Late yesterday, various press reports signaled what could be the beginning of the end for 2011 Department of Labor guidance that had greatly expanded legal claims against restaurants.

The 2011 rule barred businesses (mainly restaurants) from including nontipped workers in their tip pools.  That practice – if done involuntarily – then entitles the servers or waitstaff who have contributed those tips to the tip pool to minimum wage for their hours (not the tip-credit minimum wage.)

As of this morning, the DOL had not released its’ rule publicly, but according to a Law 360 report the description “suggests it would roll back the DOL’s 2011 rule amending its interpretation of the Fair Labor Standards Act to blog businesses from giving a portion of service employees’ tips to traditionally nontipped workers, such as kitchen staff.”

The attack on this 2011 guidance is also making its way through the courts.  The U.S. Supreme Court is expected to decide soon whether to review a case out of the Ninth Circuit that upheld the tip pooling rule.

The timing of the DOL’s expected rollback is unclear, but it could have a significant impact on many cases pending in the court systems or being threatened now.  At the current rate, a change could be expected in the first quarter of 2018.

For restaurants and other employers such as hotels that have tipped employees, this change ought to be closely followed.  Until we see the scope of the proposed rule change, it is unclear what the full impact on existing cases will be but given past practices on situations like this, but it might just evaporate a whole host of lawsuits that have popped up.

Stay tuned.

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.