Back in 2011, I discussed a titillating case of strip club dancers (or, a decision says, “performers”, “entertainers”, “dancers” or even “exotic dancers” — although not “strippers”) who were trying to claim wages for the time they worked at a popular strip club in Connecticut.

The story at the time was that they were compelled to arbitrate their claims. 

So private arbitration should mean end of the public story, right?

Well, as it turns out, no. And the analysis of the case has some very real practical implications for employers.

I’ve been going to back through some older posts to do some followups. And in doing so, I discovered that this case had a public ending — except for the fact no one reported on it.

It seems that the dancers won big in an arbitration proceeding and then asked the court to “confirm” the award — making the whole thing public.  (You can read the arbitrator’s award here.)

And as a result, we get a revealing look at the efforts one club made to try to avoid having strippers be deemed “employees” and how it ultimately failed.

The strip club  — sorry, “adult entertainment establishment” as it called itself — had the strippers sign leases “renting” out the poles and space of the strip club. In doing so, the Club argued that these dancers were no more than tenants, and therefore, not entitled to wages, benefits or any of the normal protections that come with being an employee.

Under the “lease”, according to the decision, the dancers agreed to perform “semi-nude (topless) and/or nude dance entertainment” at the Club.”

In doing this work, dancers agreed to “perform consistent with the industry standards of a professional exotic dancer.”

(Aside: Professional exotic dancers have INDUSTRY standards?)

The Lease also provided that there will be set fees (called “entertainment fees”) for certain performances, “such  as couch and table dances,” and that dancers “may not charge more than the set fees.”

Oh, and they wouldn’t be paid any wages.

And here’s where it gets REALLY interesting.

If they ever DID claim wages, the lease provided that they would forfeit all of the entertainment fees they previously earned. And, to top it all off, should the dancers claim to be employees, they will also be liable for any attorneys’  fees, costs, or other damages incurred by the Club as a result of that claim.

But the arbitrator was having none of it.

He detailed the requirements of the strippers saying that there were four principal ways a dancer can “perform” — all of which indicated that they were tied to the Club (and therefore employees).

  • A “stage set”, in which the only income is the tips the customers choose to give her.
  • A “private dance” or “booth dance”, in which the Club sets the “mandatory entertainment fees”.  (A booth dance here cost $25, of which the dancer keeps $20 and pays $5 to the Club.)  Tips encouraged.
  • A “VIP” area in which the fee for that performance is $100 for 15 minutes, $200 for 30 minutes and $300 for an hour and in which the entire fee goes to the Club.  Tips encouraged as well.
  • A “Champagne Room” performance, in which the customer is charged $110 for one half hour and in which the entire fee goes to the Club.  Customer is free to tip the dancer.

At the end of a shift, the dancer must pay “rent” to the Club of $20 and a tip to the DJ.

The arbitrator said that the dancers were employees and therefore entitled to the protections under state and federal law.  Minimum wage was owed, for example. Moreover, the “lease” violated state law because it called for a refund of wages under Conn. Gen. Stat. Sec. 31-73.  

The arbitrator noted that while employers and employees have “wide latitude” to enter into wage agreements, that latitude does not extend to permitting parties to override or ignore the requirements of Connecticut law.

The arbitrator took particular note of the paragraphs that required the dancers to return “all” entertainment fees if they challenged their employment status.  These provisions are “clearly designed to penalize the employee for exercising her right to insist upon proper classification.  The inherent purpose of the Lease is to violate the law.”

The decision goes on to analyze the proper penalties and set-offs in such a case.  Here, the arbitrator again was not sympathetic to the employer — and for good reason.  The employer failed to prove it acted “in good faith” — and therefore the dancers were entitled to liquidated (or double) damages.

How much? Nearly $130,000 in damages for two strippers — plus attorneys’ fees.

The case is a great example of what happens on the fringes of wage and hour law. The vast majority of employers in this state play by the rules and wouldn’t even dream of cooking up a “lease” for its employees to sign.

But the law exists to protect the dancers too and here, there’s little doubt that justice has been well-served by the award here.

Last month, I discussed a very notable decision in D’Antuono v. Service Road Corp. in which the federal court — relying in part on the Supreme Court’s decision in AT&T Mobility — ordered two exotic dancers to arbitrate their employment-related claims.

A few days ago, the same district court allowed the dancers to take an expedited appeal to the Second Circuit (known, in legalese, as an “interlocutory order”).  You can view the court’s ruling here. While the court said it was reluctant to do so, it concluded that the factors for granting such an extraordinary request had been met.

The item that raised my interest was the fact that the court suggested that there is now a “great deal of uncertainty” about federal common law of arbitration that employees have relied upon.  It’s something to keep in mind as employers consider arbitration agreements.

The court’s analysis is worth a read:

[T] he Court is persuaded that the order currently at issue involves several different controlling questions of law. … [T]he nature of the arbitration agreement at issue in the case – which combines several different potentially problematic features that the Second Circuit has previously had occasion to consider in isolation, but never all together – means that the controlling and purely legal question of whether that arbitration agreement is enforceable based on existing Second Circuit precedent is a novel one.

In addition, as the Court discussed at length in its Memorandum of Decision, after the United States Supreme Court’s recent decision in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), there is now a great deal of uncertainty surrounding the continuing validity of the federal common law of arbitrability doctrines on which Plaintiffs rely.   …

As the Court tried to emphasize in its Memorandum of Decision, the enforceability of arbitration agreements is a highly contentious and – currently – constantly evolving area of law. In light of that fact, the Court has no doubt at all that reasonable jurists might well disagree with this Court’s analysis of the controlling legal issues in its Memorandum of Decision and its ultimate legal conclusions regarding the enforceability of the arbitration agreement at issue in this case.

In doing so, we are now likely to get a decision from the Second Circuit on this issue than if the case had been allowed to proceed.

This is definitely a case to keep an eye on.

A few weeks ago, I indicated (in posts here and here) that the AT&T Mobility v. Concepcion case would have a huge impact on forcing arbitrations of employment matters and limiting class actions.

An important new federal District Court case in Connecticut decided yesterday, D’Antuono v. Service Road Corp., (download here) has shown that to be the case exactly.

But, coming from the school of “you can’t make this stuff up”, it is remarkable that the case that is deciding this issue is one grounded in the claims of “exotic dancers” who allege that they were misclassified as independent contractors instead of employees.

(How can the strip club claim that the individuals were independent contractors? While it is not relevant to the court’s decision here, the dancers signed “leases” to the “performance space”.  Within those leases were arbitration provisions.  The Court did not decide that issue, though if you’re interested, I discussed a similar case back in January here. )

What is important for all employers to know is that here, the central issue in this case was whether the agreement to arbitrate (found in a lease agreement between the exotic dancer (as “tenant”) and the strip club (as “landlord”) was enforceable. The Court said that it was. In doing so, the Court forced the plaintiffs to arbitrate their FLSA claims and remove the specter of a collection action, finding that the plaintiffs gave up that right in their case.

Continue Reading In Titillating Case, Court Compels Strip Club Dancers to Engage Individually …in Arbitration

It’s hard to read the Connecticut Law Tribune’s Editorial this week on “The Problem of Workplace Arbitration Clauses” with a straight face. It is dripping with sarcasm, filled with sweeping generalities, and reserves its greatest enmity for employers and the lawyers that represent them.

If the editorial is to be believed, employers and their lawyers apparently routinely use “deceptive” arbitration clauses — often pushed by a “third assistant personnel clerk” — that are hidden until “defense counsel raises the jury waiver or arbitration agreement from its dusty grave in the company’s personnel files.”

But perhaps I’m overreacting. So let’s review the editorial more closely and try to separate fact from fiction.  The editorial, in its full unedited version, is in italics. 

Over the last decade, employers have more and more often incorporated jury waiver or mandatory arbitration clauses into their employment arrangements to avoid the perceived horror of facing jury review of the way they treat their employees. These clauses are often presented in circumstances that many argue are deceptive, if not downright coercive.

On the first premise — that employers are using arbitration agreements more — the editorial doesn’t provide numbers. But I’ll tend to agree with the notion that the use of arbitration agreements are increasing. However, most employers are not concerned with “jury review.”  Just a handful of cases ever see a court room. Only 2.9 percent of federal employment cases even reach trial! The reasons for their use are complicated but part of it is that the cost of defending cases has skyrocketed. Indeed, from 2010 to 2013, the median time from filing to trial of a civil case in federal court in Connecticut has risen from 27.9 months to 35.7 months (nearly three years!).  Arbitration is much quicker and more cost effective for both sides.

As to the second premise — that the clauses are presented in circumstances that are “coercive” — I suppose that is up for debate. But it depends on your definition of “coercion”.  The legal definition of coercion typically means through “force” or “duress”.  The classic law school example of being forced to sign a contract at gunpoint is clearly “coercion.”  But an employee who wants a job and signs an agreement if he wants the job? In my view (and many courts), that is not “coercion.”

But let’s agree to disagree on this point and move on.

Despite the significance of an employee signing away a legal right that lies at the very base of our civil justice system, there is almost never any effort to explain to the employee what the waiver or arbitration agreement means or even that they are giving up any right at all. In fact, quite the reverse is the rule.

“Almost never”?  That statement barely deserves any credence.  There is no evidence to support this statement.  And additionally, what does it mean to “explain to the employee what the waiver” means? Typically, the provisions state that any claim out of an employee’s employment must be submitted to arbitration instead of the courts. Isn’t that enough? (Yes, say the courts.)

Regardless, employers have been advised to make sure that arbitration agreements are highlighted and not merely stuck in page 32 of a handbook.

And the editorial seems to ignore the positive attributes that alternative dispute resolution can bring to the employee as well.  Arbitration has a place in our “civil justice system” too.  (Indeed, in a 2012 editorial, the Law Tribune voiced its support for passage of the Uniform Arbitration Act. The drafters of that act noted that “the enforceability of arbitration agreements cannot be treated any differently from the enforcement of contracts generally under state contract law” and avoided specific references to employment agreements.)

Continue Reading Law Tribune’s Editorial on “Downright Coercive” Employment Arbitration Clauses Is Off-Base

Ever wonder what happened to the case of the “exotic dancers” who claimed that they were misclassified as independent contractors?

Well, the case continues and yesterday, the federal court denied a summary judgment filed the strip club on a technical issue that is probably overlooked by employers in many instances.  You can download the decision in D’Antuono v. C&G of Groton, Inc. here.   

Under a wage & hour (FLSA) collective action, a litigant may not be a party plaintiff unless he or she gives “consent in writing to become such a party and such consent is filed in the court which such action is brought.”  If it is not done in time, the statute of limitations (two or three years, depending on the facts of the case) may preclude the suit.

The filing of a complaint is not enough to satisfy this requirement.  There has to be some written consent. 

In this case, the court was confronted whether a plaintiff’s signed affidavit, attached an exhibit in opposition to a motion to dismiss, consistuted signed written consent.  In that affidavit, the plaintiff stated:

Given my current financial circumstances and my understanding of the costs associated with arbitration, I cannot afford to arbitrate my claims and I could not afford to undertake this litigation and pursue my rights if I had the risk of paying the Defendants’ costs if I lost at arbitration.

The federal court said that it could not find a case similar to this one.  Thus, the court was left to decide whether this statement manifests a “clear intent to be a party plaintiff.” 

The court concluded that it was a “close one” and it would not have arisen if the plaintiff’s attorney had “simply ensured that a written consent form was filed along with the complaint.” 

Despite this “lapse”, the court concluded that her affidavit was enough and denied the defendant’s motion for summary judgment. 

For employers, this case is a good reminder that wage & hour collective actions are complicated and contain several procedural hurdles for the employees.   Although the defendant here was not successful in its challenge, its still important for employers to seek out experienced counsel who can spot those issues.

While I dig back out from vacation, my colleague Jon Orleans forwarded this update on a recent case in the Second Circuit. While the case is from New York, it may ultimately have some implications in Connecticut if it is appealed.   No, the OTHER Rick's....

A recent decision from the Southern District of New York certifies an FLSA collective  class of exotic dancers (“entertainers”) who claim that they were improperly classified as independent contractors rather than employees. 

If you only read the first couple of paragraphs of the typical news story about the decision, you probably chuckled at the reference to instructions given to the women by the club where they work – Rick’s Cabaret in New York – on how to strip. 

Maybe an image of Humphrey Bogart flashed through your mind. (Ed. note: You’ll thank me for a link to the Casablanca version, not the actual "Rick’s Cabaret"). 

But for an employment lawyer, the more important (if not more interesting) part of the decision is its discussion of the “joint employer” doctrine and the liability of a parent corporation for the actions of its subsidiary.

The issue arose on the defendants’ motion to dismiss, so of course the court assumed the truth of the facts pled by the plaintiffs. 

Plaintiffs alleged that they were employed at Rick’s Cabaret by its owner RCI Entertainment (New York) Inc. (“RCI NY”), a subsidiary of Rick’s Cabaret International, Inc. (“RCII”). After discussing the Twombly and Iqbal standards for evaluating complaints on motions to dismiss, the court observed that the term “employee” is defined quite broadly under both federal and New York law. 

Then the court applied the “economic reality” theory – looking to the totality of the facts and circumstances – to determine whether the plaintiffs had alleged sufficient facts to permit an inference that RCII was a joint employer with RCI NY. Plaintiffs had alleged that RCII employs regional managers who oversee the operations of the subsidiary clubs; that the regional managers hire the general managers who work at the clubs; that the general and regional managers report to the CEO of RCII, who is also president of each of the subsidiaries; and that RCII distributes the rules and guidelines the entertainers are required to follow, and enforces them through its agents the regional and general managers. 

Plaintiffs further alleged that the decision to classify them as independent contractors rather than employees was made by the CEO of  the parent company.

The court found these allegations sufficient to state a claim for joint employer liability, and went on to certify a class under Fed.R.Civ.P. 23(b)(3), holding among other things that the need for individualized damage calculations did not defeat the requirement that common questions of law and fact predominate over questions affecting only individual members. 

What’s the Bottom Line for Employers?

The lesson here for employers is that attempts to insulate a parent entity from liability under the FLSA by creating operating subsidiaries may well fail if the parent exercises any significant degree of control over the employment policies of the subsidiary.

The case is Sabrina Hart, et al. v. Rick’s Cabaret Int’l Inc., et al., No. 09 Civ. 3043, slip op. (SDNY December 20, 2010) (Koetl, J.). A copy of the opinion may be downloaded here.