For six years, Teddy earned what she considers good money as a self-employed dancer working in California’s strip clubs. Yes, there were slow nights when wages slumped, says Teddy, who asks to use a pseudonym because not everyone in her life knows she is a sex worker.

But the slow nights balanced out with evenings when the club was crammed full of customers. She says on average she never took home less than California’s minimum wage (currently $15 per hour).

Teddy now refers to this period as the “era before AB 5” – a California state law officially called Assembly Bill 5, which aimed to reclassify self-employed workers as employees. Under this law, more workers are entitled to benefits such as overtime and minimum wage.

The law’s supporters, such as US Senator Elizabeth Warren, described the law as an answer to exploitation in the gig economy. But a controversial 2020 public vote meant the rules have not yet been applied to companies such as Uber and Lyft. Instead, AB 5 reshaped a raft of other industries, from yoga studios to theatre productions and trucking.

The debate about AB 5’s impact on industries beyond the gig economy is in the spotlight again, as the Biden administration explores a new federal law to protect workers from misclassification. Although the US House of Representatives passed a federal version of AB 5 – called the “Protecting the Right to Organize (PRO) Act” – back in March 2021, it has since stalled in the Senate.

Last week, the Department of Labour proposed a new law designed to turn more self-employed Americans into employees entitled to the minimum wage.

“The Department of Labour’s proposal does not go nearly as far as AB 5,” says Keith Cunningham-Parmeter, a law professor at Willamette University in Oregon who studies the impact of gig work regulation on offline workers.

“AB 5 created a presumption that most workers hired by firms were employees,” he says, while the Department of Labour’s new rule effectively creates a test to be used in court to understand if a worker should be considered an employee by considering a series of factors, including how much control they have over their earnings and the way they do their jobs.

Yet the unintended impact that AB 5 is having on strip clubs serves as a warning to policymakers who focus too much on misclassification in the gig economy. Since AB 5, that trade has experienced some of the most dramatic changes in the state. Dancers are divided about whether they want to become employees.

But there is a growing consensus that strip clubs’ interpretation of the law has resulted in dancers’ pay being slashed and their jobs becoming more precarious. Although there are similarities between dancers and gig workers, dancers also believe there are important differences that mean they deserve tailored legislation. They say they do not want to be regulated like gig workers.

“AB 5 has been implemented in an absolutely horrific way throughout clubs in California, in ways that pushed a lot of people out of the industry and made it a way less lucrative and way less viable job than it was before,” says Teddy, who is now a member of the activist group Strippers United. “AB 5 was meant to protect gig workers and it just happened to catch dancers in a technicality.”

Many clubs decided to restructure the way dancers are paid after AB 5 was introduced in 2019, taking larger cuts of the money workers earned through private dances. Dancers say that even though they are now guaranteed minimum wage, their wages dropped as a result of the new pay system and reduced hours.

When clubs were able to hire dancers only as employees, they became more selective about which dancers they kept on their roster, according to Teddy.

“A lot of clubs that may have before veered away from what we think of as a typical strip club hire really started going back toward that because they were trying to maximise profits,” she adds. In the industry, a “typical strip club hire” refers to dancers who skew white, thin and young.

Teddy, who is black and describes herself as “alternative-looking” with piercings and tattoos, suddenly found it harder to get hired and, for the first time in years, was forced to get a second job in a restaurant. “It was really discouraging,” she says, adding that she is now taking an indefinite break from dancing.

The strip club industry has its problems. Dancers have been suing clubs for decades for misclassifying them as independent contractors when they claimed they should be employees. Although AB 5 did mean dancers received unemployment insurance during the pandemic, it was not the solution dancers were hoping for. “It didn’t really answer a problem I was having,” says Teddy.

Workers and researchers warn the gig economy is warping the debate about employee status, meaning that the problems faced by independent contractors in different industries are being lumped together. “Everyone talks about these bills as gig worker bills. But when you look at them, they apply to workers across industries, digital and analogue,” says Cunningham-Parmeter. “Even today, in 2022, the vast majority of low wage workers are not gig workers.”

Other industries are divided about whether AB 5 had a positive impact on self-employed workers. Writers and typists are among those who have campaigned to repeal the law, claiming it hurts their ability to find work.

“Due to California law AB 5, SpeakWrite cannot accept applications from California residents,” says one job advert posted by transcription service SpeakWrite. Truckers have also complained about AB 5’s changes. In July 2022, a convoy of truckers blockaded Port of Oakland to protest AB 5, arguing their new status as employees meant they have less flexibility in when and how they work.

Before AB 5, California employment officials estimated that companies misclassified up to 500,000 workers as independent contractors, says Cunningham-Parmeter. He believes the introduction of minimum wage and overtime protection was a positive development for the vast majority, even if some companies abuse the spirit of the new law.

“Studies indicate that companies can save up to 30 per cent of payroll and labour costs by misclassifying their workers as independent contractors,” he says. “Therefore, it should come as no surprise that when some businesses, like strip clubs, were forced to finally treat their workers as employees, many such firms passed those new costs on to workers in the form of reduced wages or hours.”

Payment has always varied from club to club. But many clubs now say they need to keep the first $100 or $120 a dancer earns from private dances to cover the cost of paying employees minimum wage, and still take a cut of any money dancers make after they reach that threshold.

“In my view, the policymakers behind AB 5 did not foresee how strip club owners would use the tools at their disposal to restructure the industry to maximise profit under employee status, nor the unintended consequences that would have,” says Ilana Turner, a former dancer who is now writing a PhD thesis on dancers’ experiences following the introduction of AB 5 at the University of Minnesota.

As part of her research, Turner has interviewed 35 dancers, who told her their wages have dropped by as much as 80 per cent. Only one said they had not lost money under the new system, Turner says.

These unintended consequences are definitely the fault of the clubs, says Velveeta (not her real name), a dancer at Star Garden Topless Dive Bar in North Hollywood, who is campaigning to form the stripping industry’s first US union since the 2013 closure of the unionised Lusty Lady club in San Francisco.

“If the clubs were to follow the law correctly, then we would have minimum wage on top of keeping all of our tips, and we would have some kind of fair share of the lap dance money.”

Velveeta believes dancers are suffering from a lack of enforcement around AB 5. “It’s overdue for the strip club owners to be held accountable to basic employment standards,” she says. Star Garden Topless Dive Bar did not reply to WIRED’s request for comment.

Dancers’ unions say they are seeing a surge in interest as workers focus on finding ways to survive under a law that was never tailored for their industry. There might be similarities between gig workers and dancers, who have struggled with job misclassification for decades. But the nuances are also important, dancers say.

“Dancers are not gig workers,” says Velveeta. “We show up and work at the same clubs, some of us for many years, so that’s really not gig work.”

• A Wired report