The primary issue for gentlemen’s clubs in recent years has been wage and hour issues. Gentlemen’s clubs have proven to be ripe targets for wage and hour suits in recent years. The common practice for decades has been to classify dancers as independent contractors. In the past, this classification had substantial justification. However, the recent trend to provide more protections to employees has resulted in a series of decisions all across the country against gentlemen’s clubs. While legal steps such as arbitration clauses, have gone a long way in reducing the potential for litigation, or at least class actions, there are ways for gentlemen’s clubs to actually reduce or eliminate wage liability.
- Wage and Hour issues and developing legal protections;
- Arbitration agreements;
- Implementing premium services;
- Legal issues involving dancer conduct;
- State administrative issues;
- Other issues as needed.
The traditional approach for gentlemen’s clubs with regards to dancers is to treat them as independent contractors. The premise behind this is that the dancers get to choose their own schedule, can market themselves to develop “regulars” who go to the club to see them, provide their own attire, and select their own music and dance routines. In addition, many dancers who make an effort end up earning tips that far exceed the minimum wage. Indeed, it is possible for some dancers to earn thousands of dollars a week. While not legally sustainable, this format went unchallenged for decades.
Wage and Hour Law Issues with Gentleman’s Clubs
It only takes one disgruntled employee to force an industry change when it comes to wage and hour laws. In 1997, in Florida, a dancer sued her employer under the Fair Labor Standards Act claiming that the employer misclassified her as an independent contractor, and therefore owed her minimum wage and overtime wages. In winning that case, the flood-gates opened on gentlemen’s club owners and managers nationwide.
Indeed, the courts have universally held that dancers are employees under the FLSA, and therefore entitled to wages. As recent as June 9, 2016, the Fourth Circuit stated that if the club markets itself as a gentlemen’s club, then the dancers are integral to the business and therefore are employees. Additional factors considered by the court have been that the club controls the atmosphere of the interior of the club, and sets the food and drink prices, and chooses what food and drink to offer. As can be seen by this analysis, which is typical for the cases involving the FLSA applied to gentlemen’s clubs, the courts have set a standard for the determination of the employer-employee relationship that club owners cannot overcome. If the court focuses on whether the club markets itself as a gentlemen’s club, sets the atmosphere of the club, and pays the rent and utilities, then gentlemen’s clubs have little or no hope of proving that these factors fail to apply to them.
Instead of defending against these claims, most gentlemen’s club owners, with advice of counsel, often limit the focus of their defense to aggressively defending against the liability issues as a deterrent to future suits. The prime method of defense has been to include arbitration clauses in contracts that prohibit class actions against the clubs. This has been effective because a judge does not oversee arbitration, and fees have to be paid for arbitration up front which deters some plaintiff’s counsel from wanting to pursue those matters on a contingency basis. The other defenses have included seeking tax records under the guise of discovery as to wages paid. This would have the effect of intimidating plaintiffs many of them do not file taxes including the tips they receive from dancing. However, this has been less effective because the courts rarely allow this information at trial recognizing it as the intimidation factor it is. These defenses, while having some success, rely on intimidation and other unreliable factors for defense.
Arbitration and Eliminating Damages
The most common defense so far has been the arbitration agreement. These are certainly important. The force the plaintiff to share the upfront costs of the litigation, and, most importantly, they can be designed to waive collective and class actions. These agreements are enforceable, if drafted correctly, and therefore are an important first step in any well-planned defense. However, they do have limits. They only provide a disincentive to some plaintiffs. Experienced Plaintiff’s counsel will proceed with arbitration, as the final determination as to whether a dancer is an independent contractor is not truly in doubt, even in arbitration. The second part of the defense for club owners therefore, is eliminating damages.
A more practical and secure defense is to establish processes and procedures that allow the club to claim an offset to the wages claimed by the dancer. If these procedures are implemented correctly, the gentlemen’s club may lose on the issue of whether the dancer is an employee or independent contractor, but result in zero liability to the dancer in terms of wages owed. More importantly in many cases, the courts have determined that under the FLSA even if a plaintiff wins on liability, if the employee receives no damages, then no attorneys’ fees are awarded to plaintiff’s counsel.
The Fourth Circuit set out the criteria in claiming this offset. The issue focuses on the “service charge” that clubs require for Champaign rooms, table dances, and lap dances, among other premium services. If treated properly, these service charges can be used to entirely offset any claims for wages by dancers in an FLSA case. Importantly, implementing the proper service charge procedures are cost-effective, and require very little effort for most gentlemen’s clubs. In addition, the change can be nearly seamless to the dancers working at this club, and puts a minimal burden on the club to comply with the rules in order to be able to use the offset.
Adding Premium Services to Your Club
The other benefit to clubs, in addition to the legal security the offset provides is actually the ability to increase revenue for the club and dancers working there. Gentlemen’s clubs that do not have premium services now have a tremendous incentive to implement them. Those premium services can add opportunities for dancers to increase their own revenue stream, thereby increasing the clubs revenue as well. Proper implementation of this additional revenue stream can also lead to increased drink sales, and properly encourage the customer relationship experience, resulting in return business.
While there are many options to avoid damages in wage and hour suits against gentlemen’s clubs above and beyond simple arbitration agreements, the offset is by far the simplest to implement. The benefits to the club are extensive, and if properly implemented provide an extreme incentive to avoid wage liability. Moreover, proper implementation, and training for club staff and management can also significantly increase revenue streams for both dancers and owners. The Fourth Circuit has provided a simple, and elegant solution in providing a defense going forward for gentlemen’s clubs that make these minor changes in their policies and procedures. Gentlemen’s clubs should focus on establishing a defense to these wage and hour suits under the FLSA by ensuring their arbitration agreement is enforceable, and taking steps to be able to claim the offset to avoid wages damages in their entirety.