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Reich v. Circle C. Investments Inc.

decided as corrected: August 24, 1993.

ROBERT B. REICH, SECRETARY OF LABOR, UNITED STATES DEPT. OF LABOR, PLAINTIFF-APPELLANT, CROSS-APPELLEE,
v.
CIRCLE C. INVESTMENTS, INC., D/B/A LIPSTICK, D/B/A CRAZY HORSE SALOON, ET AL., DEFENDANTS-APPELLEES, CROSS-APPELLANTS.



Appeals from the United States District Court for the Western District of Texas. D.C. DOCKET NUMBER MO-91-CA-043. JUDGE lucius D. Bunton, III

Before Reavley and Garwood, Circuit Judges, and Lake*fn1, District Judge.

Author: Reavley

REAVLEY, Circuit Judge:

The Secretary of Labor (Secretary) brought this action pursuant to §§ of the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, to enjoin Circle C Investments, Inc. (Circle C), Beatrice Cranford, and Charles Cranford (collectively defendants) from violating the minimum wage, overtime, and record-keeping provisions of the FLSA and to restrain them from continuing to withhold back wages. The defendants suffered judgment and contend on appeal that the topless dancers at the nightclubs owned by Circle C are not "employees" covered by the FLSA. We hold that they are.

I. BACKGROUND

Since October 1988, Circle C has operated the Crazy Horse Saloon, a nightclub featuring topless dancers. From 1988 to 1990, it also operated a similar nightclub, Lipstick. The Secretary alleges that, since October 1988, Circle C has improperly compensated its dancers, waitresses, disc jockeys, bartenders, doormen, and "house mothers" and has failed to keep accurate records of the hours worked by its employees. In addition to Circle C, the Secretary's complaint names Beatrice and Charles Cranford as defendants. Beatrice Cranford was the original owner of Circle C and served as its president from 1987 to 1991, but she had a minor role in the affairs of the corporation. The district court found Charles Cranford, Beatrice's husband, to be "the driving force behind ... Circle C."

Following a bench trial, the district court determined that the topless dancers and the other workers are "employees" within the meaning of the FLSA and that the defendants willfully violated the minimum wage, overtime, and record-keeping provisions of the FLSA. The district court enjoined the defendants from further violating the FLSA and restrained them from withholding $539,630 of back wages. Both sides appeal.

On appeal, the defendants contend that (1) the dancers are not employees within the meaning of the FLSA, (2) the district court erred in holding Beatrice and Charles Cranford personally responsible for Circle C's wage and hour compliance, and (3) the district court erred in admitting testimony of witnesses whom the Secretary did not identify before trial. The Secretary cross-appeals, contending that (1) the district court erroneously failed to award prejudgment interest and (2) the district court's calculation of back wages fails to account for amounts paid by employees for costumes, uniforms, "tip-outs," and fines.

II. ANALYSIS

A. Employee Status of Topless Dancers

The dancers receive no compensation from Circle C. Their compensation is derived solely from tips they receive from customers for performing on stage and performing private "table dances" and "couch dances." At the end of each night, the dancers must pay Circle C a "tip-out," which at the time of trial was set at $20. The dancers are required to pay the "tip-out" regardless of how much they make in tips. The defendants characterize this "tip-out" as stage rental and argue that the dancers are merely "tenants." According to the defendants, the dancers are neither employees nor independent contractors, but are businesswomen renting space, stages, music, dressing rooms, and lights from Circle C.

To determine employee status under the FLSA, we focus on whether the alleged employee, as a matter of economic reality, is economically dependent upon the business to which she renders her services. Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1043, 1054 (5th Cir.), cert. denied, 484 U.S. 924, 108 S. Ct. 286, 98 L. Ed. 2d 246 (1987). Stated in other words, our focal inquiry in determining employee status is whether the individual is, as a matter of economic reality, in business for herself. Donovan v. Tehco, 642 F.2d 141, 143 (5th Cir.1981). To gauge the degree of the worker's dependency, we consider five factors:

(1) the degree of control exercised by the alleged employer;

(2) the extent of the relative investments of the worker and alleged employer;

(3) the degree to which the worker's opportunity for profit and loss is determined ...


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