between provisions in the Kansas Employment Security Law (KESL), K.S.A. 44-701 et seq., as they existed before amendments that took effect in 2011 on the one hand and common-law rules used to determine the existence of employee status on the other. In addition, Milano's argues that the Department's determination was not supported by substantial competent evidence and that the Court of Appeals erred by concluding that Milano's had abandoned arguments on appeal.

FACTUAL AND PROCEDURAL HISTORY

Milano's purchased Club Orleans in July 2002. After contacting the Department of Revenue, Milano's President John Samples began treating the club's dancers as independent contractors rather than employees in 2004. From that point forward, the dancers were no longer paid a nominal weekly wage, instead earning only tips paid by customers of Club Orleans.

In 2005, in response to an unemployment claim filed by a Club Orleans dancer, the Unemployment Tax Contributions Unit of the Kansas Department of Labor investigated. The Unit auditor assigned to the investigation, Mike Mahan, determined that the dancers were employees under K.S.A. 44-703(i)(3)(D).

Milano's challenged Mahan's determination, and a Department of Labor hearing officer heard testimony from Samples; Club Orleans manager Becky Kerley; dancers Robin Royal and Julane Hiebert; Mahan; and three other Department employees, tax auditor Kelly Brader, supervisor E.W. "Skip" Sayler, and delinquent account supervisor Roc Biffinger.

The hearing officer determined that the dancers' tips qualified as wages under K.S.A. 44-703(o). Further, because the dancers received wages, they were employees under K.S.A. 44-703(i)(3)(D), unless they fell within the exception outlined in K.S.A. 44-703(i)(3)(D)(i) and (ii).

The hearing officer cited four factual findings to support his conclusion that Milano's controlled the activities of the dancers: First, the dancers were subject to house rules that prohibited illicit or illegal conduct and regulated interaction among the dancers and between the dancers and customers. Second, Kerley and Samples had testified that a dancer's violation of the rules meant Milano's could fine or terminate the dancer. Third, the rules set minimum tips for various types of dances. And, fourth, Milano's enforced the house rules on minimum tips. The hearing officer acknowledged contrary evidence from Milano's, including the dancers' ability to schedule their own shifts.

The hearing officer noted that the parties had no dispute about the fact that dancers performed all of their services at Club Orleans. The officer concluded that, despite Milano's' "creative assertion that a gentlemen's club is merely a place with good atmosphere, good lighting and good food," the facts reflected that the ...


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