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Rise In FLSA Litigation Leaves Strip Clubs Exposed

Employment Law 360 - Leigh Kamping-Carder

Strip club owners have long played by different rules when it comes to compensating dancers, but as wage-and-hour suits alleging dancers are misclassified gain traction in the courts, some owners are revisiting how they compensate their talent, attorneys said.

On April 29, the District of Columbia ruled that a local club had misclassified five exotic dancers as independent contractors in violation of the Fair Labor Standards Act. Other courts — including the Fifth Circuit, federal courts in South Dakota, Florida and Texas, the Montana Supreme Court, and a Massachusetts state court — have issued similar rulings since the early 1990s.

Dancers have also won concessions through settlements, such as a deal preliminarily approved in the Central District of California in early April that would have the Norco, Calif.-based Spearmint Rhino chain pay $10 million to a class of more than 11,000 women and stop its practice of classifying dancers as independent contractors.

The pro-dancer rulings, combined with a series of well-publicized FLSA suits, have created an altogether new kind of exposure for the adult entertainment industry, and are prompting some club owners to reconsider whether to reclassify their performers as employees.

“As it is right now, they’re an anomaly in the economy, and that’s just because the club owners have been able to get away with it — up until now,” said Outten & Golden LLP's Justin M. Swartz, who is representing plaintiffs in a suit against New York's Penthouse Executive Club.

In the last few years, clubs in New York, Louisiana, Arkansas, California and Nevada — including Las Vegas' Sapphire Gentleman's Club, billed as the world's largest — have all faced lawsuits claiming they misclassified dancers, effectively denying dancers minimum wages, unemployment and worker's compensation insurance, and other protections accorded to employees.

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For the most part, the suits take issue with the way the entertainers are paid. Typically, dancers make the bulk of their money from customer tips, and that can be substantial. In the Washington case, the lead plaintiff testified she made up to $1000 per night in tips.

But often dancers have to share tips with disc jockeys, bartenders or doormen, and some clubs encourage customers to use special vouchers that allegedly allow management to keep a percentage as well.

Other clubs charge dancers fees — ranging from $50 to $150 per shift, according to Swartz — just to get on the stage. 

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“These clubs want to have their cake and eat it too,” said Fisher & Phillips LLP's Todd Fredrickson, who represents employers.

“They want to treat these dancers as independent contractors, but at the same time they want to require them to do their jobs in a particular way and to be subject to particular rules or policies of a club," he said. "And the minute you do that you move away from independent contractor status to employee status.”

Strippers have argued that the clubs exercise enough control over their working lives to prevent them from qualifying as individuals in business for themselves. Clubs set schedules, bring customers through the door, fix dance and drink prices, and impose rules like bans on swearing or socializing with the clientele off-hours, they claim. Dancers are an integral part of the clubs' business, they claim.

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At Hungry I, the club gave dancers the choice of signing on as employees or independent contractors, according to the appeals court opinion.

As employees, the dancers would have received an hourly wage of $8 plus tips and a commission on private dances, but they would have had to clock in and out, fulfill drink and dance quotas, and report tips at the end of each shift. Significantly, the plaintiff in the case opted not to sign the employment contract and to file her taxes as a contractor, the opinion said.

As an increasing number of people involved in the industry begin to examine the pay and employment practices of exotic dancers, it's unclear whether clubs will reclassify dancers to avoid the exposure of litigation, Rubin said.

Clubs that do choose the reclassification route could still face claims under the two-year FLSA statute of limitations, Fredrickson pointed out. And it would require them to pay dancers not only the minimum wage or a tip wage but also to shell out payroll taxes and commit additional resources to administrative duties, attorneys said.

Still, now that most of the major clubs in New York have been sued, owners may want to sit down with dancers and their lawyers and attempt to reach an agreement that would allow them to profit while following the law, according to Swartz, who represents the Penthouse dancers. New York clubs will likely lead the way on any reform, he said.

“The club owners are in a very good position to pay a little more money and comply with the law,” Swartz said. “These clubs are money machines ... They could stand to make a little less and still be very profitable.”