Reich v. Circle C Investments, Inc.

Circle C Investments, Inc. (Circle C) (defendant) operated two nightclubs, the Crazy Horse Saloon and Lipstick. Robert Reich (plaintiff), the United States secretary of labor, filed a complaint against Circle C, alleging that Circle C did not pay its workers adequately under the Fair Labor Standards Act (FLSA). The workers included topless dancers along with servers, bartenders, and similar employees. Reich also named Circle C’s original owner, Beatrice Cranford, and her husband, Charles Cranford (defendants), in the complaint. A district judge noted that the dancers were not paid by Circle C and only earned tips. The dancers were required to pay Circle C a tip-out in the amount of $20 at the end of each shift, which Circle C characterized as rent. The judge found that Circle C had substantial control over the workers through its various rules and had the greater investment, as the dancers’ only investment was related to the cost of costumes and a padlock. Circle C had the greater investment in the operation of the nightclubs, such as in maintaining inventory and advertising costs to draw customers, and control over the profit that dancers had the opportunity to make. The judge noted that the dancers did not have specialized skills, and they typically did not work for either nightclub for long. After a bench trial, a district court judge found that the topless dancers and Circle C’s other workers were employees and that Circle C had violated the FLSA by not paying minimum wage or overtime as required and by failing to keep proper records. The judge also prevented the continued withholding of payment of back wages in the amount of $539,630. Circle C appealed, and Reich appealed regarding the calculation of certain amounts. On appeal, Circle C argued that the topless dancers were not employees but were, in fact, tenants. Circle C argued that the dancers were businesswomen who were renting the stage, dressing rooms, and the like from Circle C.