United States: Sixth Circuit Affirms Complex Settlement Of FLSA Claims Involving Exotic Dancers

An FLSA collective action involving exotic dancers is brought in 2008 and settles in 2011. Five years later, the same attorneys file essentially the same case with many of the same dancers as class members against some of the same defendants. And one of those defendants has the name "Déjà vu." What are the odds?

Whatever the odds are, that's what happened in Jane Does 1-2 v. Déjà vu Consulting Inc., Case Nos. 17-1801/1802/1827 (6th Cir. June 3, 2019). And in addition to the naming coincidence, the case presents a number of issues of broader importance relating to class action settlement.

Numerous cases have been brought over the employment status of exotic dancers. Often, the dancers are characterized as independent contractors living off of tips paid by customers. Frequently, disputes arrive out of whether the degree of control exercised by the dance clubs is sufficient for them to become employees.  Related issues include entitlement to the minimum wage and challenges to various financial policies, such as tip sharing, mandated by the clubs. In many cases, the club will charge the dancers what is sometimes called a "stage fee" to perform. These were the issues in the first case, Doe v. Cin-Lan, Inc., Case No. 08-CV-12719 (E.D. Mich., July 15, 2011). That case settled in 2011 with the payment of money, but no requirement that the dancers be reclassified as employees.

In 2016, the same lawyers filed the same FLSA and related state law claims against many of the same defendants. That case involved over 28,000 potential class members nationwide. It, too, was settled, but under very different terms. First, of course, the settlement involved the payment of money, in this case a total sum of $6.55 million. Of that amount, a total of $5.5 million was attributed to one of two settlement funds, and $900,000 went directly toward attorney fees. The class members' entitled to amounts from the settlement funds depended on whether the individuals accepted only a cash payment, or whether they participated in a larger "credit" scheme that would result in more funds being paid for work in the future. These credits could be used to offset the "rent" or "stage fee" the dancers had to pay or to earn additional "dance fees." The two funds were subject to various formulas, caps and requirements, and permitted up to an additional $300,000 to be paid from the larger fund to the attorneys to encourage them to urge participation in the "credit" pool.

To avoid what would likely have been (and may still be) yet another suit, the settlement also created a mechanism to evaluate the independent contractor or employment status of each dancer. Central to this mechanism was the use of an "Entertainer Assessment Form". The agreement also laid out additional sums to be paid to class members, such as a 20% commission on drinks the dancers persuaded customers to buy for them.

About 19% of the class opted in to the settlement. Fewer than 0.2% opted out of the settlement, and there were only six objections. The district court approved the settlement over the objections, and four of the objectors appealed.

In a 2:1 decision, the Sixth Circuit approved the settlement. It noted difficulties the plaintiffs would have had in prosecuting their claims based on genuine questions about whether they could prove employment status, questions about the available damages and the impact of arbitration agreements the defendants had implemented. It similarly rejected challenges to the attorney fees, and specifically found that a "clear sailing provision" under which the defendant agreed not to oppose an attorney fee award was not per se illegal.

We don't usually discuss dissents, but the one here raised the interesting question of whether participation in the larger credit pool of $4.5 million made the agreement a "coupon settlement" as contemplated by the Class Action Fairness Act (CAFA), 28 U.S.C. 1712. While the dissent agreed that the attorneys were entitled to a fee, it would have remanded to recalculate the fee based on the actual value of the pool to the class members.

While the case involves a colorful subject matter, it does reveal several things. First, we are increasingly seeing repeat litigation when the policies or structures that lead to a first lawsuit are not changed, or are minimally changed, resulting in later copycat lawsuits, as happened here. Second, objections to FLSA settlements are relatively infrequent, but the parties in the Déjà vu litigation did their homework and were able to defend their settlement to the satisfaction of both the district court and the court of appeals. Third, while the settlement here had innovative components, those can create their own issues, as shown by the dissent's ultimate concern over the application of CAFA's coupon settlement rules.

The bottom line: Settlement of a wage and hour suit may not be the end if the underlying employment policies remain the same. Even creative changes my entail their own litigation risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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