Hart v. Rick's Cabaret International Inc.
967 F. Supp. 2d 901
S.D.N.Y.2013Background
- Rick’s Cabaret NY (operated by Peregrine; owned by RCI NY and parent RCII) classified exotic dancers as independent contractors; dancers received no salary and were paid performance fees by customers (cash or $18 redemption from $24 "Dance Dollars").
- Rick’s maintained written "Entertainer Guidelines" through Feb 2010 imposing detailed rules (dress, conduct, schedule, clock-in/out) and threatened fines and disciplinary action; many fines were recorded and often later reversed, and the Club continued to enforce rules verbally after Feb 2010.
- Plaintiffs (collective under FLSA; Rule 23 class under NYLL) sued for unpaid minimum wages (FLSA & NYLL), unlawful deductions and retention of gratuities, and unlawful fines (NYLL §193); defendants counterclaimed unjust enrichment and argued dancers were independent contractors and that performance fees offset wage obligations.
- The district court applied the FLSA economic-realities test and New York common-law control test to find dancers were employees of Rick’s NY (Peregrine) as a matter of law; summary judgment granted as to liability for minimum-wage claims against Peregrine.
- The court held performance fees were tips, not employer service charges recorded in gross receipts, so they cannot offset minimum-wage obligations; plaintiffs also prevailed on unjust enrichment counterclaim. The court reserved certain issues for trial: willfulness/good-faith, and whether RCI NY and RCII are joint employers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Were dancers employees or independent contractors under FLSA? | Dancers dependent on Rick’s (control, limited investment, integral to business) so they are employees. | Dancers had scheduling freedom, earned money directly from customers, and were labeled independent contractors. | Employees: economic‑realities factors (control, investment, skill, permanence, integral role) favor employee status. |
| Are dancers employees under NYLL (common-law control)? | NY common‑law test focuses on control; Rick’s exercised control over means/results so dancers are employees. | Defendants emphasize freedom to work elsewhere, lack of payroll/benefits. | Employees: control (Guidelines, fines, supervision, pricing, integral role) establishes employer-employee relationship under NYLL. |
| Do customer-paid performance fees count toward employer’s minimum-wage duty? | Fees are tips paid to dancers and not employer gross receipts; cannot offset wage obligations. | Fees are compulsory/minimum charges set by Rick’s and some were reflected in 1099s (Dance Dollars), so they should be service charges and offset wages. | Fees are tips, not service charges included in employer gross receipts; cannot be used to satisfy minimum-wage obligations (no §203(m) tip-credit notice either). |
| Is defendants’ unjust-enrichment counterclaim valid (offset/double recovery)? | Rick’s: dancers would be unjustly enriched if allowed to keep performance fees and also recover statutory wages. | Dancers: performance fees came from customers, not the Club; equity doesn’t require restitution given defendants’ misclassification. | Counterclaim rejected: no unjust enrichment because fees were customers’ payments and defendants misclassified dancers; plaintiffs prevail. |
| Do Rick’s fines/tip-outs violate NYLL §193 and were deductions "from wages"? | Plaintiffs: mandatory tip-outs and fines are unlawful deductions or separate transactions violating §193. | Defendants: dancers were not employees or deductions were not ‘‘from wages’’ so §193 does not apply. | Plaintiffs win on §193(3)(a): even though dancers received no paid wages, employer may not require payments by separate transaction; summary judgment for plaintiffs on liability against Peregrine. |
| Are RCI NY and RCII joint employers and was conduct willful? | Plaintiffs: common management, centralized control and shared officers make parents joint employers; prior case law put defendants on notice (willfulness). | Defendants: operational control was Peregrine’s; parents acted separately; willfulness not established (reasonable dispute). | Both issues are fact‑intensive; summary judgment denied as to RCI NY and RCII employer status and as to willfulness/good-faith — left for trial. |
Key Cases Cited
- Brock v. Superior Care, 840 F.2d 1054 (2d Cir. 1988) (articulates FLSA economic‑realities factors for employee status)
- Rutherford Food Corp. v. McComb, 331 U.S. 722 (U.S. 1947) (totality of circumstances controls independent-contractor analysis)
- Irizarry v. Catsimatidis, 722 F.3d 99 (2d Cir. 2013) (employer’s potential power and economic‑realities application under FLSA)
- Bynog v. Cipriani Grp., Inc., 1 N.Y.3d 193 (N.Y. 2003) (New York common‑law control factors for employee status)
- Reich v. Circle C. Invest., Inc., 998 F.2d 324 (5th Cir. 1993) (exotic dancers found to be employees under FLSA)
- Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132 (2d Cir. 1999) (employer control need not be continuous to establish employment relationship)