Filed: Jun. 08, 2016
Latest Update: Mar. 02, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1583 LAURA MCFEELEY, On Behalf of Herself and All Others Similarly situated, a/k/a Dynasty; DANIELLE EVERETT, a/k/a Jasmine; CRYSTAL NELSON; DANNIELLE ARLEAN MCKAY; JENNY GARCIA; PATRICE HOWELL, Plaintiffs - Appellees, and EBONY WASHINGTON; FERRIS PACE; SHANIEKA DANIELS; SCHARLENE ALUGBUO; NICOLE PRECIOUS GRAY; TARSHEA JACKSON; CLEMENTINA IBE, as personal representative of the Estate of Scharlene Alugbuo, Plaintiffs, v. JACKS
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-1583 LAURA MCFEELEY, On Behalf of Herself and All Others Similarly situated, a/k/a Dynasty; DANIELLE EVERETT, a/k/a Jasmine; CRYSTAL NELSON; DANNIELLE ARLEAN MCKAY; JENNY GARCIA; PATRICE HOWELL, Plaintiffs - Appellees, and EBONY WASHINGTON; FERRIS PACE; SHANIEKA DANIELS; SCHARLENE ALUGBUO; NICOLE PRECIOUS GRAY; TARSHEA JACKSON; CLEMENTINA IBE, as personal representative of the Estate of Scharlene Alugbuo, Plaintiffs, v. JACKSO..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1583
LAURA MCFEELEY, On Behalf of Herself and All Others
Similarly situated, a/k/a Dynasty; DANIELLE EVERETT, a/k/a
Jasmine; CRYSTAL NELSON; DANNIELLE ARLEAN MCKAY; JENNY
GARCIA; PATRICE HOWELL,
Plaintiffs − Appellees,
and
EBONY WASHINGTON; FERRIS PACE; SHANIEKA DANIELS; SCHARLENE
ALUGBUO; NICOLE PRECIOUS GRAY; TARSHEA JACKSON; CLEMENTINA
IBE, as personal representative of the Estate of Scharlene
Alugbuo,
Plaintiffs,
v.
JACKSON STREET ENTERTAINMENT, LLC, d/b/a Fuego Exotic Dance
Club, d/b/a Club Extasy Exotic Dance Club; RISQUE, LLC,
d/b/a Fuego Exotic Dance Club; QUANTUM ENTERTAINMENT GROUP,
LLC, d/b/a Fuego Exotic Dance Club; NICO ENTEPRISES, INC.,
d/b/a Fuego Exotic Dance Club; XTC ENTERTAINMENT GROUP, LLC,
d/b/a Fuego Exotic Dance Club; UWA OFFIAH,
Defendants − Appellants.
---------------------------------------
SECRETARY OF LABOR,
Amicus Supporting Appellees.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Deborah K. Chasanow, Senior District
Judge. (8:12-cv-01019-DKC)
Argued: May 11, 2016 Decided: June 8, 2016
Before WILKINSON, GREGORY, and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the
opinion, in which Judge Gregory and Judge Diaz joined.
ARGUED: Michael Lloyd Smith, SMITH GRAHAM & CRUMP, LLC, Largo,
Maryland, for Appellants. Gregg Cohen Greenberg, ZIPIN, AMSTER
& GREENBERG, LLC, Silver Spring, Maryland, for Appellees.
Katelyn Jean Poe, UNITED STATES DEPARTMENT OF LABOR, Washington,
D.C., for Amicus Curiae. ON BRIEF: Michael K. Amster, ZIPIN,
AMSTER & GREENBERG, LLC, Silver Spring, Maryland, for Appellees.
M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand,
Associate Solicitor, Paul L. Frieden, Counsel for Appellate
Litigation, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C.,
for Amicus Curiae.
2
WILKINSON, Circuit Judge:
In this case, exotic dancers have sued their dance clubs
for failure to comply with the Fair Labor Standards Act and
corresponding Maryland wage and hour laws. The district court
held that plaintiffs were employees of the defendant companies
and not independent contractors. The court properly captured the
economic reality of the relationship here, and we now affirm its
judgment.
I.
Plaintiffs, as noted, are exotic dancers who worked at
Fuego Exotic Dance Club (Fuego) and Extasy Exotic Dance Club
(Extasy) in Prince George’s County, Maryland for various periods
between April 2009 and April 2012. Defendant Uwa Offiah owns and
manages both Fuego and Extasy. No other party has a financial
interest in them.
Plaintiffs alleged on behalf of themselves and others
similarly situated that defendant clubs and Offiah had
misclassified them as independent contractors rather than as
club employees and accordingly had failed to pay them the
minimum wage required by the Fair Labor Standards Act (FLSA), 29
U.S.C. § 201, et seq., the Maryland Wage and Hour Law (MHWL),
Md. Code Ann., Lab. & Empl. § 3-401, et seq. (West 2014), and
the Maryland Wage Payment and Wage Collection Law (MWPWC), Md.
Code Ann., Lab. & Empl. § 3-501, et seq. (West 2014). They sued
3
defendants both for unpaid wages and liquidated damages. The
clubs denied that plaintiffs were employees at any point of
their working relationship and raised counterclaims, all of
which were unsuccessful, for breach of contract, unjust
enrichment, conversion, and fraud.
We shall summarize at the outset the working relationship
between the dancers and the clubs. Anyone wishing to dance at
either club was required to fill out a form and perform an
audition. Defendants asked all hired dancers to sign agreements
titled “Space/Lease Rental Agreement of Business Space” that
explicitly categorized dancers as independent contractors. The
clubs began using these agreements after being sued in 2011 by
dancers who claimed, as plaintiffs do here, to have been
employees rather than independent contractors. Defendant Offiah
thereafter consulted an attorney, who drafted the agreement
containing the “independent contractor” language.
Plaintiffs’ duties at Fuego and Extasy primarily involved
dancing on stage and in certain other areas of the two clubs. At
no point did the clubs pay the dancers an hourly wage or any
other form of compensation. Rather, plaintiffs’ compensation was
limited to performance fees and tips received directly from
patrons. The clubs also collected a “tip-in” fee from everyone
who entered either dance club, patrons and dancers alike. The
4
dancers and clubs dispute other aspects of their working
relationship, including work schedules and policies.
On January 3, 2014, plaintiffs filed a motion for partial
summary judgment, and defendants countered with a cross-motion
for summary judgment. The district court granted plaintiffs’
motion in part, finding that plaintiffs were employees and not
independent contractors under both federal and state law. In
drawing that conclusion, the district court applied the six-
factor “economic realities” test for classifying employees and
independent contractors. The court placed special emphasis on
“the degree of control that the putative employer has over the
manner in which the work is performed,” Schultz v. Capital Int’l
Sec., Inc., 466 F.3d 298, 304-05 (4th Cir. 2006), observing that
defendants “exercised significant control over the atmosphere,
clientele, and operations of the clubs.” J.A. 996-97.
The court reserved various disputes over monetary recovery
for the jury. Prior to trial, plaintiffs filed a motion in
limine seeking to prohibit defendants from asking plaintiffs
about their income tax records, performance fees, and tips.
After conducting a hearing, the court granted the motion.
The case was tried before a jury from February 3 to 5,
2015. The trial court rejected the clubs’ objections to the jury
instructions and the verdict sheet. The jury found in favor of
plaintiffs and awarded them damages for unpaid wages.
5
Separately, the district court heard testimony on the issue of
liquidated damages and defendants’ proffered good-faith defense.
The court found that defendants had consulted an attorney in
September 2011 regarding classifying dancers as independent
contractors and thereafter reasonably believed that they were
not violating the FLSA. The court awarded liquidated damages to
each of the plaintiffs only for the period prior to September
2011. Defendants filed a motion for judgment as a matter of law
and/or for a new trial. Both motions were denied on May 5, 2015.
This appeal followed.
II.
Appellants seek review as to five questions: (1) whether
plaintiffs were employees or independent contractors under the
FLSA and related state laws; (2) whether defendants acted in
good faith prior to September 2011 and were therefore not liable
to pay liquidated damages for that time period; (3) whether the
district court erred in barring defendants from presenting
evidence related to plaintiffs’ income taxes, performance fees,
and tips; (4) whether the district court erred in formulating
its jury instructions and verdict sheet; and (5) whether the
trial court erred in denying defendants’ motion for judgment as
a matter of law and/or for a new trial. We shall address these
issues seriatim.
6
A.
Whether a worker is an employee or an independent
contractor under the FLSA is ultimately a legal question subject
to de novo review. Schultz, 466 F.3d at 304. We agree with the
district court that, based on the totality of the circumstances
presented here, the dancers at Fuego and Extasy were employees
covered by the FLSA and analogous state laws. They were not
independent contractors. Because plaintiffs’ claims under
Maryland labor laws run parallel to their claims under the FLSA,
our analysis of federal law extends as well to the state law
claims.
Congress enacted the FLSA to protect “the rights of those
who toil, of those who sacrifice a full measure of their freedom
and talents to the use and profit of others.” Benshoff v. City
of Va. Beach, 180 F.3d 136, 140 (4th Cir. 1999) (quoting Tenn.
Coal, Iron & R.R. Co. v. Muscoda Local No. 123,
321 U.S. 590,
597 (1944)). In keeping with those “remedial and humanitarian”
goals,
id. (quoting Tenn. Coal, Iron & R.R.
Co., 321 U.S. at
597), Congress applied the FLSA broadly, as reflected in the
Act’s definitions of “employee” (“any individual employed by an
employer”), “employer” (“any person acting directly or
indirectly in the interest of an employer in relation to an
employee”), and “employ” (“to suffer or permit to work”). 29
U.S.C. §§ 203(d), (e)(1), & (g). The statute mandates a minimum
7
wage and overtime pay for all covered employees. Id. §§ 206 &
207.
To determine whether a worker is an employee under the
FLSA, courts look to the “‘economic realities’ of the
relationship between the worker and the putative employer.”
Schultz, 466 F.3d at 304. The touchstone of the “economic
realities” test is whether the worker is “economically dependent
on the business to which he renders service or is, as a matter
of economic [reality], in business for himself.”
Id. Application
of the test turns on six factors:
(1) [T]he degree of control that the putative employer has
over the manner in which the work is performed;
(2) the worker’s opportunities for profit or loss
dependent on his managerial skill;
(3) the worker’s investment in equipment or material, or
his employment of other workers;
(4) the degree of skill required for the work;
(5) the permanence of the working relationship; and
(6) the degree to which the services rendered are an
integral part of the putative employer's business.
Id. at 304-05. “No single factor is dispositive,”
id. at 305 –-
all six are part of the totality of circumstances presented. See
Baystate Alternative Staffing, Inc. v. Herman,
163 F.3d 668, 675
(1st Cir. 1998). While a six-factor test may lack the virtue of
providing definitive guidance to those affected, it allows for
flexible application to the myriad different working
relationships that exist in the national economy. In other
words, the court must adapt its analysis to the particular
8
working relationship, the particular workplace, and the
particular industry in each FLSA case.
B.
Here, as in so many FLSA disputes, plaintiffs and
defendants offer competing narratives of their working
relationship. The exotic dancers claim that all aspects of their
work at Fuego and Extasy were closely regulated by defendants,
from their hours to their earnings to their workplace conduct.
The clubs, not surprisingly, portray the dancers as free agents
that came and went as they pleased and used the clubs as nothing
but a rented space in which to perform. The dueling depictions
serve to remind us that the employee/independent contractor
distinction is not a bright line but a spectrum, and that courts
must struggle with matters of degree rather than issue
categorical pronouncements.
Based on the totality of the circumstances presented here,
the relationship between plaintiffs and defendants falls on the
employee side of the spectrum. Even given that we must view the
facts in the light most favorable to defendants, see Ctr. for
Individual Freedom, Inc. v. Tennant, 706 F.3d 270, 279 (4th Cir.
2013), we cannot accept defendants’ contrary characterization,
which cherry-picks a few facts that supposedly tilt in their
favor and downplays the weightier and more numerous factors
indicative of an employment relationship. Most critical on the
9
facts of this case is the first factor of the “economic
realities” test: the degree of control that the putative
employer has over the manner in which the work is performed.
The clubs insist they had very little control over the
dancers. Plaintiffs were allegedly free in the clubs’ view to
determine their own work schedules, how and when they performed,
and whether they danced at clubs other than Fuego and Extasy.
But the relaxed working relationship represented by defendants –
- the kind that perhaps every worker dreams about -- finds
little support in the record. To the contrary, plaintiffs
described and the district court found the following plain
manifestations of defendants’ control over the dancers:
• Dancers were required to sign in upon arriving at the club
and to pay the “tip-in” or entrance fee required of both
dancers and patrons.
• The clubs dictated each dancer’s work schedule. As
plaintiff Danielle Everett testified, “I ended up having a
set schedule once I started at Fuego’s. Tuesdays and
Thursdays there, and Mondays, Wednesdays, Fridays, and
Saturdays at Extasy.” J.A. 578 (Everett’s deposition). This
was typical of the deposition testimony submitted in the
summary judgment record.
• The clubs imposed written guidelines that all dancers had
to obey during working hours. J.A. 769-77 (clubs’
10
rulebook). These rules went into considerable detail,
banning drinking while working, smoking in the clubs’
bathroom, and loitering in the parking lot after business
hours. They prohibited dancers from leaving the club and
returning later in the night. Dancers were required to wear
dance shoes at all times and could not bring family or
friends to the clubs during working hours. Violations of
the clubs’ guidelines carried penalties such as suspension
or dismissal. Although the defendants claimed not to
enforce the rules, as the district court put it, “[a]n
employer’s ‘potential power’ to enforce its rules and
manage dancers’ conduct is a form of control.” J.A. 997
(quoting Hart v. Rick’s Cabaret Int’l, Inc., 967 F. Supp. 2d
901, 918 (S.D.N.Y. 2013)).
• The clubs set the fees that dancers were supposed to charge
patrons for private dances and dictated how tips and fees
were handled. The guidelines explicitly state: “[D]o not
[overcharge] our customers. If you do, you will be kicked
out of the club.” J.A. 771.
• Defendants personally instructed dancers on their behavior
and conduct at work. For example, one manager stated that
he “‘coached’ dancers whom he believed did not have the
right attitude or were not behaving properly.” J.A. 997.
11
• Defendants managed the clubs’ atmosphere and clientele by
making all decisions regarding advertising, hours of
operation, and the types of food and beverages sold, as
well as handling lighting and music for the dancers. Id.
Taking the above circumstances into account, the district
court found that the clubs’ “significant control” over how
plaintiffs performed their work bore little resemblance to the
latitude normally afforded to independent contractors. J.A. 997.
We agree. The many ways in which defendants directed the dancers
rose to the level of control that an employer would typically
exercise over an employee. To conclude otherwise would unduly
downgrade the factor of employer control and exclude workers
that the FLSA was designed to embrace.
None of this is to suggest that a worker automatically
becomes an employee covered by the FLSA the moment a company
exercises any control over him. After all, a company that
engages an independent contractor seeks to exert some control,
whether expressed orally or in writing, over the performance of
the contractor’s duties and over his conduct on the company’s
premises. It is rather hard to imagine a party contracting for
needed services with an insouciant “Do whatever you want,
wherever you want, and however you please.” A company that
leases space or otherwise invites independent contractors onto
its property might at a minimum wish to prohibit smoking and
12
littering or to set the hours of use in order to keep the
premises in good shape. Such conditions, along with the terms of
performance and compensation, are part and parcel of bargaining
between parties whose independent contractual status is not in
dispute.
If any sign of control or any restriction on use of space
could convert an independent contractor into an employee, there
would soon be nothing left of the former category. Workers and
managers alike might sorely miss the flexibility and freedom
that independent-contractor status confers. But the degree of
control the clubs exercised here over all aspects of the
individual dancers’ work and of the clubs’ operation argues in
favor of an employment relationship. Each of the other five
factors of the “economic realities” test is either neutral or
leads us in the same direction.
Two of those factors relate logically to one other: “the
worker’s opportunities for profit or loss dependent on his
managerial skill” and “the worker’s investment in equipment or
material, or his employment of other workers.” Schultz, 466 F.3d
at 305. The relevance of these two factors is intuitive. The
more the worker’s earnings depend on his own managerial capacity
rather than the company’s, and the more he is personally
invested in the capital and labor of the enterprise, the less
the worker is “economically dependent on the business” and the
13
more he is “in business for himself” and hence an independent
contractor. Id. at 304 (quoting Henderson v. Inter-Chem Coal
Co., Inc.,
41 F.3d 567, 570 (10th Cir. 1994)).
The clubs attempt to capitalize on these two factors by
highlighting that dancers relied on their own skill and ability
to attract clients. They further contend that dancers sold
tickets for entrance to the two clubs, distributed promotional
flyers, and put their own photos on the flyers. As the district
court noted, however, “[t]his argument -- that dancers can
‘hustle’ to increase their profits -- has been almost
universally rejected.” J.A. 999 (collecting cases). It is
natural for an employee to do his part in drumming up business
for his employer, especially if the employee’s earnings depend
on it. An obvious example might be a salesperson in a retail
store who works hard at drawing foot traffic into the store. The
skill that the employee exercises in that context is not
managerial but simply good salesmanship.
Here, the lion’s share of the managerial skill and
investment normally expected of employers came from the
defendants. The district court found that the clubs’ managers
“controlled the stream of clientele that appeared at the clubs
by setting the clubs’ hours, coordinating and paying for all
advertising, and managing the atmosphere within the clubs.” J.A.
1001. They “ultimately controlled a key determinant –- pricing -
14
– affecting [p]laintiffs’ ability to make a profit.” Id. In
terms of investment, defendants paid “rent for both clubs; the
clubs’ bills such as water and electric; business liability
insurance; and for radio and print advertising,” as well as
wages for all non-performing staff.
Id. at 1002. The dancers’
investment was limited to their own apparel and, on occasion,
food and decorations they brought to the clubs.
Id. at 1002-03.
On balance then, plaintiffs’ opportunities for profit or
loss depended far more on defendants’ management and decision-
making than on their own, and defendants’ investment in the
clubs’ operation far exceeded the plaintiffs’. These two factors
thus fail to tip the scales in favor of classifying the dancers
as independent contractors.
As with the control factor, however, neither of these two
elements should be overstated. Those who engage independent
contractors are often themselves companies or small businesses
with employees of their own. Therefore, they have most likely
invested in the labor and capital necessary to operate the
business, taken on overhead costs, and exercised their
managerial skill in ways that affect the opportunities for
profit of their workers. Those fundamental components of running
a company, however, hardly render anyone with whom the company
transacts business an “employee” under the FLSA. The focus, as
suggested by the wording of these two factors, should remain on
15
the worker’s contribution to managerial decision-making and
investment relative to the company’s. In this case, the ratio of
managerial skill and operational support tilts too heavily
towards the clubs to support an independent-contractor
classification for the dancers.
The final three factors are more peripheral to the dispute
here and will be discussed only briefly: the degree of skill
required for the work; the permanence of the working
relationship; and the degree to which the services rendered are
an integral part of the putative employer’s business. As to the
degree of skill required, the clubs conceded that they did not
require dancers to have prior dancing experience. The district
court properly found that “the minimal degree of skill required
for exotic dancing at these clubs” supported an employee
classification. J.A. 1003-04. Moreover, even the skill displayed
by the most accomplished dancers in a ballet company would
hardly by itself be sufficient to denote an independent
contractor designation.
As to the permanence of the working relationship, courts
have generally accorded this factor little weight in challenges
brought by exotic dancers given the inherently “itinerant”
nature of their work. J.A. 1004-05; see also Harrell v. Diamond
A Entm’t, Inc., 992 F. Supp. 1343, 1352 (M.D. Fla. 1997). In this
case, defendants and plaintiffs had “an at-will arrangement that
16
could be terminated by either party at any time.” J.A. 1005.
Because this type of agreement could characterize either an
employee or an independent contractor depending on the other
circumstances of the working relationship, we agree with the
district court that this temporal element does not affect the
outcome here.
Finally, as to the importance of the services rendered to
the company’s business, even the clubs had to concede the point
that an “exotic dance club could [not] function, much less be
profitable, without exotic dancers.” Secretary of Labor’s Amicus
Br. in Supp. of Appellees 24. Indeed, “the exotic dancers were
the only source of entertainment for customers . . . .
especially considering that neither club served alcohol or
food.” J.A. 1006. Considering all six factors together,
particularly the defendants’ high degree of control over the
dancers, the totality of circumstances speak clearly to an
employer-employee relationship between plaintiffs and
defendants. The trial court was right to term it such.
III.
A.
Based on their view that they were employees and not
independent contractors, the dancers sued defendants for unpaid
wages and liquidated damages. The clubs tried to avoid liability
in two ways. First, they raised a good faith defense to shield
17
themselves from liquidated damages. Second, they characterized
performance fees and tips that patrons paid to dancers as
offsets to any compensation the clubs were obligated to pay.
Other than the good faith and offset defenses, the amount of
monetary relief awarded to each plaintiff is not in dispute.
We review the district court’s award of liquidated damages
for abuse of discretion. Perez v. Mountaire Farms, Inc., 650
F.3d 350, 375 (4th Cir. 2011). The FLSA allows covered employees
to sue for “their unpaid minimum wages, or their unpaid overtime
compensation, as the case may be, and in an additional equal
amount as liquidated damages.” 29 U.S.C. § 216(b). This
provision for liquidated damages is an additional penalty on
non-compliant employers. If an employer were instead liable for
only unpaid wages and overtime pay, it might roll the dice by
underpaying employees, reasoning all the while it would be no
worse off even if the employees eventually prevailed in court.
As a potential defense to liquidated damages, however,
employers may seek to show that they acted in “good faith” and
“had reasonable grounds for believing that [their] act or
omission was not a violation of the [FLSA].” 29 U.S.C. § 260.
Here, the district court held that defendants had a valid good
faith defense after September 2011 but not prior to that date.
In September 2011, Offiah, the owner of Fuego and Extasy,
consulted an attorney in response to a lawsuit by dancers
18
claiming to be employees rather than independent contractors.
The attorney advised Offiah to require all dancers to sign
agreements designating themselves independent contractors and
acknowledging the reasons therefor. The district court found
Offiah’s reliance on the attorney’s advice from that point
onward to constitute good faith and reasonable belief of
compliance with the FLSA.
Defendants now claim the good faith defense for the period
prior to September 2011. When defendant Offiah took over
management of the Fuego and Extasy dance clubs in 2007 and 2009,
respectively, he changed nothing about the way they had been
operated. Since the dancers had always been classified as
independent contractors, Offiah assumed that classification was
appropriate. He made no effort to look into the law or seek
legal advice until he faced a lawsuit in September 2011. If mere
assumption amounted to good faith and reasonable belief of
compliance, no employer would have any incentive to educate
itself and proactively conform to governing labor law. The
district court did not err in rejecting defendants’ good faith
defense for the period prior to September 2011 and awarding
plaintiffs liquidated damages for that period.
B.
Appellants’ second attack on their liability for damages
targets the district court’s alleged error in excluding from
19
trial evidence regarding plaintiffs’ income tax returns,
performance fees, and tips. The clubs contend that fees and tips
kept by the dancers would have reduced any compensation that
defendants owed plaintiffs under the FLSA and MWHL. According to
defendants, the fees and tips dancers received directly from
patrons exceeded the minimum wage mandated by federal and state
law. Had the evidence been admitted, the argument goes, the jury
may have awarded plaintiffs less in unpaid wages.
We disagree. The district court found that evidence related
to plaintiffs’ earnings was irrelevant or, if relevant, posed a
danger of confusing the issues and misleading the jury. See Fed.
R. Evid. 403. Proof of tips and fees received was irrelevant
here because the FLSA precludes defendants from using tips or
fees to offset the minimum wage they were required to pay
plaintiffs. To be eligible for the “tip credit” under the FLSA
and corresponding Maryland law, defendants were required to pay
dancers the minimum wage set for those receiving tip income and
to notify employees of the “tip credit” provision. 29 U.S.C.
203(m); Md. Code Ann., Lab. & Empl. § 3-419 (West 2014). The
clubs paid the dancers no compensation of any kind and afforded
them no notice. They cannot therefore claim the “tip credit.”
The clubs are likewise ineligible to use performance fees
paid by patrons to the dancers to reduce their liability.
Appellants appear to distinguish performance fees from tips in
20
their argument, without providing much analysis in their briefs
on a question that has occupied other courts. See, e.g., Hart,
967 F. Supp. 2d at 926-34 (discussing how performance fees
received by exotic dancers relate to minimum wage obligations).
If performance fees do constitute tips, defendants would
certainly be entitled to no offset because, as noted above, they
cannot claim any “tip credit.” For the sake of argument,
however, we treat performance fees as a possible separate offset
within the FLSA’s “service charge” category. Even with this
benefit of the doubt, defendants come up short.
For purposes of the FLSA, a “service charge” is a
“compulsory charge for service . . . imposed on a customer by an
employer’s establishment.” 29 C.F.R. § 531.55(a). There are at
least two prerequisites to counting “service charges” as an
offset to an employer’s minimum-wage liability. The service
charge “must have been included in the establishment’s gross
receipts,” Hart, 967 F. Supp. 2d at 929, and it must have been
“distributed by the employer to its employees,” 29 C.F.R. §
531.55(b). These requirements are necessary to ensure that
employees actually received the service charges as part of their
compensation as opposed to relying on the employer’s assertion
or say-so. See
Hart, 967 F. Supp. 2d at 930. We do not minimize
the recordkeeping burdens of the FLSA, especially on small
21
businesses, but some such obligations have been regarded as
necessary to ensure compliance with the statute.
Neither condition for applying the service-charge offset is
met here. As conceded by defendant Offiah, the dance clubs never
recorded or included as part of the dance clubs’ gross receipts
any payments that patrons paid directly to dancers. J.A. 491-97
(Offiah’s deposition). When asked about performance fees during
his deposition, defendant Offiah repeatedly stressed that fees
belong solely to the dancers. Id. Since none of those payments
ever went to the clubs’ proprietors, defendants also could not
have distributed any part of those service charges to the
dancers. As a result, the “service charge” offset is unavailable
to defendants. Accordingly, the trial court correctly excluded
evidence showing plaintiffs’ earnings in the form of tips and
performance fees.
C.
The clubs object next to the jury instructions and verdict
sheet used during trial. They argue that the trial court should
have instructed the jury on the purpose of the FLSA as they
requested and should have given the jury a more detailed verdict
form. In denying both requests, the district court acted well
within its discretion. The jury instructions given included the
relevant components of the FLSA and corresponding Maryland laws.
The verdict form used informed the jury of how to calculate the
22
unpaid wage damages owed to plaintiffs. A general statement of
the FLSA’s purpose or more detail in the verdict form would not
have aided the jury in reaching a sounder outcome.
Finally, the clubs fault the district court for failing to
grant their motion for judgment as a matter of law and/or for a
new trial. A new trial is appropriate if the verdict is “against
the clear weight of the evidence” or “is based on evidence which
is false” or “will result in a miscarriage of justice.” Buckley
v. Mukasey, 538 F.3d 306, 317 (4th Cir. 2008). Here, the sole
basis for appellants’ demand for a new trial is the district
court’s alleged skepticism about certain plaintiffs’ testimony
regarding dates and hours worked. Mere challenges to witness
credibility on appeal, however, fall well short of the standard
for granting a new trial. Moreover, the district court found
that “[n]either party has provided financial records,” and so
the best evidence available came from plaintiffs’ own
recollection, which the jury duly considered along with
defendants’ objections to its accuracy. J.A. 1018-19. It would
impede the goals of the FLSA to penalize employees for their
employers’ inadequate recordkeeping. In short, we find no
grounds for reversal in the clubs’ quibbles with the jury
instructions, the verdict sheet, or the denial of its new trial
motion.
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IV.
We must be mindful in the end that we are applying a
statute which Congress thought was necessary to provide “fair
labor standards” for employees, including those marginalized
workers unable to exert sufficient leverage or bargaining power
to achieve adequate wages in the absence of statutory
protections. To rule for the clubs under the circumstances here
would run too great a risk of undercutting the Act’s basic aim.
Accordingly, and for the reasons given above, the judgment of
the district court is
AFFIRMED.
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