Has anyone thought of Germany?
In brothels here the prostitutes usually rent a room and pay rent to the owner. That means no problems with so many employees and they take care of their own healthcare.
As such they are self-employed and just rent their workshop from a brothel owner.
Also don't forget demand, your average consumer may well be willing to pay a little more to go to a legal establishment because that way his own risks are far lower and he doesn't become a criminal himself.
You still get the underground scene most likely but it's reduced because the legal business gobbles up a large chunk of the demand.
Better to improve it for some than for noone?!