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Accused of Misclassifying Strippers as Contractors, Rick’s Cabaret On The Hook for $10.9 Million Before Trial Even Begins

On November 14, 2014, the District Court from the Southern District of New York granted partial summary judgment to more than 2,000 plaintiffs in Hart v. Rick’s Cabaret International, Inc., awarding them a total of $10,866,035 but still leaving several “damages issues” to be resolved later at trial.

Plaintiffs in this case are exotic dancers who had been classified as independent contractors and never paid by the clubs where they worked, but only permitted to earn money directly from customers. The court had ruled on September 13, 2013 that these dancers should have been classified as employees, and thus entitled to at least minimum wage for all the hours they had worked. The court also found that the Clubs’ duty under the FLSA to pay minimum wage was not discharged by the payment to the dancers, by customers, of “performance fees” for dances.

On the latter issue the court’s rejection of Defendants’ argument was thorough and decisive: “In asking the Court to recognize an offset to their NYLL minimum-wage obligations, defendants thus not only ask the Court to rewrite that statute to include an offset unsupported by the NYLL’s text…The Court declines this invitation to legislate from the bench…” Continuing: “Defendants’ notion that an offset against minimum wages ought be allowed here would…undermine key purposes of the NYLL,” since “the Club has not kept records of these charges, paid taxes on them, included them on any wage statement or information returns (e.g. forms W-2 or 1099), or used them to calculate deductions for Social Security and Medicare. Under these circumstances, allowing such charges to offset an employer’s statutory wage obligations would undermine these important programs and facilitate non-payment of taxes to federal and state authorities. It would also put employers like the Club at an undeserved advantage over competitors who pay workers lawfully by means of paychecks…” In short, the Court found multiple sufficient reasons not to allow the defendants to treat “service charges” as tips that could be counted against their minimum wage obligations.

The November 14th order includes five new decisions on pre-trial motions. The court ruled…

1. ….that, just as the dancers’ payment by customers did not discharge the clubs’ duty to pay them minimum wage under the FLSA, it also did not discharge the corresponding duty to pay minimum wage under the New York Labor Law;

2. …that co-Defendant Peregrine is liable for retaining $2 in gratuities intended for the dancers for each $24 “Dance Dollar” that was purchased by a customer;

3. …that the testimony of the plaintiffs’ expert witness, Dr. David Crawford, would not be stricken;

4. …that Defendants’ motion to decertify the Rule 23(b)(3) class is denied; and
5. …that the plaintiffs are entitled to some of the damages claimed in their complaint prior to trial. These damagers pertain to minimum wage under the FLSA and NYLL, unlawful retention of gratuities, and unlawful fines and fees.

Still to be decided at trial are three issues: first, whether plaintiffs are entitled to additional damages, beyond those awarded by the court at the summary judgment stage; second, the duration of these violations of the FLSA and NYLL, and whether they were willful and/or made other than in good faith, in which case a jury might tack on additional liquidated damages; and third, whether two other named defendants are joint employers that share liability.

If you are an employee and you believe your employer has violated your rights under the Fair Labor Standards Act or New York Labor Law, please contact The Harman Firm, LLP.

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