Exotic Dancers Should Be Paid Minimum Wage, Judge Says

Exotic dancers formerly employed at Rick’s Cabaret International Inc. were entitled to be paid a minimum wage because they were employees of the club and not independent contractors, a U.S. judge ruled.

Former strippers sued Peregrine Enterprises Inc., which operates Rick’s New York, and two corporate parent entities, RCI Entertainment New York and Rick’s Cabaret International Inc., in federal court in Manhattan. The plaintiffs alleged each of the entities were employers who failed to pay them salary, violating federal and state labor laws. The dancers said they instead received performance fees from customers for personal dances.

Publicly traded Rick’s Cabaret argued the dancers were independent contractors over whom it had “minimal control” and who aren’t covered by labor law. Rick’s Cabaret countersued for “unjust enrichment” claiming $20 performance fees the dancers collected from clients should be counted against any statutory wage obligation.

U.S. District Judge Paul Engelmayer in New York today ruled the dancers were “integral” to the club’s success.

“Unlike shoe-shine employees at an airport, topless dancers are the ‘main attraction’ at a topless nightclub and obviously very important to the business of the nightclub,” Engelmayer wrote.

Overpriced Beers

The judge cited the deposition of Eric Langan, chief executive officer of Rick’s Cabaret, who said in pretrial testimony “the most important thing to the Rick’s Cabaret brand is that it has entertainers.”

“Without the girls, we’re just selling overpriced beers at a sports bar with bad TVs,” Langan said in his testimony.

Engelmayer said Rick’s Cabaret exercised an “immense degree” of control over the women by regulating almost every aspect of their behavior within the club. The company forbade chewing gum, a “bad attitude,” mobile phones, handbags and the use of body glitter, the judge said. The defendants also required eight-hour shifts and stiletto heels of at least four inches to be worn.

The plaintiffs, who included at least 1,900 strippers, was led by Sabrina Hart. In December 2009, a federal judge who presided over the case before it was assigned to Engelmayer had allowed to the case to proceed as a class-action, or group lawsuit.

Rejected Bids

The judge said that Rick’s New York was owned and operated by Peregrine, which is a wholly-owned subsidiary of RCI Entertainment New York. That company is a wholly-owned subsidiary of Rick’s Club International Inc., the judge said.

While he said in his ruling that the evidence favors the claim that Peregrine was the plaintiffs’ employer, he said there was “just enough contrary evidence” that the issue should be decided at trial. He rejected bids by both sides for a ruling before trial on the liability of Rick’s Club International and RCI Entertainment New York.

Engelmayer also rejected an argument by the defendants that the performance fees charged by Rick’s Cabaret weren’t service charges. The judge said the fees were tips that couldn’t be used to satisfy statutory wage obligations.

He ordered the parties to meet to confer about the prospects of a settlement of the case.

Changed Practices

Langan said in an e-mailed statement that the ruling has no impact upon Rick’s Cabaret because the company has changed its practices concerning contract workers. He said the court didn’t rule on the issue of whether the money the entertainers earned could be considered “wages” under New York state labor law.

“We are disappointed with the ruling and intend to appeal,” Langan said. “It is hard to imagine how these entertainers should be paid at the minimum wage, which would amount to a fraction of the $1,000 or more that some of them acknowledged they earned in a single night.”

Jeffrey Kimmel, a lawyer representing Rick’s Cabaret, said the defendants in their appeal will ask the court to reconsider the class-action status.

E. Michelle Drake, a lawyer for the plaintiffs, said in an e-mail that “our clients have finally had their day in court and prevailed.”

The decision “makes clear that employers cannot pass their statutory duties to pay wages on to their customers and gain an unfair advantage in the marketplace while their employees go without guaranteed or long-term benefits such as Social Security.”

The case is Hart v. Rick’s Cabaret International, 09-cv-03043, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.