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$6.5 million wage settlement OK’d for exotic dancers in California

Given strip clubs had to close during the pandemic and weren't eligible for Covid relief money, a judge found $6.5 million is better than nothing because of bankruptcy.

(CN) — A federal judge has signed off on a $6.5 million settlement in a wage-and-hour dispute between exotic dancers and strip clubs in San Francisco and San Diego.

A class of 8,402 exotic dancers sued SFBSC Management in San Francisco and Déjà Vu Services in San Diego in 2014 for allegedly misclassifying them as independent contractors and engaging in unlawful tip sharing.

According to this week's settlement order, the parties reached a $5 million settlement in 2017 which the Ninth Circuit reversed and remanded in 2019, citing several inadequacies in equity to former dancers and scrutiny of settlement terms. Since then, similar lawsuits have been filed in Northern California and another resulting in a $6.44 million settlement with Déjà Vu Consulting in Michigan.

Thereafter, the parties reached a global settlement in the San Francisco and San Diego cases, consolidating the cases for settlement purposes and approving the settlement preliminarily.

Overall, U.S. Magistrate Judge Laurel Beeler found the $6.5 million settlement to be fair and reasonable, as it recovers about 14% of the "claimed best-case damages scenario of $45.8 million" and accounts for the amount of work performed and wages received by settlement class members.

Litigation and recovery risks were relevant to the court’s fairness analysis of the settlement. The court found that since nightclubs were exempt from CARES Act relief and forced to close during the pandemic — one defendant recently declared bankruptcy while five other clubs even closed permanently — the nightclubs’ ability to absorb a larger judgment was questionable.

Beeler also cited issues with class certification and difficulties in proving liability and damages on a classwide basis, particularly regarding overtime claims.

“It is also possible that the court would reject the plaintiffs’ core argument that they were misclassified as independent contractors,” Beeler wrote, adding that the “ABC test” favorable to the dancer’s misclassification argument and adopted by the California Supreme Court in Dynamex Operations West v. Supreme Court only applies to their Industrial Welfare Commission Wage Order-based claims.

As for the plaintiffs’ labor code claims, Beeler noted a California appellate court affirmed a jury verdict finding a dancer was correctly classified as an independent contractor.

Beeler also noted that while defendants were likely to argue that dancers fall within statutory exemptions for professionals and are subject to overtime and other provisions of wage orders, Dynamex does not guarantee favorable misclassification findings for plaintiffs.

The settlement notes several defenses the defendants raised during negotiations, including that the compensation to dancers came from mandatory service charges, not tips, so the defendants did not engage in unlawful tip sharing. Additionally, many dancers could not prove their damages because they never filed tax returns and never reported their tip income or paid taxes.

However, Beeler wrote, “a settlement now results in money paid now, while litigation results in delay and expense” after the lengthy arguments, adding: “The settlement allows both parties to avoid contested litigation that would be costly and protracted.”

The total settlement consideration is at least $6.5 million divided into a cash pool of $4 million, a dance fee pool of $500,000 and changed business practices valued at a minimum of $2 million, according to the order. But since administrative costs exceeded estimates by $60,000, the total net cash fund for the settlement will likely land between $1.685 and $2.185 million.

Alternatively, settlement class members can elect to receive dance fee payments — money that customers paid to watch dancers’ performances — which the court distributes out of the dance fee pool. Money unclaimed from the dance fee pool will eventually go to the class in cash.

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