Strippers’ Arbitration Protest Redressed

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By Jon Steingart

Nov. 8 — A strip club can’t push a wage-and-hour lawsuit by exotic dancers out of federal court in Pennsylvania and into arbitration, an appeals court ruled ( Herzfeld v. 1416 Chancellor, Inc. , 2016 BL 370730, 3d Cir., No. 15-2835, unpublished 11/7/16 ).

Jessica Herzfeld and other performers at the Gold Club in Philadelphia signed a contract with a provision saying claims arising out of the contract would go to an arbitrator, Judge Julio M. Fuentes wrote for the U.S. Court of Appeals for the Third Circuit in an unpublished opinion Nov. 7. But the contract was fashioned as a property lease, in which the dancers rented the club’s stage. The claims arose under the Fair Labor Standards Act and state wage laws, not the landlord-tenant contract.

“It might have come out differently if this was an employment agreement instead of a lease,” said Cliff Palefsky, an attorney at McGuinn, Hillsman & Palefsky in San Francisco who isn’t involved in this lawsuit. “Many agreements use language like ‘arising out of’ or ‘relating to,’” he said. Palefsky is co-chair of the National Employment Lawyers Association's Mandatory Arbitration Task Force.

“Many identify the kinds of claims covered, especially statutory employment claims,” Palefsky told Bloomberg BNA in a Nov. 8 e-mail. “It seems pretty straightforward to me that a landlord tenant agreement would not encompass statutory claims relating to employment.”

Herzfeld filed a putative collective action lawsuit claiming the dancers aren’t paid minimum wage and the Gold Club improperly withholds a share of the tips they earn. She also says they aren’t paid overtime when they work more than 40 hours in a week. These violations flow from being incorrectly classified as independent contractors rather than as employees, according to the lawsuit.

The Gold Club moved to compel arbitration before filing an answer to the complaint. It appealed a lower court’s denial of the request. The Third Circuit’s decision, joined by Judges Theodore A. McKee and Jane R. Roth, affirms the lower court’s order for the club to answer the lawsuit.

Property Leases Limit Arbitration

Fuentes viewed the lease contract as an attempt by the Gold Club to avoid establishing an employer-employee relationship with its staff. Certain business obligations, such as minimum wage, overtime and payments for unemployment insurance, don’t apply when a worker isn’t an employee.

But “in an effort to limit its liabilities under labor-employment laws by designating its contracts with the exotic dancers as landlord/tenant leases, the Gold Club has likewise limited the scope of its arbitration clauses,” Fuentes said.

The Gold Club might have been successful if its agreements with the dancers were more typical of an employer’s arrangement with its staff. The ruling underscores that arbitration is a creature of contract law that is subject to ordinary rules of contract interpretation.

Attorneys on both sides didn’t immediately respond to telephone messages Nov. 8.

Gary Lynch and Jamisen Etzel of Carlson Lynch Sweet & Kilpela LLP in Pittsburgh represented Herzfeld. Matthew Hoffer of Shafer & Associates P.C. in Lansing, Mich., represented the Gold Club.

To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

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