AuthorNadas, T.J.D.

TABLE OF CONTENTS INTRODUCTION I. BACKGROUND A. The FLSA: History and Purpose B. The Six Factor Test Applied by Circuit Courts in the Leading Cases 1. Factor 1 - Degree of Control 2. Factors Two - Relative investments 3. Factor Three - Managerial Skills of the Worker 4. Factor Four - Special Skills 5. Factor Five - Permanence of the relationship between worker and alleged employer 6. Factor Six - Do you need strippers to have a strip club? II. ANALYSIS A. State by State breakdown B. Industry Impact--How costly is this both from the specific lawsuit perspective as well as the overall impact 1. Cost of lawsuits 2. Cost of Changing Over 3. Club Closings 4. Potential impact to states which have not yet followed suit C. Real Impact to "Mom and Pop" Clubs D. Pros and Cons to the Entertainers III. Are all exotic dancers' considered employees as defined by the FLSA? A. Feature Entertainers 1. The Degree of Control Exercised by the Alleged Employer 2. The Extent of the Relative Investments of the Worker and Alleged Employer 3. The Degree to Which the Worker's Opportunity for Profit and Loss is Determined by the Dancer's Managerial Skills 4. The Skill and Initiative Required in Performing the Job 5. The Permanence of the Relationship 6. Whether the Service Rendered is an Integral Part of the Alleged Employer's Business 7. The Problem B. Outcall Entertainers IV. Comparison of Exotic Dancers' Labor Rights to Those of Similar Professions A. Workers Engaging in Consensual Sexual Contact for Compensation B. Porn actors V. CONCLUSION INTRODUCTION

For a customer, there is no business more honest than a strip club. The social contract between the customer and the entertainer (2) is simple: the customer pays money; the entertainer provides a fantasy. That's it. For an entertainer, in at least twenty states, there is no business more dishonest than a strip club. In these states, where courts or legislatures have not yet classified exotic dancers as employees, clubs are almost certainly violating the Fair Labor Standards Act (FLSA) by not employing the entertainers, but retaining them as independent contractors. The precedent has been set by the majority of courts and legislatures across the country; the remaining courts and legislatures need to fall in line to avoid unnecessary costly litigation. In recent years, there have been a few circuits (and state legislatures) that have determined that exotic dancers should be considered employees under the Fair Labor Standards Act. (3) The act established minimum wage, overtime pay eligibility, recordkeeping requirements, and other downstream implications including the mental health benefits of stability and eligibility for other state and federal benefits. (4) The goal of this note is to act as a road map for club owners and legislators in those states which have not yet followed suit and provide insight into how to avoid litigation--giving them a chance to catch up instead of just hoping that this issue will never reach their corner of the world. The most recent court decision, Verma v. 3001 Castor Inc., awarded $4.5 million in damages for the dancers who sued for wages under the FLSA. (5) Although gentlemen's clubs (6) in the US are currently an $8 billion dollar industry, as there is no major player with a market share greater than 5%. (7) Thus, $4.5 million is a substantial percentage of their revenue. For smaller "mom and pop" type clubs, a lawsuit like this could completely bury them. Thus, legislators and club owners should collaborate to pre-empt court decisions and avoid excessive damages.

This article will analyze this issue in four parts; Part IV, the analysis, will be split into four substantial sections. Part I will give a short summary of the history and purpose of the FLSA. It will then review the relevant facts and holdings of three circuit court cases in which exotic dancers were classified as employees under the FLSA. Finally, it will conclude with a short discussion of the test used in these cases to make that determination. Part II will start with a broader geographical analysis of the United States and summarize the current groups of states in relation to the laws surrounding exotic dancers as employees. It will then analyze the industry impact of states which mandated dancers be recognized as employees and states that still do not have such mandate. It will also discuss the potential impact on states which have not yet followed suit. Part II will then analyze the practical implications of holding exotic dancers as employees of clubs. Part III will present an anomaly in the current framework of the industry that has the potential to lead to a destructive loophole with feature entertainers. Part IV will compare the labor rights of strippers to other sex workers. Part V will be a brief conclusion with broad recommendations for club operators and legislators, reiterating the potential impact on the health and wellbeing of the entertainers.


    A. The FLSA: History and Purpose

    The Fair Labor Standards Act was signed into law in 1938 and has been amended over time to keep up with the evolution of social policy and industries within the United States. (8) In its final form [in 1938], the Act applied to industries whose combined employment represented only about one-fifth of the labor force. (9) In these industries, it banned oppressive child labor and set the minimum hourly wage at 25 cents, and the maximum workweek at 44 hours." (10) The primary motivation of the FLSA was to eliminate child labor and set a minimum wage. However, the FLSA has been expanded over the years to protect workers from "the dangers of unregulated capitalism." (11)

    Today the FLSA covers any employee who engages in interstate commerce, or who is employed by an organization engaging in interstate commerce, unless otherwise exempted. (12) Exemptions from the FLSA include independent contractors, volunteers, and white-collar workers. (13) Being classified as an employee comes with various advantages, including the "[protection] of certain regulations and federal statutes that safeguard against discrimination, [in some instances] providing health insurance" (14) and eligibility for other benefits. (15)

    B. The six-factor test applied by circuit courts in the leading cases

    Recently, in 2016 and 2019 respectively, the 4th and 3rd Circuits held that exotic dancers should be classified as employees under the FLSA. (16) These cases continued a trend which began with the 5th Circuit in Reich v. Circle C.

    Investments, Inc. in 1993. (17) In Reich a five-factor test (18) was applied to determine if exotic dancers should be classified as employees:

    (1) the degree of control exercised by the alleged employer;

    (2) the extent of the relative investments of the dancer and alleged employer;

    (3) the degree to which the dancer's opportunity for profit and loss is determined by the dancer's managerial skills;

    (4) the skill and initiative required in performing the job; and

    (5) the permanency of the relationship. (19)

    Most recently, in both Verma and Mcfeeley, an additional factor was added to the test: (6) whether the service rendered is an integral part of the alleged employer's business. (20)

    1. Factor 1 - Degree of Control

      Under the first factor, the courts evaluated the level of control the clubs exercised over the dancers. (21) Although no single factor was dispositive on its own, (22) all 3 circuits weighed this factor most heavily for determining that exotic dancers are employees under the FLSA. (23) In Verma, the court recognized that the dancers had limited control over a few things, namely, setting their own hours, opting among different shifts, determining how many shifts they are committed to, working past their scheduled shift, and having the freedom to accept or reject requests for private dances. (24) In Mcfeeley the defendants argued that the dancers were "free in the clubs' view to determine their own work schedules, how and when they performed, and whether they danced at [other] clubs." (25) And in Reich, the defendants argued that any control the club exerted was to maintain decorum or to keep the club legal. (26)

      All three c ourts held that the first factor weighed strongly in favor of employee status because clubs exerted an overwhelming amount of control over the dancers through the following behavior:

      - Requiring compliance with weekly work schedules

      - Fining dancers for absences and tardiness

      - Setting prices for private dances

      - Setting standards for costumes to promote the desired atmosphere

      - Determining the music to which the dancers perform

      - Limiting breaks and expecting mingling with the customers

      - Requiring sign in and approval of appearance

      - Prohibiting of certain behavior including drinking, smoking, loitering, leaving and returning, bringing friends and family to the club, chewing gum, or changing into street clothes (27)

    2. Factors Two - Relative investments

      The second factor dealt with the relative investment of the worker as compared to the alleged employer. The Reich court stated succinctly that "a dancer's investment is limited to her costumes and a padlock." (28) All the courts recognized that the dancer's investment was marginal compared to a club who "owns the liquor license, owns the inventory of beverages and refreshments, leases fixtures for the nightclub (e.g., the stage and lights), owns sound equipment and music, maintains and renovates the facilities, and advertises extensively." (29)

    3. Factor Three - Managerial Skills of the Worker

      Regarding the dancer's managerial skills, the third factor is closely tied to the second in evaluating how much the dancer's profit or loss is determined by their own managerial skills. The factor test says: the more the dancer's earnings depend on his/her own ability to manage the work, and the more he/she is personally invested in the capital and labor of the enterprise, the less the worker is "economically...

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