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March 27, 2015

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Gentlemen’s club files counterclaim against dancers

Map of Sapphire


3025 Industrial Rd, Las Vegas

A lawsuit claiming thousands of current and former topless dancers at the Sapphire Gentlemen’s Club in Las Vegas aren’t really independent contractors and are owed back pay has advanced toward a March trial — with a twist.

The twist is that the owner of the Sapphire has not only denied it’s violating wage and hour laws with its current independent contractor system, but that it has filed a counterclaim against the dancers who filed the lawsuit.

Sapphire bills itself as the world’s largest gentlemen’s club with some 400 dancers nightly.

While independent contractor arrangements are the standard practice in the industry, the November 2009 lawsuit filed in Clark County District Court claims Sapphire has so many rules governing the dancers’ working conditions that they don’t qualify as independent contractors.

Dancers, for instance, are required to work a minimum number of hours — six or longer — per shift, the suit claims. It says they are prohibited from leaving the premises during their shift, can’t leave with customers, can’t date or socialize with customers during their off hours and must entertain customers “according to means and methods prescribed by” management.

They must pay club managers and employees for the right to work at the club, charge minimum fixed fees for table and lap dances, promote sales of alcohol and other drinks, accept offers of drinks from customers, appear on stage to dance at fixed times, comply with a dress code and wear approved costumes and uniforms, the suit charges.

Failure to follow the rules will result in suspension or termination, the lawsuit charges.

The dancers won an initial victory in the case May 24 when District Judge Kenneth Cory granted their motion to certify the case as a class action representing topless dancers, erotic dancers, strippers, entertainers and hostesses who worked at the club since November 2006.

That certification came despite arguments by Sapphire that no current dancers are plaintiffs in the lawsuit, that the plaintiffs are just a handful of former dancers, that the proper place to resolve wage disputes is with the Nevada Labor Commissioner and that what’s really driving the lawsuit is a group of out-of-state attorneys trying to change Nevada’s longstanding strip club industry procedure.

“The Labor Commissioner hasn’t seen fit to enforce labor laws against clubs in this state. The (U.S.) Department of Labor hasn’t done that. The only people that have been interested in doing that are effectively a group of lawyers coming over from California importing their tactics they’ve used there,” Sapphire attorney Mark Ferrario said during oral arguments in May.

Ferrario, of the firm Greenberg Traurig LLP, and co-attorney Tami Cowden submitted to the court 142 declarations signed by Sapphire dancers saying they favor the current independent contractor arrangement.

The dancers signing the statements were told by the attorneys that should the lawsuit be successful, it’s likely they would earn minimum wage and keep any tips.

“I do not agree with those former dancers (suing the club) because I do not consider myself an employee of Sapphire. I am an independent businesswoman and I can dance at Sapphire, or other clubs, or work other jobs when I am not performing at Sapphire,” the dancers’ declarations said. “These former dancers cannot represent my interests because I do not want to change the system at Sapphire, my use of Sapphire’s facilities or how I make money from customers of Sapphire.”

But Michael Rusing, one of the attorneys suing Sapphire, argued topless dancing clubs are seeking legitimacy.

“If they’re going to seek legitimacy they have to accept the fact that they need to have a legitimate relationship with the dancers, and if they’re employees, they’re employees and they need to be treated as such,” he argued.

He said there’s been a lot of concern nationwide about “large-scale abuse of independent contractor status” in the United States, and the Sapphire case is a prime example.

“The bottom line is that you cannot contract around the wage and hour law, any more than you can contract or waive discrimination laws, child labor laws or those sorts of things that were enacted and designed to protect these very people who are being pressured to waive this status,” he said.

He downplayed the importance of the declarations submitted by the dancers, suggesting they were pressured to sign the papers and asking “were the numerous nonobvious benefits of having employee status explained to them? Unlikely.”

“Plantation owners could have obtained affidavits from slaves, saying that they liked things just the way they were. We’ve got room and board, we get to work outdoors, etc.,” he added.

Also among the attorneys representing the dancers is Robert Starr of Woodland Hills, Calif., who has a Web site called explaining dancers’ rights.

Sapphire, in the meantime, filed a counterclaim against the five former dancer plaintiffs in the lawsuit, charging breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and conversion.

Sapphire charged in the counterclaim that since the former dancers are trying to cancel their independent contractor agreements, if they’re successful they must return to Sapphire “dance fees” paid to the dancers by lap dance customers.

“Should it be determined that counterdefendants were not independent contractors, then the dance fees rightfully belonged to (Sapphire owner) SHAC LLC,” the counterclaim charges.

Sapphire is trying to have the counterclaim extended so all the class-action plaintiffs would also be named as defendants in its counterclaim.

That means, if the motion is successful and the class-action plaintiffs are successful in their lawsuit, Sapphire could seek the return of “dance fees” from all dancers received since November 2006.

In court papers, the Sapphire attorneys called the class-action plaintiffs: “Former exotic dancers who received thousands of dollars in fees for their performances while paying only minimal fees for use of Sapphire’s venue.”

They said the former dancers “claim entitlement to protection under Nevada’s minimum wage laws despite their repeated acknowledgement that they are not employees. Purporting to speak for what they claim are thousands of other independent contractors still engaged in their business as sophisticated performers, plaintiffs seek to retroactively alter the longstanding nature of exotic dancing contracts in Nevada, transforming highly compensated, independent business women into minimum-wage employees.”

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  1. I agree with the arguments by Sapphires. These women are truly independent contractors. These California hack lawyers do not know Nevada law and practices. Merely setting up common sense rules does not change them to common law employees.

  2. Independant contractors can not have work rules as such. The IRS guidelines would rule them employees in a minute.

  3. These clubs often have 400 dancers a night, more girls than customers.
    I wonder how many dancers the clubs would have a night if the club had to pay them??

  4. IRS has guidelines of who is an indipendent contractor, and it is based on control. The club seems to have plenty of control.

  5. "IRS has guidelines of who is an indipendent [sic] contractor, and it is based on control."

    mred -- yeah, it's about the IRS having control and getting the money, the primary reason government exists today.

    Funny thing how people let them get away with it -- both state and federal Constitutions have that contract impairment clause, yet legislatures keep passing laws like this in violation.

    "[The law] has placed the collective force in the service of those who wish to traffic, without risk, and without scruple, in the persons, the liberty, and the property of others; it has converted plunder into a right, that it may protect it, and lawful defense into a crime, that it may punish it." -- Frederic Bastiat, 1850 "The Law"

  6. Well said mred, as usual. This case should be a slam dunk, clearly these girls are common law employees based on the facts presented here. The IRS should be all over this. The general rule is that an individual is an independent contractor if the employer has the right to control or direct only the result of the work and not the means and methods of accomplishing the work. This is all about the strip clubs not having to withhold income taxes, not having to pay the employee share of fica (soc. sec. and medicare taxes, collectively 7.65%), not having to pay Federal and State Unemployment taxes (Fed. Unemployment taxes 6.2% of the first 7000 with a credit of up to 5.4% of this amount paid for State Unemployment taxes). What a lot of people might not realize is that there is a category known as "statutory independent contractors or statutory non-employees" which consists of direct sellers of consumer goods and licensed real estate agents, who are not subject to fica or income tax withholding. These non-employees are required to pay self employment tax on net earnings (15.3%), however the "non employer" does not have to pay any of these taxes. It's amazing what well placed campaign contributions and lobbying can do!

  7. Additionally, I suspect that the strip clubs are able to avoid paying workers compensation insurance premiums for the dancers as well by classifying them as independent contractors. For the strippers there are a number of advantages to being deemed self employed, business expenses they incurred as entrepeneurs would be deductible for Adjusted Gross Income rather than an itemized deduction subject to the 2% AGI floor. They can also establish their own retirement plans and deduct contributions to those plans. On the other hand being self employed that have to pay a larger amount of soc. sec. and medicare taxes (1/2 of which are also deductible). Of course all this presumes they are participating in the system in the first place.

  8. I think what we need here are more lawyers,...specializing in dancing booties.

    Nothing in America is simple or easy anymore. Its all about the money,...the club wants a cut and the girls want theirs. In the end the lawyers will end up with the majority from both,...and they won't even be wearing a ski mask.

  9. I don't think the target counter-defendants need to be quaking in their boots.

    The principal monetary relief the plaintiff class is going to obtain from the club is small when you divide it up among the class members.

    As a result, even if the club owner obtains monetary judgments against individual dancers, they can blow them off by filing Chapter 7's.

    Nice try Greenberg Traurig.

    Same guys who ran the recount for Bush II, by the way.

    Plus one of their non-Nevada offices fired my former secretary, a devout Christian, for refusing to work on Sunday.

  10. Under the Internal Revenue Code and U.S. Treasury Regulations 31.3401(c)-1(b) an employer-employee relationship generally exists where the employer had the right to control and direct the individual who provides the services with regard to the end result and the means by which the result is to be accomplished. IRS looks at all the facts and circumstances present to determine if "the right to control and direct" is present. The fact that the girls pay the clubs in order that they can work there is just one fact that would be looked at and would not be determinative by itself as to whether they were employees or independent contractors. Furthermore, there are many employees that work through various employment agencies who through one way or another are paying for the privilege of working and they are still deemed to be employees.

  11. Your right wink, and depending on the state the real estate agents might want to clarify who pays workers comp.

    KillerB, we need another Irwin Schiff and/or Kahre to pull the tax scam, that takes the heat off the rest of us. Why don't you volunteer, buy some time on talk radio and espouse some theory about not having to pay taxes, sucker in a bunch of chumps, etc. we need the entertainment.

  12. "Why don't you volunteer, buy some time on talk radio and espouse some theory about not having to pay taxes, sucker in a bunch of chumps, etc. we need the entertainment."

    mred -- "why" indeed. I notice you didn't even attempt to address the Constitutional prohibitions against passing laws forbidding contract impairment. So that makes you just another irrelevant buffoon here.

    "In the general course of human nature, a power over a man's subsistence amounts to a power over his will." -- Alexander Hamilton, Federalist Paper 79, 1787-88

  13. Speaking of the Contracts Clause, Article 1, Section 10, Clause 1 of the United States Constitution, a review of the relevant US Supreme court decisions may be helpful, namely, Home Building and Loan Association v. Blaisdell(1934)in which the court construed the clause "in light of our whole experience and not what was said a hundred years ago" said, "public needs required that the reservation of the reasonable exercise of the protective power of the state be read into all contracts". In a more recent decision, Keystone Bituminous Coal Association v. DeBenedictis(1987) in which Justice Stevens stated,"It is well settled that the prohibition against impairing the obligation of contracts is not to be read literally". Killer B you're not one of those strict constructionists that wants to go back to what it was like in 1750 are you? when slavery and indentured servitude were prevalent, women couldn't vote and had few options other than working in the home and a social safety net for the poor and aged was unheard of.

  14. B you and Irwin and Kahre would make good cellmates, you'd have a lot to talk about.

  15. "Killer B you're not one of those strict constructionists that wants to go back to what it was like in 1750 are you?"

    lamwinkler -- I'll answer after you clarify how you made the leap from the people's right to contract in the context of the fed AND state Constitution's contract impairment prohibitions to slavery, etc. You're way out of the ballpark with your context.

  16. If the dancers lose, I wonder if they'll pay with dollar bills.

  17. Thanks B, but my context is just fine.

    "I notice you didn't even attempt to address the Constitutional prohibitions against pursuing laws forbidding contract impairment" (your response to mred)

    You were the one that brought it up, I don't think it's relevant to the case in question between the dancers and the Saphire club. Article I, section 10, clause 1 of the US Constitution states, "No state shall pass any law impairing obligation of contracts". There's no state action here. I thought you were perhaps arguing that wage and hour laws, classification of individuals as independent contractors vs. employee should be considered an impairment of contract, that you were arguing that the law should provide for strict interpretation of the contracts clause. The Supreme Court has laid out a three part part test for whether a law violates the contracts clause in Energy Reserves Group vs. Kansas Power and Light 459 U.S. 400 (1983). First, the state regulation must substantially impair a contractual relationship. Second, the state "must have a legitimate purpose behind the regulation, such as the remedying of a broad and general social or economic problem". Third, the law must be appropriate for its intended purpose.
    Getting back to the matter at hand, my point as a humble accountant is that I thougt that an excellent case could be made that the dancers were independent contractors and the employer Saphire should have to pay the employers share of fica (soc. sec. and medicare), federal and state unemployment taxes, workers compensation and adhere to other state and federal laws protecting employees. I mean hell, those pole tricks, all that gyrating, grinding, rubbing, wearing those shoes with those ridiculous high heels----they get hurt, no health insurance, who do you think is picking that up? us, the taxpayers. There's your context, have fun with it.

  18. My mistake liljoe you are right I'm saying that they should be classified as employees in which case the employer Sapphire would be liable for those taxes, employer's share of fica, etc. It's been a long day I substituted independent contractors when I meant to say employees. Thanks for pointing that out.

  19. "Thanks B, but my context is just fine..... There's no state action here...."

    iamwinkler -- Nevada parties to the contract in Nevada courts = this is a state matter.

    Check this state Constitution's Article I, Sec: 15: "No ... law impairing the obligation of contracts shall ever be passed."