No matter what business you’re in, the long arm of the law is only a lawsuit away. That means you need to have a solid handle on the legality (or lack thereof) of your employment practices today.

A series of lawsuits filed across the country – from Harrisburg, PA to St. Louis, MO and from Grand Junction, CO to Las Vegas, NV – has brought to light a common practice that was nearly universal across an entire industry for years.

One would think that an exotic dance club would, unquestionably, be a place that employs exotic dancers. However, it turns out this assumption would be wrong.

Under longstanding practice, adult gentlemen’s clubs typically treated their dancers as independent contractors, who worked solely for tips and who were not eligible for minimum wage, overtime, workers’ compensation, insurance coverage or any other benefits. In fact, many clubs have historically required dancers to pay a “house fee” to appear on stage, which the club owners compare to the practice of hair salons renting out chairs to individual stylists, who often serve as independent contractors in that industry also.

The Harrisburg, PA lawsuit, however, set the stage for what most courts have concluded is a pretty ‘cut-and-dry’ debate. If a key factor in identifying the difference between an employee and an independent contractor is the level of control exerted (or not exerted) over the worker, then it sure looks like the dancers at many clubs were employees, considering that many clubs:

Established extensive rules that dancers had to follow.
Subjected dancers to random drug testing.
Levied fines against dancers who violated ‘house rules’.
Controlled dancers’ schedules.
Often required dancers to work more than 40 hours per week.
Notified dancers that they could be ‘fired’ if they worked at other competing clubs.

In the Harrisburg case, the employer lost to a default judgment even though the club owners claimed they could not clearly identify and recognize the plaintiffs because club management “only recognized the dancers by their stage names” and “treated them as artists who offered artistic services”.

One factor complicating these cases across the country is that in some places, dancers clearly struggled to make an average hourly rate of compensation at or close to minimum wage, while in other regions dancers were quite successful financially, when evaluated on an hourly compensation basis. Another interesting twist in the Harrisburg case is that the club in question did not even keep regular records of the hours dancers worked (since, they argued, doing so was not essential given that the dancers weren’t actually employees).

This “ignorance is the best defense” scenario resulted in a potential nightmare for the club owners, since in the absence of their records, any financial judgment awarded by the courts would then be based on the dancers’ own accounts of their hours worked, with no input from the club owners.

It should be noted that not all of the suits are being decided in the same manner, due to technicalities specific to each case. However, the general consensus in the legal community is that the arrangements that the vast majority of clubs and dancers have held do not meet the “six-factor economic realities” test essential to proper interpretation of the Fair Labor Standards Act (FLSA).

Bottom Line: If it walks like a duck and you manage it like a duck, it’s a duck — i.e. an employee to whom you owe all of the proper provisions required by federal and state law. Make sure your entire workforce (including independent contractors) is properly defined, clearly classified and managed in full compliance with the law. Ignorance is no excuse, and will only guarantee that you lose not only a court case, but potentially, your entire business.

Selected Sources

Ex-dancer sues midstate gentlemen’s club http://www.pennlive.com/midstate/index.ssf/2013/12/ex-dancer_sues_midstate_gentle.html

Harrisburg, Pa. strip club faces FLSA undressing http://www.businessmanagementdaily.com/40352/harrisburg-pa-strip-club-faces-flsa-undressing

Dancers sue strip club for failing to pay wages and taking tips http://www.denverpost.com/breakingnews/ci_23954514/dancers-sue-strip-club-failing-pay-wages-and

Courts Continue to Hold That Exotic Dancers Are Misclassified as Independent Contractors
http://flsaovertimelaw.com/tag/strippers/

Exotic Dancers Sue Strip Club for Labor Law Violation http://inthesetimes.com/working/entry/16383/exotic_dancers_sue_strip_club_for_labor_law_violation

Las Vegas Strip Club May Owe Millions in Back Wages to Strippers
http://blogs.findlaw.com/free_enterprise/2014/10/las-vegas-strip-club-may-owe-millions-in-back-wages-to-strippers.html

More Exotic Dancers’ Misclassification Suits Dispute Clubs’ Business Model, Lawyers Say
http://www.bna.com/exotic-dancers-misclassification-n17179893648/

Image Credit: Pustovit (Flickr @ Creative Commons)