TOPEKA, Kan. (AP) — A gentlemen's club being targeted by the state took its fight to Kansas' highest court on Wednesday in case that, despite the players involved, boils down to a fairly tame issue affecting a wide spectrum of industries: contract work.
Club Orleans considers its exotic dancers contract workers, not employees, because they rent space on the club's stage. Therefore their tips shouldn't be counted toward how much the club pays in taxes under state labor laws, much like acts booked at other entertainment venues, club attorney Mike Merriam told the state Supreme Court.
The Kansas Department of Labor disagrees, noting that the club charges a set price for various types of performances, and wants the club to pay a tax based on the dancers' wages to help finance unemployment benefits. Justices didn't make an immediate decision Wednesday, though the club, which is just outside Topeka, has been turned down by three lower judges.
Although perhaps more flashy, the case isn't unique as financially struggling states look for ways to generate revenue. One expert said states are trying to regulate the classification of workers across several industries, from exotic dancers to agricultural workers to lawyers.
"I think it's a trend," said Angelina Spencer, executive director of the Association of Club Executives, a trade group for adult night clubs. "Although they talk about economic recovery, I think we have a lot of states that are seeing red and they have to fill those gaps, and one way is by collecting taxes on people going into clubs."
In Montana, the state Supreme Court ruled in a similar case in 2009 that exotic dancers were not only employees, but also entitled to minimum wage, and the "stage fees" they paid to the club owners were kickbacks. The court decided that the dancers were entitled to payment of hourly wages, overtime and repayment of the rent fees.
Kansas attorneys didn't appear to be going that far, instead focusing on the tax that businesses pay into the unemployment fund. Court documents don't indicate how many dancers could be affected or the amount of taxes the club would owe.
Club Orleans contends that its dancers control their own performances, but Labor Department attorney Brett Flachsbarth argued Wednesday that the club's tip policy, along with testimony from dancers in previous cases, suggested that the dancers were working under an agreement set by the owners.
The department in 2008 classified the dancers at as club employees, and an administrative judge ordered the club's owner, Milano's Inc., to pay an assessment to cover unemployment benefits. The club appealed to Shawnee County District Court, where a judge sided with the state in January 2009. The Kansas Court of Appeals upheld that ruling, prompting the club to appeal to the high court.
Dancers aren't paid by the club but rather rely on tips from customers. The club sets a minimum tip of $1 for a dance on stage, $10 for a "floor" or "lap" dance, and $20 for a private dance in an area of the club dubbed the "champagne room," according to court documents.
The club argues that the dancers are tenants because they pay between $20 and $50 a day to rent the stage, depending on the time of day they perform. They also pay $50 for each half-hour's worth of access to the champagne room.
Justices on Wednesday questioned how the amounts were determined.
"Do the dancers have some sort of election?" asked Justice Carol Beier.
"They are industry standards," Merriam told the seven justices. "They do have an industry."
The club's owner also argues that its business is not primarily semi-nude dancing, but rather the serving of food and alcohol. The club receives only 15 percent to 20 percent of its revenue from the dancers' rent payments.
Merriam said the dancers received tips, not set wages, much like musicians who perform in subways or on the street. He argued that the club is merely providing a safe, legal venue.
But the state contends the dancers are an integral part of Club Orleans' business, noting that they've featured prominently in billboards and other advertisements. Flachsbarth also noted that dancers cannot leave the club in the middle of a shift, and Milano's provides the venue.
Spencer, the trade association director who is a former dancer and club owner in Cleveland, said dancers would make far less if considered club employees, perhaps only $20,000 a year.
"It really is very much a gray area right now because you have different court cases and outcomes," she said.