$1M in Assessments, Fines Upheld for ‘Off the Books’ Dancers

NEW YORK—A New York appeals court yesterday upheld $1 million in assessments and fines against RCI Hospitality Holdings Inc. over unpaid employment contributions at its Rick's Cabaret club in Manhattan. The decision, stemming from appeals of two previous Unemployment Insurance Appeal Board rulings, held that Rick's Cabaret Manhattan club was liable for additional unemployment insurance contributions on remuneration paid to a dancer and other club employees. Rick's Cabaret Manhattan club, operating under RCI Hospitality’s Peregrine Enterprises Inc. division, was probed by the New York State Department of Labor in 2008 after an anonymous tip alleged that dancers at the club were being paid "off the books." The Labor Department said the gentlemen’s club “contended that all dancers were independent contractors,” according to court documents.   Rick's Cabaret Manhattan attempted to support its contention, the court said, by submitting the 1099 tax forms issued to all dancers for tax years 2006 through 2008, as well as providing “entertainer guidelines.” Several years later, in 2010, Rick's Cabaret Manhattan was assessed unpaid employment contributions and penalties of $660,573 based upon the first quarter of 2006 through the fourth quarter of 2008, plus interest, as well as a 50-percent fraud penalty of $330,287. In 2011, a former dancer at Rick's Cabaret Manhattan filed a claim for unemployment insurance benefits. The Labor Department determined that, for purposes of unemployment insurance benefits, that the dancer was an employee and, as such, found that Rick's Cabaret Manhattan was liable for additional unemployment insurance contributions on remuneration paid to her and others similarly situated. Rick's Cabaret Manhattan requested hearings to challenge the 2010 and 2011 determinations. In August 2013, following multiple hearings on the assessments and penalty against Rick's Cabaret Manhattan and claimant's request for benefits, an administrative law judge sustained the department's initial determinations. Upon Rick's Cabaret Manhattan’s administrative appeal, the Unemployment Insurance Appeal Board affirmed in two identical decisions. Rick's Cabaret Manhattan appealed. The appeals were dismissed, a five-member appellate panel said yesterday, because Rick's Cabaret Manhattan failed to “either deposit the sum due, as determined by the [Labor Department] and sustained by the board, or file an undertaking in a sum sufficient to cover the sum due, which is a condition precedent to the taking of an appeal. As such, this court is deprived of jurisdiction over these appeals.” “Although the undertaking requirement may have the effect of preventing certain litigants from bringing an appeal due to the inability to pay, any change to the jurisdictional prerequisite prescribed in Labor Law § 625 is a matter properly addressed by the Legislature,” the panel said. Yesterday’s ruling over unpaid employment contributions follows a settled civil suit involving former dancers of the club. In 2015, dancers at Rick's Cabaret Manhattan made a $15 settlement agreement with RCI Hospitality resolving a lawsuit claiming they were employees unfairly classified as independent contractors. The settlement, disclosed in court papers, came after a federal judge awarded dancers at $10.9 million and ahead of a future trial over further damages they sought. The lawsuit was brought on behalf of some 2,000 dancers employed at Rick's Cabaret Manhattan going back to 2005.   RCI Hospitality operates more than 40 adult entertainment clubs in New York, Miami, Charlotte, Dallas, Chicago, Pittsburgh, Houston, Minneapolis, St. Louis and other markets under brand names such as Rick's Cabaret, XTC, Club Onyx, Vivid Cabaret, Jaguars, Tootsie's Cabaret and Scarlett's Cabaret. It also operates sports bars and restaurants under the brand name Bombshells Restaurant & Bar. AVN reported yesterday that RCI Hospitality announced that it furloughed more than 1,900 employees after the COVID-19 pandemic forced stay-at-home directives at cities where it operates. RCI Hospitality did not respond to AVN questions for comment by post time.