PHILADELPHIA – A federal appellate judge recently ruled that a Philadelphia nightclub will not be headed to arbitration in a wage payment dispute case with one of its former employees.

On Nov. 7, Judge Julio M. Fuentes of the U.S. Court of Appeals for the Third Circuit said plaintiff Jessica Herzfeld’s claims as to the wages she earned at the Gold Club in Philadelphia were “statutory”, and outside the arbitration clause outlined in a pair of contracts governing her work at the club.

From 2006 to 2014, Herzfeld performed as an exotic dancer at the Gold Club, owned by defendant 1416 Chancellor, Inc. Herzfeld signed two landlord/tenant leases, memorializing her arrangement with the club – the first in 2006 when she began and a second one in 2013.

Just after leaving the Gold Club’s employ, Herzfeld, on behalf of herself and a class of similarly-situated dancers, commenced a wage-and-hour suit against the club. Arguing that the two leases contained binding arbitration clauses, the Gold Club moved to compel arbitration of Herzfeld’s claims.

According to Fuentes, the District Court denied that motion.

“At the time Herzfeld began performing at the Gold Club in 2006, she signed a contract, according to which she paid the Gold Club a certain amount of money per shift to ‘lease’ its stage, in exchange for tips. This initial contract was lost, however, during a flood in January 2009,” Fuentes said.

“For four years, between 2009 and 2013, Herzfeld continued to perform at the Gold Club without the existence of a signed contract. Finally, in August 2013, Herzfeld was asked to sign a second contract, entitled ‘Stage Rental /License Agreement,” Fuentes added, though both sides disagreed on the circumstances under which Herzfeld was presented with the contract.

“Herzfeld testified that she was given the contract to sign in the middle of a night shift, at around midnight, after she had already paid a stage fee and had consumed two glasses of wine. Additionally, she was told that she could not continue performing without signing the contract and that she could not bring it home to review the terms. The Gold Club contests the timing, alleging instead that Herzfeld would have been given the contract to sign before her shift started,” Fuentes explained.

The 2013 agreement also contained an arbitration clause which would serve to negotiate any disputes between both parties of the contract – allegedly also contained in the 2006 agreement, though the plaintiff appeared to disagree.

“At issue in this appeal is whether Herzfeld is bound by the arbitration clauses contained in either of the two landlord/tenant leases she signed to perform at the Gold Club in order to vindicate her rights as an employee under the Fair Labor Standards Act (FLSA), Pennsylvania Minimum Wage Act (“PMWA”), Pennsylvania Wage Payment and Collection Law (WPCL). The District Court held that Herzfeld is not. We agree,” Fuentes said.

Fuentes continued the Court “need only answer two questions when deciding whether a matter must be submitted to arbitration: (1) Whether the parties have a valid arbitration agreement at all, and (2) Whether a concededly binding arbitration clause applies to a certain type of controversy.”

“The District Court arrived at its conclusion on the basis that the parties do not have a valid arbitration agreement, and simply assumed that the arbitration clause would otherwise apply to the dispute. We disagree on the latter point, and affirm the District Court’s judgment without reaching the merits of the District Court’s decision on the enforceability of the arbitration clause, which implicate complicated and novel issues,” Fuentes said.

Fuentes stated the Court observed the agreement is essentially “a landlord/tenant lease” which applies only to “disputes arising out of this agreement.” – which, according to Fuentes, does not apply to Herzfeld’s wage-and-hour claims which “negates any employment relationship.”

“Of course, an individual does not forfeit her rights as an employee under the FLSA simply by signing a cleverly drawn-up contract, but this language does support the conclusion that Herzfeld’s wage-and-hour claims exist outside the confines of the Stage Rental/License Agreement, and, consequently, are not subject to its arbitration clause,” Fuentes said. “Having thus concluded that the arbitration clause does not apply to Herzfeld’s employment based claims, the Court need not address any of the other questions presented.”

“In an effort to limit its liabilities under labor-employment laws by designating its contracts with the exotic dancers as landlord/tenant leases, the Gold Club has likewise limited the scope of its arbitration clauses. The FLSA and its state counterparts cannot be so easily circumvented. The rights embodied in the FLSA – “minimum wages and maximum work hours” – are absolute and unwaivable,” Fuentes stated. “Because we find that Herzfeld’s claims are statutory and do not arise out of either lease, we will affirm.”

The plaintiff is represented by Edwin J. Kilpela, Gary F. Lynch and Jamisen A. Etzel of Carlson Lynch Sweet Kilpela & Carpenter, in Pittsburgh.

The defendants are represented by Bradley J. Shafer and Matthew J. Hoffer of Shafer & Associates in Lansing, Mich. and Pasquale J. Colavita, in Philadelphia.

U.S. Court of Appeals for the Third Circuit case 15-2835

U.S. District Court for the Eastern District of Pennsylvania 2:14-cv-04966

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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