Legal correspondent Larry Kaplan, along with attorneys Luke Lirot and Matt Hoffer, report on the latest developments from recent wage and hour court cases, especially as they relate to arbitration agreements and contracts.
Employment issues are certainly at or near the top of the list of potential threats to the survival of adult nightclubs. In recent times, there have been literally hundreds of class- and collective-action suits by entertainers against clubs. In the majority of these, they claim to have been miscategorized by clubs as non-employees who are in fact employees and are usually seeking minimum wage and the return of dance fees and fines, as well as hefty attorney fees.
Without the ability to run up the clock to the tune of hundreds of thousands of dollars in billable hours, greedy plaintiff attorneys would have no interest in pursuing the suits. An effective shield against these suits has been provided by contracts; specifically, arbitration agreements, signed by the entertainers, which include additional provisions where the performer waives participation in a class or collective action. The performers then would be required to participate in arbitration on an individual basis, rather than collective action to settle any “contractual” issues.
Recently, some of these arbitration agreements have been called into question. Entertainers at Miami’s King of Diamonds Club, who had been classified by the club as non-employees, filed a collective action suit against the club in April 2014. The club subsequently filed a motion to compel arbitration in the case. The dancers opposed the arbitration, claiming that it was an “impermissible attempt to interfere with the proposed class.” In December 2015, U.S. Magistrate Judge Jonathan Goodman sided with the dancers, ruling that King of Diamond’s arbitration policy “was clearly coercive and admittedly designed to undermine this litigation” and disallowing arbitration in the case.
Once the court determined that the arbitration agreements had been imposed after the collective action suit was filed, it interpreted that imposition as a response to the lawsuit, specifically intended to frustrate the collective action mechanism under U.S. Code § 216b of the Fair Labor Standards Act (FLSA). First Amendment attorney Luke Lirot explains that only under certain circumstances can you introduce arbitration agreements to club dancers after such a suit has been filed.
“You can do that with non-class members (of the suit) if you’re very cautious about it, but you can’t force it as a prerequisite to your continued relationship with the performer,” says Lirot. “You can negotiate with potential class members, up to the point in time that the class has been certified, but you cannot communicate with any named plaintiffs. You’re free to negotiate fairly with any potential class member as long as you don’t engage in any sort of force, retaliation or threat. If you’re going to ask them to sign any document that would affect their rights after a class-action case is filed but before the class is certified, the only safe way is to explicitly let them know of the existence of the class action case. And certainly do so with a clear written explanation.
“Once the class is certified, communication with potential class members is precluded, other than in the normal course of running your business,” Lirot adds. “An operator must make sure that nothing he or his management staff does is seen as retaliation or as treating anyone in the class or the case any different.”
Lirot notes that even if a club plays by the rules, they shouldn’t expect the other side to reciprocate.
“We’re seeing in the recent cases here in Florida, numerous efforts to contrive retaliation,” he says. “In the Rachel’s case, the dancers’ attorneys have gotten them to sign affidavits claiming they were only presented with the first and last page of the arbitration agreements containing their signature, but were not provided any of the intervening pages containing the actual arbitration clause.
“No lawyer or club operator in their right mind would do such a thing,” Lirot continues. “The arbitration agreements come pre-stapled. It shocks the conscience that desperate plaintiffs’ attorneys would try to manipulate their clients to try to avoid arbitration. If they will stoop to such depths, we must be all the more vigilant to understand that this is warfare.”
Why coercion is a very bad idea
With unscrupulous attorneys eager to be on the other side of the table in a class-action suit against your club, it’s critical that club operators don’t give them any openings to claim coercion, pressure or intimidation. When contracts or arbitration agreements are introduced, cover your bases to document that they are properly executed.”
In the recent court case in San Francisco, the court decided that dancers at a club were “pulled off of the floor, naked or drunk,” and brought to a back room and told they must sign the arbitration agreements. The court found those circumstances made the contracts procedurally unconscionable. Let this be a lesson for what not to do.
Lirot explains, “You absolutely cannot tell an entertainer that, before she can go on stage, she must sign an agreement with an arbitration clause. You have to treat it like a real contract that affects someone’s legal rights. You have to give them time to think about it and time talk to their own attorney, if they so desire. If they are new to the club, you can suggest that contemplation and execution of the contract are prerequisites to their performing at the club because the lease contract gives them the right to perform there. Adequate time to consider the impact of the contract is what the courts are looking at.
“And preferably, you should have two people from the club in the room when you introduce the contract,” Lirot adds. “Include a document for the entertainer to sign, acknowledging they aren’t signing under duress or pressure, that they have been offered sufficient time to look it over and consult their own counsel, if they had wanted to, and that they don’t have to sign anything if they want more time.
“All of the legal implications of these documents are carefully explained to club owners,” Lirot continues. “But unfortunately, by the time they make their way to the ‘floor’ level, it’s too often simply viewed by managers as some perfunctory act. Hence, they may quickly put a complex contract in front of an entertainer and simply say, ‘Here, sign this before you dance.’ And the courts have been using this as a basis to nullify any arbitration clause that appears to have been signed under duress or in this informal and rushed fashion.”
Adherence to a standard, non-coercive method of implementation is your strongest weapon. If a manager can get on the stand and testify that there is never any variance from the procedure, that constant will help the lawyer’s factual presentation. If the contracts are given out in a willy-nilly fashion, it won’t help your case.
Lessons from recent victories
Recent victories reinforce the value of properly executed arbitration agreements. Attorneys Matt Hoffer and partner Brad Shafer had a huge win in the form of just such a ruling in a West Virginia case.
Hoffer explains, “The way the courts have decided the issue recently is that the properly executed arbitration agreements are still effective for requiring entertainers to resolve their disputes via arbitration.
“You can look at the ruling we obtained in the case of Robinson, v. Taboo Gentlemen’s Club, LLC, where the arbitration agreements, which had been entered into as a matter of course rather than directly in response to pending litigation, were upheld by the court,” says Hoffer. “And the court further upheld the provision of that contract, providing that the prevailing party to any challenge of the arbitration agreement would recover its attorney fees and costs. The entertainer was ordered to pay $10,000 for fees and costs.”
The issue of allowing an entertainer to dance before signing a contract is tricky.
“Though you’re not under any obligation to allow a new entertainer to perform without a signed contract, I think it’s reasonable, in the case of a new entertainer, to allow her to look it over, overnight,” explains Lirot. “If they are not new to the club, you can tell them that they can continue to perform under their previous agreement and to take as much time as necessary to make sure they are comfortable with the new agreement. And again, if there’s a pending lawsuit, you should notify them of it in writing. Otherwise, they may not be bound by the agreement. Knowledge and notice are the keys.
“These are serious legal contracts that must be treated seriously,” Lirot underlined. “This isn’t just some signup sheet you’re handing a dancer. This is as important as buying a house or car. They must be signed in the right places and signed properly.”
Over the years, industry attorneys have seen numerous clubs using old contracts with their entertainers, often in the form of a nearly illegible photocopy and usually drawn up for another club—sometimes with disastrous consequences.
“A whole different and equally dangerous issue often seen is club operators using photocopies of ancient contracts borrowed from another club with the club usually believing they are ‘bulletproof from litigation,” says Lirot. “Each club operates differently with different customs and a different business model and contracts must reflect that to be of value. It’s like a transfusion with a different blood type.
“And important points of concern based on new court decisions in employment law occur so rapidly that attorneys writing contracts for clubs regularly update those documents to maximize protection for their clients. To attempt to use a contract not tailored to your business and one that may be years old and woefully out of date, invites disaster.”
This article briefly summarizes extremely complex legal issues and is provided for general information purposes only and is not intended to provide either an exhaustive analysis of these matters or any specific legal advice or recommendation. Laws vary by state and municipality. The positions and opinions expressed by the attorneys represented here are theirs alone, and do not necessarily reflect those of ED Publications. Club operators and others are strongly encouraged to consult their attorneys and accountants for specific advice on how these issues will affect their businesses and what measures to take. Larry Kaplan and ED Publications do not guarantee the accuracy of this information.
Larry Kaplan is the Legal Correspondent for Exotic Dancer Club Bulletin, Executive Director of the ACE of Michigan adult nightclub state trade association and a consultant in the sales and purchase of adult nightclubs and adult stores. Contact Larry Kaplan at 313-815-3311 or e-mail kaplanclubsales@gmail.com.
Attorney Luke Lirot is the principal at Luke Charles Lirot, P.A. He can be reached at (727) 536-2100 or email Luke2@lirotlaw.com.
Attorney Matt Hoffer is partner at the Shafer & Associates, P.C. law firm. He can be reached at (517) 886-6560 or email matt@bradshaferlaw.com.
