On September 10, 2013, federal Judge Paul Engelmayer held that Rick’s Cabaret, a New York club, was in violation of the Fair Labor Standards Act and New York state law because it misclassified 1,900 current and former exotic dancers as independent contractors when they should have been employees. The court also found that parent and affiliated entities of Rick’s may be jointly liable for any damages because of the way the entire organization operated.

The Court used an “economic realities” test to determine that the dancers were misclassified. Rick’s strictly supervised the dancers and required the dancers to provide tips/kickbacks to management personnel and other employees, such as bouncers, in order to work there.   As a result, they were “employees” as opposed to independent contractors – and entitled to the minimum wage of $7.25 in New York. Damages have not been determined yet but the Court found that many dancers made less than the minimum wage once they were required to “tip out.” Dancers may also be entitled to overtime if they work more that 40 hours a week.

This decision [and several others around the country] could have a significant impact on the industry. Historically, exotic dancers have paid a fee to work at clubs – and were classified as independent contractors. If dancers are not truly independent contractors, then it has impact beyond the FLSA – including IRS and insurance issues. As such, club owners should make sure that their agreements with “independent contractors” are as complete as possible – or employers should begin treating and compensating dancers as employees.