Exotic Dancer Lawsuit Alleges Underpayments, W2 Fraud

WORCESTER, Mass. — A new federal lawsuit waged against a Massachusetts strip club alleges that its operator not only under underpaid at least 50 exotic dancers but also issued fraudulent tax information to them. The class- and collective-action lawsuit, filed last week at Worcester federal court, names Hurricane Betty’s Gentlemen’s Club in Worcester, Mass., in the complaint, and states that dancers employed at the club were subjected to unlawful kickbacks and are owed back wages. Hurricane Betty’s, the suit said, also should pay “statutorily mandated” damages to the dancers for issuing for false IRS W2 tax information returns reflecting “facially incorrect” payroll wages. Attorneys for the lead plaintiff in the case seek $5,000 for each fraudulent return issued. Industry attorney Maxine Lynn, who is not involved in the Hurricane Betty’s case, told AVN that, depending on which state, employment for exotic dancers can be treated several ways. “Usually, exotic dancers are classified by strip clubs as independent contractors and, accordingly, issued 1099 forms for tax purposes. Dancers can, however, be classified as employees if it is required by the law of a particular state, like California, or otherwise makes sense for the business,” said Lynn, who practices at the law firm of Keohane & D’Alessandro in Chicago and Albany, N.Y., and also operates Unzipped Media Inc., which publishes information on sex, technology and the law. “A dancer who is an independent contractor can be asked to pay a fee to dance for the night, similar to how an independent contractor hairdresser may pay a booth rental fee to a salon owner,” Lynn said. “Employees are subject to minimum wage laws, while independent contractors are not.” In the Hurricane Betty’s claim, W2 forms were issued to the dancers, who, according to the complaint, were paid the hourly wage of $4.35 an hour and subjected to mandatory house fee kickbacks between $30-60 per shift. Currently, Massachusetts’ minimum wage is set at $12 per hour. “When people are employees, most usually the tools to do the job are provided by the employer, and a kickback to the employer by the employee would not be paid,” Lynn said. “Certainly, it is my opinion that a kickback to an employer that brought total pay each night below minimum wage for an employee would be unlawful. That is what is be alleged here by the plaintiff.” The lawsuit seeks back pay, along with damages for unlawfully taking or assigning tips and gratuities and a judgment for tax claims for the relevant time period. Lynn said that the takeaway from the lawsuit is fairly clear: “In general, it is very important for strip clubs and other businesses to provide employees and contractors with proper and accurate tax documentation.” “Willfully and knowingly lying on these forms is fraud. Fraud on the IRS can lead to fines and major prison time,” Lynn said. “Don't mess with the IRS….” “It's also critical to remember that the complaint includes ‘allegations,’” Lynn said. “During trial proceedings, evidence will be submitted to get to the facts. Final determinations can then be made based on those facts, which is what the judge and jury will do.” AVN was unable to reach Hurricane Grady’s operator, Myles O’Grady, for comment on the suit by post time.