A class of California exotic dancers sued their club management claiming they were reclassified as employees and their pay was reduced in retaliation for taking part in a previous wage lawsuit.

The California Supreme Court recently made it more difficult for employers to classify their workers as independent contractors. Club management may have thought it was required to reclassify the dancers as a result, but it didn’t have to drastically reduce their pay, the dancers said in their Jan. 29 complaint. The lawsuit was filed in the California Superior Court for San Diego County.

Punishing the dancers by making them employees with substandard pay undermines the public’s interest in proper worker classification highlighted in the California high court’s 2018 ruling in Dynamex v. Superior Court, which set forth a stricter test for deciding whether workers are independent contractors, the dancers said.

Misclassifying employees as independent contractors costs California approximately $7 billion per year in lost payroll tax revenue, according to state regulators. Companies generally must withhold income taxes on wages paid to employees, but independent contractors are responsible for keeping track of their own tax obligations.

While worker advocates say the new test gives workers in the gig economy and other industries the legal protections they deserve, business groups warn that it will drive up litigation costs and force reclassifications that contract workers don’t want.

Exotic Dancer Misclassification

Deja Vu Services Inc., a national chain of adult entertainment clubs that has 25 California locations, agreed in June 2017 to pay out as much as $6.6 million to to settle claims it misclassified more than 28,000 dancers across the country. Several dancers have appealed the deal because it actually paid out less than $1 million to the dancers, said Shannon Liss-Riordan, the dancers’ lawyer.

Managers at the the Gold Club and the Penthouse Club, both in San Francisco, explicitly cited “the lawsuits and ongoing demands by the suing dancers and their attorneys” as the reason why they made the change to the compensation structure, according to the dancer’s Jan. 30 lawsuit. The change resulted in hundreds of dollars in lost wages per shift, the dancers said.

By using reclassification as a tool for retaliation, the clubs also tried to create the appearance that like dancers don’t want to be employees, said Liss-Riordan told Bloomberg Law.

Deja Vu isn’t named as a defendants to the dancers’ lawsuit. They say management company SFBSC Management LLC and the clubs are responsible in part for the alleged retaliation. SFBSC, the Gold Club, and the Penthouse Club couldn’t immediately be reached for comment.

Waiting for the Dynamex Effect?

Although the dancers’ lawsuit stems from alleged retaliation via reclassification, the Dynamex ruling may not have resulted in huge swaths of companies converting their contract workers into employees.

“From what I’ve seen and heard from workers, companies are not trying to adapt to Dynamex,” said Steve Smith, spokesman for the California Labor Federation. “Essentially they’re trying to ignore it.”

In light of companies not adapting to the ruling, the federation supports pending legislation that would codify it into law, Smith told Bloomberg Law.

That bill is one of two dueling proposals on Dynamex. The other proposal would overturn the ruling.

A business group also isn’t aware of mass employment reclassification in the wake of Dynamex. Shawn Lewis, a California-based spokesman for the National Federation of Independent Business, said he has not heard many reports of small business owners converting independent contractors to employees.

Employment reclassification is easier said than done and, depending on a company’s business model, may not be practical, Lewis told Bloomberg Law.

Instead, small businesses in California are more concerned at this point about whether the Dynamex ruling will be applied retroactively, Lewis said.

The case is Jane Loes 1-3 v. SFBSC Management LLC, Cal. Super. Ct., Docket number unavailable, complaint filed 1/29/19.