So ruled a federal judge last week in a protracted dispute between the U.S. Department of Labor and Dallas' best-known topless club.
The Labor Department won its lawsuit against Cabaret Royale after six years of asserting that the topless club had failed to pay millions of dollars in wages to its dancers and waitresses. The decision could cost Cabaret Royale as much as $10 million, as well as fundamentally alter how it and other topless clubs do business.
The federal agency accused the "gentleman's club" of a number of labor violations, including failure to pay minimum wage. The nightclub managers, according to the Labor Department, also inappropriately deducted tip money from waitresses and dancers' pay checks and diverted the funds to the business.
Salah Izzedin, who, along with his family, owns the nightclub, plans to appeal the decision, says Tim Millard, Cabaret Royale's executive director.
Club officials maintain that the dancers were independent contractors who made thousands of dollars in tips from appreciative and generous male guests. "The DOL is targeting an industry it doesn't like," Millard told the Dallas Observer in December. "It's ridiculous for the Department of Labor to be concerned about someone who can earn hundreds or thousands of dollars" receiving minimum wage.
But U.S. District Judge A. Joe Fish rejected Cabaret owners' claims, ruling that the dancers were employees and should have been paid at least minimum wage in addition to tips. Fish also ruled against Cabaret Royale's policy of deducting a portion of tips the dancers earned from "table dances," which dancers perform at the individual tables of male guests.
At the upscale club, guests would buy "Cabaret Dollars" and use them to pay the dancers--$20 a table dance. Cabaret Royale skimmed off a portion of the proceeds before converting the play money to cash and giving the rest back to the waitresses.
Fish ordered the topless club to pay back wages and any money deducted from tips to the 1,200 dancers who have performed at the club since 1989. "Cabaret Royale must pay them the full minimum wage for all time worked," Fish ruled. "In addition, the club must return all tip [money] collected from the entertainers."
The judge also ruled that the club owes money to its waitresses, who were paid minimum wage. According to court files, managers at the club deducted 20 percent of all credit-card tips from waitresses, even though none of the waitresses who testified on the nightclub's behalf knew the reason for that deduction. Federal law requires employers to tell their workers why they are taking part of their tips.
Club managers told the court the deducted money was used to help pay for credit-card processing.
The ruling could cost Cabaret Royale more than $10 million, according to Labor Department figures. If the ruling stands, the topless club will also owe back payroll taxes to the IRS.
The Labor Department, which began investigating the topless club in 1989, filed suit in U.S. District Court against the club's operating companies and owner in 1991.
Cabaret Royale, the subject of a December 15 Observer cover story titled "Sexual dealing," is regarded as perhaps the country's premier topless nightclub, a classy, expensive departure from run-of-the-mill topless clubs. Its elegant trappings and beautiful dancers have been a big hit with businessmen and traveling executives, netting the club millions of dollars in revenues each year.
For the past few years, the Izzedin family has been feverishly expanding the classy topless club concept, opening clubs in Mexico City and New York and scouting additional locations. Cabaret Royale has been featured in several national magazines, including Playboy and Details. The company has also released videos of its topless entertainers; a Playboy video featuring the performers rose to number 18 on Billboard's video sales chart in 1994.
But the nightclub has, almost from the beginning, been beset by legal difficulties, including a $2.5 million age-discrimination lawsuit filed by a former employee, Ann Marie "Ami" Lindsey. That case, which is still pending, has been delayed because Salah Izzedin filed for bankruptcy last May after closing down the two corporations he had created to operate Cabaret Royale.
Lindsey, who now manages the Million Dollar Saloon topless club, said the judge's ruling will change the way the topless industry does business--forcing nightclubs to pay dancers as employees and prohibiting the bars from taking portions of the women's earnings. Most topless bars treat dancers as independent contractors.
Cabaret Royale executive director Millard agrees. "The ruling will have an enormous impact on the entire topless industry. I can assure you that this ruling is being read by the Men's Club and every other gentleman's club in the country, to the extent they have been made aware of it. It will cause a lot of rethinking about the procedures used by the industry.