HR Management & Compliance

Without HR Guidance, Even Adult Clubs Are at Risk for Lawsuits

When we think of HR, we tend to think of business casual dress in an office environment. But some of the companies that might benefit the most from a strong HR department do not fit that mold.

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Atlanta strip clubs have had several ugly sets in recent history. After years of treating dancers as independent contractors and not paying them overtime or a set minimum wage, local strip clubs were exposed by dancers to some adverse court rulings. After girls, girls, girls had successful runs in Clincy v. Galardi South Enters. d/b/a The Onyx, and Stevenson v. Great Am. Dream, Inc. d/b/a Pin Ups, it was the boys’ turn, and they did not disappoint.

The Bare Facts

Swinging Richards is a nightclub club whose primary business is to provide entertainment in the form of nude and seminude male dancers and the sale of alcoholic beverages. The self-declared “Atlanta favorite gay male strip club” was featured recently in the documentary “All Male, All Nude.” Patrons, however, were not the only ones who had to pay to play. Not only did the club pay nothing to dancers for their work—the dancers were only remunerated with tips from patrons—the club actually required dancers to pay kickbacks to other club employees, such as doormen and security personnel, a set fee for each shift they worked (which was at least $100). Other fees dancers had to pay included a house fee, a DJ fee, and even a T-shirt fee. The club treated the dancers as independent contractors.

In the complaint, the dancers alleged that they were misclassified and should have been treated as employees, subject to minim wage rules under the Fair Labor Standards Act (FLSA). In support of the claim, they noted that the club:

  • Maintained all financial accounts used in its operation;
  • Paid all costs associated with advertising, marketing, and promotion;
  • Provided all facilities used in the performance of the dance work; and
  • Had and exercised control over the dancers’ work and working conditions.

They also noted that they weren’t required to have any specialized skills, education, training, or knowledge and that their work was “an integral part” of the club’s business.

Notably, the initial plaintiff in the suit (others were joined after it was filed) had been an opt-in plaintiff in a previously-filed FLSA suit against the club by other dancers. However, he was threatened by the club’s manager and told that he would never swing at the club again unless he dropped out of that lawsuit, which he did. The club settled that lawsuit for a whopping $1,360,000.

Going all the Way

The dancers’—led by attorneys from the firm Delong Caldwell—bumped and ground their way to an $814,374 judgment. The judge ruled that Swinging Richards violated the FLSA’s minimum wage requirements and ordered a jury trial on the issue of willfulness, the retaliation claim, and on damages. The federal jury found that the club retaliated against the original plaintiff when it coerced him to drop out of the previous lawsuit and had in fact willfully violated the FLSA as to all the dancers in terms of its compensation practices.

It has been reported that the dancers’ attorneys were concerned with “jury nullification” because the dancers made “a lot of money, maybe more than most people on the jury.” Ultimately, however, the jury adopted the spreadsheets showing the amount of back wages and kickbacks owed to each dancer. The attorneys were also initially concerned with the racy nature of their clients’ work, but they reported that most jurors did not express an objection with it and that the one who did was excused.

Swinging Richards’ attorney Herbert Schlanger—his actual last name—stated that the club planned to appeal.

A Few Tips

All puns aside, this case is yet another example that the misclassification of independent contractors can prove very costly. Here are some points that stand out from this case:

  • Even conservative jurisdictions like the Northern District of Georgia will dissect FLSA cases carefully, rule clinically, and will show no sympathy towards employers.
  • The “everyone else is doing it, why can’t we” excuse will never, ever work—ever.
  • The fact that your independent contractors are well-compensated will have virtually no weight and will get you no sympathy.
  • The control exerted on workers defeats their alleged “independence.”
  • An independent contractor’s labor should not go toward a core function of your business (i.e. if you make sneakers, the workers who make sneakers cannot be classified as independent contractors).
  • Charging workers fees or making deductions from their compensation will almost always earn you the ire of judges and jurors alike.

The days of classifying workers as “independent contractors” willy-nilly are over. Just because you are compliant from the tax standpoint does not mean that you do not face serious and costly risks. The test for independent contractors for tax purposes is weighed differently than for employment law purposes. A good rule of thumb is you shouldn’t have more contractors than employees. Also, you should ask yourself how important or valuable independent contractors are for your business. If the answer is somewhere between “they are valuable” and “I would be out of business without them,” consider calling your employment counsel.

Glianny Fagundo can be reached at (770) 790-4052 or gfagundo@taylorenglish.com. Raanon Gal can be reached at (678) 336-7214 or rgal@taylorenglish.com.