Exotic dancers who worked at a Philadelphia strip club that substantially controlled the work environment and took cuts of tips and lap dance proceeds are employees and can bring an FLSA collective action, a federal judge has ruled.

U.S. District Judge Anita Brody of the Eastern District of Pennsylvania ruled in Verma v. 3001 Castor that The Penthouse Club improperly classified its strippers as independent contractors instead of employees. The ruling is a win for a proposed class of strippers who claim they are entitled to minimum wage, overtime compensation and all the gratuities they earned.

Brody granted lead plaintiff Priya Verma conditional class certification under the Fair Labor Standards Act, but denied her request for class certification of state law claims under the Pennsylvania Minimum Wage Act and the Pennsylvania Wage Payment and Collection Law. Brody ruled the class-action requirement of predominance could not be proven at this early stage of the case given each potential class member could have varying damages. But Brody allowed for Verma to refile a motion for class certification after the evidentiary record has been developed.

Brody’s analysis of whether the strippers were employees or independent contractors for purposes of the FLSA claims came down largely on the control the club exerted over the dancers’ work.

According to Brody’s opinion, the dancers at The Penthouse don’t earn any wages, receiving all of their compensation from the club’s customers. And during certain shifts, some of the dancers are required to pay the club a stage rental fee to work the shift. The club’s cut of the dancers’ performances range from $10 of every $30, four-minute private dance to $200 of every $500, one-hour private dance, Brody said. The club sets the price and duration of all private dances and the dancers are not allowed to charge above that price, the judge said.

The dancers also have to give a portion of their tips to various club staff, including the DJ, “house mom,” “podium host,” and possibly the valet. The dancers face fines for being late or leaving early from a shift, using their cellphone, chewing gum, entering or exiting the stage from anywhere other than the stairs or failing to wear their hair down. There is a salon on site and dancers are instructed on their physical appearance, Brody said.

In order to avoid additional shift fees, dancers have to work at least four shifts a week to avoid being considered freelancers. While the dancers can leave the club at any time and work for another club, they are under “continuous review” by club management when working at The Penthouse, Brody said.

The club argued that dancers set their own schedules and that if dancers “hustle,” they can make up to $1,600 a shift, according to the opinion.

“Here, the dancers’ control over their schedules is minimal compared to all of the elements of the work that defendant controlled,” Brody said. “Based on the foregoing facts, the factor of control weighs overwhelmingly in favor of a finding that the dancers were employees, not independent contractors.”

Control of the work was one of six factors Brody analyzed in going through the FLSA’s economic realities test to determine whether a worker is an employee or independent contractor. All but one of the factors weighed in favor of the dancers being employees.

In looking at the dancers’ opportunity for profit or loss depending on managerial skill, Brody found the club substantially controlled the strippers’ ability to make money despite the club’s argument that the strippers set their own schedules.

Verma argued the club sets its hours, admission fees, which stages will be open and what music will be played, sets the time and price for private dances and controls the club’s advertising and food and alcohol expenditures.

In citing other courts, Brody said the “hustling” argument that the strippers can work harder and make more money has been rejected by all courts to consider it.

“Dancers at the defendants’ club risk the loss of the cost of their costume, the stage rental fee, and the mandatory tip-outs in exchange for the opportunity to earn several hundred dollars in a six-hour shift,” Brody said. “This is not the kind of capital investment and risk-reward profile typical of someone in business for herself. Dancers cannot leverage their investment in reoccurring stage fees and tip-outs to create an increasing return on their investment.”

Finding that the club invests much more in its operations than the dancers invest in their costumes, shoes and hair, Brody said the third factor of the relative investments of the employer and alleged employees weighed in favor of the dancers.

As to whether the services the dancers render require a special skill, Brody found none of the skills evaluated in the club’s audition process rise to the level of a special skill. The club evaluates potential dancers based on whether she is a “fluid” dancer, and on her appearance, social skills and hygiene. Brody said other courts have found strippers don’t exhibit a skill of people in business for themselves.

Brody further found for the dancers in that they are an “integral” part of the club’s business.

Brody found that the lack of permanence in the working relationship between the club and the dancer weighed in favor of the club. But in light of the fact that the five other factors weighed in favor of the dancers, Brody found they were employees.

Brody conditionally certified the FLSA collective action for the recovery of unpaid wages and liquidated damages.

Gary F. Lynch of Carlson Lynch in Pittsburgh is the lead plaintiffs attorney. John F. Innelli of Philadelphia is representing the defendants. Neither attorney returned a call seeking comment.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.

(Copies of the 29-page opinion in Verma v. 3001 Castor, PICS No. 14-1036, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •