Money paid to dancers as gratuities under Wage Orders 5 and 10

STATE OF CALIFORNIA GRAY DAVIS, Governor

DEPARTMENT OF INDUSTRIAL RELATIONS

DIVISION OF LABOR STANDARDS ENFORCEMENT

LEGAL SECTION
455 Golden Gate Avenue, 9th floor
San Francisco, CA 94102
(415) 703-4863

MILES LOCKER, Chief Counsel

June 22, 2001

Kat Sunlove, Legislative Affairs Director
Free Speech Coalition
Office of Legislative Affairs
P.O. Box 907
Cool, CA 95614

Re: Gratuities to Dancers Employed Under IWC Orders 5 or 10

Dear Ms. Sunlove:

This is in response to your letter to Labor Commissioner Art Lujan dated
December 20, 2000, in which you inquired as to meaning of the provisions in
AB 2509 which amended Labor Code section 350(e) to provide that: "Any amounts
paid directly by a patron to a dancer employed by an employer subject to
Industrial Welfare Commission Order No. 5 or 10 shall be deemed a gratuity."
Specifically, you asked whether, as a result of this amendment, moneys
collected by a dancer for (1) drinks sold, (2) T-shirts sold, or (3) dances
sold to a customer, would "be deemed a gratuity" so as to entitled the dancer
to keep said amounts.

In your letter, you argue that it would be unfair to the business owner
to treat any of these amounts as gratuities, and that you believe the intent
behind AB 2509 was merely to prohibit the employers of dancers from taking
all or part of a dancer's gratuity, and that there was no intent to change
the pre-existing definition of "gratuity." For the reasons discussed below,
we believe you are incorrect as to the legislative intent. But although AB
2509 undoubtedly expanded the definition of a gratuity with respect to
dancers, the expansion of the definition is limited to situations where the
dancer receives money from a customer for dancing, as opposed to situations
where someone employed as a dancer receives money from a customer for
activities unrelated to dancing, such as selling T-shirts, serving drinks or
food, etc.

In order to understand the distinction between these activities, it is
important to understand the history behind both the law and the enforcement
problems in the adult entertainment/exotic dance industry which led to the
amendment of the term "gratuity."

First, prior to the enactment of AB 2509, Labor Code section 351
provided (and continues to provide) that "no employer or agent shall
collect, take, or receive any gratuity or part thereof that is paid, given
to, or left for an employee by a patron, or deduct any amount from wages
dues an employee on account of a gratuity, or require an employee to credit
the amount, or any part thereof, of a gratuity against and a part of the
wages due the employee from the employer. Every gratuity is hereby declared
to be the sole property of the employee or employees to whom it was paid,
given or left for."

Prior to AB 2509, Labor Code section 350(d) defined gratuity to include
"any tip, gratuity, money or part thereof that has been paid or given to or
left for an employee by a patron of a business over and above the actual
amount due the business for services rendered or for goods, food, drink, or
articles sold or served to the patron." AB 2509 left this basic definition
untouched, but added the above-referenced provision specific to dancers
employed under IWC Orders 5 and 10. By adding this provision, any amounts
that are directly paid by a customer to a dancer, are defined as a gratuity
and are sole property of the dancer, notwithstanding "the actual amount due
the business for services rendered." AB 2509 thus expanded the definition of
a gratuity for dancers. By way of illustration:

A customer in a restaurant leaves $60 for the waiter, on a bill for $50.
The waiter is entitled to keep only $10, the amount of the gratuity. The
underlying $50 is "the actual amount due the business for services rendered
or for goods, food, drink . . . sold or served to the patron," and this
amount is collected by the waiter for delivery to the employer. In contrast,
a patron at a striptease theater gives $30 to a dancer, consisting of $20
for the dance fee (which may have been pre-set by the employer) plus $10 as
an additional amount for the dancer's services. Under AB 2509, the dancer is
entitled to keep the entire $30.

If this same dancer also sells T-shirts at the theater, or also serves
drinks or food to customers, she is then not functioning as a dancer, in
which case the basic definition of gratuity under Labor Code section 350,
rather than the special definition for dancers, would apply. As a caveat to
this, however, please note that if the T-shirt sales are accomplished through
dancing (e.g., while dancing, the dancer sells a shirt she is wearing to a
customer so that the "sale of the shirt" is nothing more than a means of
accomplishing a striptease dance) then the special definition would apply.

We must disagree with your contention that AB 2509's special treatment
of dancer gratuities is "unfair to business owners." First, there are many
ways that an employer can still charge customers for the opportunity to view
the employer's dancers. Admission fees, both as to the premises in general
and as to that portion of the premises where dancing takes place, remain
lawful, as long as the money is not paid directly to a dancer. Second, the
enforcement history behind this legislation must be understood in order to
reach a conclusion about what is fair. Over the past seven or eight years,
the State Labor Commissioner's office has received substantial numbers of
complaints from dancers about being forced to pay "stage fees" to their
employers in order to be granted the "privilege" of working. These "stage
fees," often in the amount several hundred dollars per shift, were taken from
the amounts that customers paid to dancers for their services. Dancers'
organizations were instrumental in supporting the legislation that clearly
prohibits this practice.

Which brings us to our final point: the determination about what is fair
or not, with respect to matters of employee compensation, rests soundly
within the discretion of the California Legislature. Having considered this
issue, the Legislature decided how the law should be changed. It is our
mandate, as a labor law enforcement agency, to enforce these laws as they are
written, regardless of any person's view of whether they are fair to business
or labor. The public should never expect any less from our Division, and
your concerns would best be directed to the Legislature.

Sincerely,

Miles E. Locker
Chief Counsel

cc: Art Lujan
Tom Grogan
Greg Rupp
Roger Miller
Nance Steffen
All DLSE Attorneys