Question: Reich v. Circle C Investments, Inc. 998 F.2d 324 (5th Cir. 1993)

The court analyzes whether topless nightclub dancers who received no compensation except tips from customers are employees subject to FLSA or "business women renting space, stages, music, dressing rooms and lights from the club," not subject to the law. The court determined that they were, in fact, employees for FLSA purposes.

Reavley , J.

The secretary of labor alleges that a topless nightclub has improperly compensated its dancers, waitresses, disc jockeys, bartenders, doormen, and "housemothers," and has failed to keep accurate records of the hours worked by its employees. The district court determined that the topless dancers and other workers are "employees" under the FLSA and that the club willfully violated its minimum wage, overtime and record-keeping provisions. The dancers receive no compensation from the club. Their compensation is derived solely from the 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 the club a $20 "tip-out," regardless of how much they make in tips. The club characterizes this tip-out as stage rental and argues that the dancers are really tenants.

According to the club, the dancers are neither employees nor independent contractors, but are business women renting space, stages, music, dressing rooms, and lights from the club. 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, or in business for herself. To make this determination, we must analyze five factors. The first factor is the degree of control exercised by the alleged employer. The district court found that the club exercises a great deal of control over the dancers. Case1 They are required to comply with weekly work schedules, which the club compiles with input from the dancers. The club fines the dancers for absences or tardiness. It instructs the dancers to charge at least $10 for table dances and $20 for couch dances.

The dancers supply their own costumes, but the costumes must meet standards set by the club. The dancers can express a preference for a certain type of music, but they do not have the final say in the matter. The club has many other rules concerning the dancers' behavior; for example, no flat heels, no more than 15 minutes at one time in the dressing room, only one dancer in the restroom at a time, and all dancers must be "on the floor" at opening time. The club enforces these rules by fining infringers. The club attempts to de-emphasize its control by arguing that most of the rules are directed at maintaining decorum or keeping the club itself legal. The club explained that it publishes the minimum charge for table and couch dances at the request of the dancers to prevent dancers from undercutting each others' prices. Finally, it stresses the fact that it does not control the dancers' routines. We believe, however, that the record fully supports the district court's findings of significant control.

The second factor is the extent of relative investments of the worker and alleged employer. The district court found that a dancer's investment is limited to her costumes and a padlock. The amount spent on costumes varies from dancer to dancer and can be significant. The club contends that we should also consider as an investment each dancer's nightly tip-out, which it characterizes as rent. The district court rejected this argument, and so do we. It is the economic realities that control our determination of employee status. Third, we must look at the degree to which the workers' opportunity for profit and loss is determined by the alleged employer. Once customers arrive at the club, a dancer's initiative, hustle and costume significantly contribute to the amount of her tips. But the club has a significant role in drawing customers. Given its control over determinants of customer volume, the club exercises a high degree of control over a dancer's opportunity for "profit." Dancers are far more closely akin to wage earners toiling for a living than to independent entrepreneurs seeking a return on their risky capital investments.

The fourth factor is the skill and initiative required in performing the job. Many of the dancers did not have any prior experience with topless dancing before coming to work at the club. They do not need long training or highly developed skills to dance at the club. A dancer's initiative is essentially limited to decisions involving costumes and dance routines. This does not exhibit the skill or initiative indicative of persons in business for themselves. Finally, we must analyze the permanency of the relationship. The district court found that most dancers have short-term relationships with the club. Although not determinative, the impermanent relationship between the dancers and the club indicates non-employee status. Despite the lack of permanency, on balance, the five factors favor a determination of employee status. A dancer has no specialized skills and her only real investment is in her costumes. The club exercises significant control over a dancer's behavior and the opportunity for profit. The transient nature of the workforce is not enough here to remove the dancers from the protections of the FLSA. AFFIRMED.

1. Does any of the case surprise you? Explain.

2. If you were the club owner and did not want the dancers to be employees, after receiving this decision, how would you change things?

3. Do you think the dancers should have been considered employees? Why or why not?