In part two of our two-part EXPO 2024 Legal Panel coverage, ED Legal Correspondent Larry Kaplan (who also moderated this panel) offers a detailed recap of the key legal issues discussed and dissected by accomplished industry attorneys including Jeffrey Kimmel, Devon Lyon, J. Michael Murray and Brad Shafer. Part one of this article was published in the November 2024 issue and can be read here.
(NOTE: This story appears in the January 2025 issue of ED Magazine.)
Owning and operating an adult nightclub is not for the faint of heart. With the constant barrage of legal and regulatory challenges, operators who want to prosper must keep their fingers on the pulse to remain up to speed on the latest obstacles to their success. The annual ED EXPO legal panel assembles cutting-edge industry attorneys who present the essential information necessary to arm club management with the tools they need to stay at the top of their game. This year, we were privileged to host four renowned experts who are at the cutting edge of these issues. Our legal panelists for EXPO 2024 include:
Jeffrey Kimmel, who represents adult industry clients and other employers in matters related to wage-and-hour violations, wrongful termination, anti-discrimination and legal compliance issues, and advises high-profile and high-net-worth individuals on crisis management and litigation strategy.
Devon M. Lyon, who represents adult clubs across the nation in labor and employment law matters, including unauthorized use of images—often called model suits, insurance matters, dancer safety and proactive measures to prevent discrimination, harassment and retaliation-related lawsuits.
J. Michael Murray, who has extensive experience in First Amendment cases in courts throughout the U.S. He’s a fellow of the American College of Trial Lawyers, a past President of the First Amendment Lawyers Association and is recognized in the Best Lawyers in America in two categories: First Amendment law and white-collar criminal defense.
Brad Shafer, who practices nationwide, including before the U.S. Supreme Court, exclusively represents the adult industry. He is the most successful attorney ever to defend the dancer, employee/independent contractor issue and is a past President of the First Amendment Lawyers Association.
ED Publications Legal Correspondent Larry Kaplan moderated the panel.
In part one of this two-part report, we addressed the current state of First Amendment protections for the industry, significant recent changes in the law, a concerning trend in supposed “dancers’ rights” legislation, the rise of new human trafficking litigation and troubling prohibitions against 18 to 20-year-old adults dancing or working at adult businesses.
In part two, we will discuss whether the Loper decision means that there are no longer any labor laws, the current state of arbitrations based on recent decisions, whether clubs should still have such agreements with employees and entertainers, and if so, what’s critical to include; how do sexual harassment claims relate to arbitration agreements, and what can clubs do to mitigate that?
In part one, Brad Shafer discussed the recent U.S. Supreme Court Loper decision, which overturned the long-standing Chevron precedent that required courts to defer to administrative agencies’ expertise. Based on Loper, courts can now independently interpret regulations, potentially impacting businesses, especially regarding labor rules. With no clear test from Congress, these rules are now open to challenge, creating uncertainty for business operations as courts and agencies adjust to this new legal landscape. The Loper decision raised the question of whether there are no longer any labor laws.
“Labor laws still exist, but courts no longer automatically defer to agency interpretations of regulations,” Kimmel explained. “For example, the Labor Department’s new rule raising the salary threshold for overtime exemption is being challenged, with courts questioning the agency’s authority. Similarly, the Biden Administration’s revised 80/20 rule for tipped employees, which determines when they qualify for a tip credit, was invalidated by the Fifth Circuit Court, citing the end of Chevron deference. These changes affect how labor laws are applied but don’t eliminate them.”
Jeffrey Kimmel: How should club owners adjust their arbitration agreements based on the Peregrine case?
The Second Circuit Court’s ruling in Brown v. Peregrine Enterprises Inc. reversed a lower court decision on arbitration agreements. The appellate court held that when an agreement specifies equal cost-splitting between parties, plaintiffs cannot use arbitration rules to force clubs to pay more than the agreed amount. The district court’s earlier ruling, which found that the club waived its right to arbitrate by refusing to exceed the agreed cost split, was overturned.
Kimmel noted that Peregrine was his case. The case involved a typical entertainer misclassification lawsuit against a club. The club had arbitration agreements requiring equal cost-splitting between parties, contrary to the American Arbitration Association (AAA) rules, which mandate employers pay a larger share. When the club insisted on adhering to the fee agreement, the AAA refused to administer the arbitrations. The plaintiff’s attorney argued in federal court that the club waived its right to arbitration by not following AAA rules. The district court ruled against the club, stating they waived arbitration rights and breached the agreement.
Arbitration agreements are generally advantageous for clubs, though not always a one-size-fits-all solution.
– Jeffrey Kimmel
The club appealed to the Second Circuit Court of Appeals, which overturned the district court’s decision. The appellate court ruled that adhering to the agreement’s terms did not constitute a waiver or breach and sent the case back to compel arbitration. This decision affirmed that agreements with cost-sharing provisions can override arbitration forum rules.
Kimmel noted the key takeaways of the Peregrine decision for clubs:
- Fee-Sharing Provisions: Agreements can include cost-sharing clauses but must comply with state-specific rules. Clubs should specify that the agreement’s terms take precedence over arbitration forum rules if conflicts arise.
- Class-Action Waivers: Arbitration agreements should include a class-action waiver, restricting claims to individual arbitration only. A separate class-action waiver outside the arbitration provision is recommended as a safeguard if the arbitration agreement is invalidated.
- Severability Clauses: Including a severability clause ensures that the invalidation of one part of the agreement does not nullify the entire contract.
- Shortened Statute of Limitations: Agreements can reduce exposure by specifying a shorter time frame for claims, though enforceability varies by state.
Kimmel underlined that this ruling reinforces the importance of carefully crafted arbitration agreements, tailored to federal and state laws, to protect club operations effectively.
Kimmel added that arbitration agreements are generally advantageous for clubs, though not always a one size fits all solution. These agreements can reduce litigation costs and discourage frivolous claims, especially with enforceable fee-sharing provisions. The recent federal Circuit Court decision affirming such provisions strengthens their utility. By requiring plaintiffs to share arbitration fees, clubs can deter cases or push for settlements, as the high upfront costs (e.g., $35,000 in the Peregrine case) may discourage plaintiffs and their attorneys from pursuing arbitration.
Lyon reiterated that one size does not fit all with arbitration agreements, even more so for owners with multiple clubs throughout several states, and that it’s essential that they consult with an attorney who is conversant in labor law in multiple states because individual states may have very specific rules about what can and cannot be included in arbitration agreements. For example, in California, the employer or the purported employer must pay all costs associated with the arbitration; statutes of limitations can’t be shortened, and you must include specific language concerning discovery and the like.
Devon Lyon: How do sexual harassment claims relate to arbitration?
Lyon highlighted that plaintiff attorneys often try to bypass arbitration using new laws like the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFASASHA), enacted in 2022. This amendment to the Federal Arbitration Act prevents sexual harassment and assault claims from being compelled to arbitration. However, courts are divided on its application.
To prevent sexual harassment issues, clubs should implement clear policies, train managers to recognize and handle harassment, establish reporting mechanisms and thoroughly investigate complaints from dancers or staff.
– Devon Lyon
In cases unrelated to sexual harassment, such as wage-and-hour disputes, courts may allow arbitration for those claims while keeping sexual harassment claims in court. For combined claims, like wrongful termination and sexual harassment, courts often keep them in court due to their overlap. Title VII sexual harassment protections may not cover independent contractors, though courts often classify them as employees.
To prevent sexual harassment issues, Lyon recommends clubs implement clear policies, train managers to recognize and handle harassment, establish reporting mechanisms and thoroughly investigate complaints from dancers or staff.
This article briefly summarizes extremely complex legal issues, is provided for general information purposes only and is not intended to provide 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 has been the legal correspondent for ED Magazine for 24 years. Mr. Kaplan is a broker in the sales and purchase of adult nightclubs and adult retail stores, a principal in Strategic Club Consultants, the adult nightclub customer service and security training and consulting entity, and the Executive Director of the ACE of Michigan adult nightclub state trade association. Contact Larry Kaplan at 313-815-3311 or larry@kaplanclubsales.com.
Contact Devon M. Lyon at 562-216-7382 or d.lyon@lyon-legal.com.
Contact Jeffrey Kimmel at 212-259-6435 or jeffrey.kimmel@akerman.com.
Contact J. Michael Murray at 216-781-5245 or jmmurray@bgmdlaw.com.
Contact Brad Shafer at 517-886-6560 or brad@BradShaferLaw.com.
