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United States Court of Appeals,
Fifth Circuit.
No. 92-8318.
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.
Aug. 24, 1993.
Appeals from the United States District Court for the Western District of Texas.
Before REAVLEY and GARWOOD, Circuit Judges, and LAKE1, District Judge.
REAVLEY, Circuit Judge:
The Secretary of Labor (Secretary) brought this action pursuant to Section 17 of the Fair
Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., 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
1District Judge of the Southern District of Texas, sitting by designation.

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 pro visions of the FLSA. The district court
enjoined the defendants from further violating the FLSA and restrained them from withholding
$539,630.00 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 by the alleged
employer;
(4) the skill and initiative required in performing the job; and
(5) the permanency of the relationship.
These factors are merely aids in determining the underlying question of dependency, and no
single factor is determinative. Mr. W Fireworks, 814 F.2d at 1054. We review the district court's
findings as to these five factors for clear error, but we review the district court's ultimate
determination of employee status de novo. Id. at 1043-45; see also Castillo v. Givens, 704 F.2d 181,
187-88 n. 12 (5th Cir.), cert. denied, 464 U.S. 850, 104 S.Ct. 160, 78 L.Ed.2d 147 (1983).
1. Degree of control exercised by the alleged employer
The district court found that Circle C exercises a great deal of control over the dancers. The
dancers are required to comply with weekly work schedules, which Circle C compiles with input from
the dancers as to the days that they wish to work.2 Circle C fines the dancers for absences and
tardiness. Circle C 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 Circle
C to pro mote the desired atmosphere. The dancers can express a preference for a certain type of
music, but they do not have the final say in the matter. Several dancers testified that they were
expected to mingle with customers when not dancing. Circle C has promulgated 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"
2One dancer testified that even though she was not scheduled to work on Christmas and New
Year's Day, management came to her home and ordered her to work.

at opening time. Circle C enforces these rules by fining infringers.
The defendants attempt to de-emphasize Circle C's control by arguing that most of the rules
are directed at maintaining decorum or keeping the nightclub legal. The defendants explain that
Circle C publishes the minimum charge for table and couch dances at the request of the dancers to
prevent dancers from undercutting each others' prices. Finally, the defendants stress the fact that
Circle C does not control the dancers' dance routines.
Despite the defendants' effort on appeal to downplay Circle C's control, the record fully
supports the district court's finding of significant control.
2. Relative investment of 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 t o dancer and can be significant. (One dancer
testified that she spends $600 per month on costumes, while another dancer testified that she spends
approximately $40 per month on costumes.) The defendants contend that we should also consider
as an investment each dancer's nightly "tip-out," which the defendants characterize as rent. The
district court rejected the defendants' argument that the "tip-out" is rent, and so do we--it is the
economic realities that control our determination of employee status.
A dancer's investment in costumes and a padlock is relatively minor to the considerable
investment Circle C has in operating a nightclub. The fact that the district court did not make specific
findings regarding Circle C's investment does not detract from our analysis given the obvious
significant investment Circle C has in operating a nightclub. The record does not completely identify
Circle C's investment, but it does reveal that Circle C owns the liquor license, owns the inventory of
beverages and refreshments, leases fixtures for the nightclub (e.g., the stage, lights), owns sound
equipment and music, maintains and renovates the facilities, and advertises extensively.
3. Degree to which employee's opportunity for profit and loss is determined by the alleged employer
The district court recognized that, once customers arrive at Circle C's nightclubs, a dancer's
initiative, hustle, and costume significantly contribute to the amount of her tips. But Circle C has a
significant role in drawing customers to its nightclubs. The district court recognized that Circle C

is responsible for advertisement, location, business hours, maintenance of facilities, aesthetics, and
inventory of beverages and food. Cf. Usery v. Pilgrim Equipment Co., 527 F.2d 1308, 1313 (5th
Cir.) (recognizing significance of the alleged employer's control over the "price, location, and
advert ising--determinants of customer volume...."), cert. denied, 429 U.S. 826, 97 S.Ct. 82, 50
L.Ed.2d 89 (1976).
Given its control over determinants of customer volume, Circle C exercises a high degree of
control over a dancer's opportunity for "profit." The 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." Mr. W Fireworks, 814 F.2d at 1051.
4. Skill and initiative required
Many of the dancers did not have any prior experience with topless dancing before coming
to work for Circle C. The dancers do not need long training or highly developed skills to dance at
a Circle C nightclub. As for the initiative exerted by the dancers, this court has concluded that the
ability to develop and maintain rapport with customers is not the type of "initiative" contemplated by
this factor. See id. at 1053 (quoting Pilgrim Equipment Co., 527 F.2d at 1314). Compare Hickey
v. Arkla Industries, Inc., 699 F.2d 748, 752 (5th Cir.1983) (noting that the worker was able to exert
initiative in the operation of his business by controlling his advertising, marketing and sales methods,
and choice of products to sell). A dancer's initiative is essentially limited to decisions involving her
costumes and dance routines. The dancers do not exhibit the skill or initiative indicative of persons
in business for themselves.
5. Permanency of the relationship
The parties dispute whether Circle C permits its dancers to perform at competing nightclubs.
The district court did not make a specific finding on this point, but we will assume for purposes of
this appeal that Circle C allows its dancers to move from nightclub to nightclub. Cf. McLaughlin v.
Seafood Inc., 867 F.2d 875, 877 (5th Cir.1989) (noting that workers moved frequently from plant
to plant and from employer to employer). The parties do agree, and the district court found, that

most dancers have short-term relationships with Circle C.3 Although not determinative, the
impermanent relationship between the dancers and Circle C indicates non-employee status. See id.
at 876-77.
Despite the lack of permanency, on the 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.
Circle C exercises significant control over a dancer's behavior and opportunity for "profit." The
transient nature of the work force is not enough here to remove the dancers from the protections of
the FLSA. In analyzing the five factors, we must not lose sight of economic reality. Here, the
economic reality is that the dancers are not in business for themselves but are dependent upon finding
employment in the business of others. We reject the defendants' creative argument that the dancers
are mere tenants who rent stages, lights, dressing rooms, and music from Circle C.
B. Beatrice and Charles Cranford as "Employers"
The district court ruled that both Beatrice and Charles Cranford are "employers" within the
meaning of the FLSA. Accordingly, the district court's order enjoins Beatrice and Charles personally
from violating FLSA provisions and from continuing to withhold $539,630.00 of back wages. See
Donovan v. Sabine Irrigation Co., 695 F.2d 190, 196 (5th Cir.) (recognizing that if an individual is
deemed an employer under the FLSA, he may be enjoined along with the corporate employer), cert.
denied, 463 U.S. 1207, 103 S.Ct. 3537, 77 L.Ed.2d 1387 (1983). The Secretary now concedes that
the evidence at trial is insufficient to support the district court's holding that Beatrice Cranford is an
"employer" under the FLSA. We therefore limit our review to the district court's treatment of Charles
Cranford.
The FLSA defines an "employer" as "any person acting directly or indirectly in the interest
of an employer in relation to an employee." 29 U.S.C. § 203(d). The FLSA's definition of employer
must be liberally construed to effectuate Congress' remedial intent. Sabine Irrigation, 695 F.2d at
194. This court has held that the FLSA's definition of employer is "sufficiently broad to encompass
3One of the trial exhibits lists some of the dancers' durations: five days, three months, five
days, thirty days, sixty days, three weeks, three months, three months, and five months.

an individual who, though lacking a possessory interest in the "employer' corporation, effectively
dominates its administration or otherwise acts, or has the power to act, on behalf of the corporation
vis-a-vis its employees." Id. at 194-95; see also Donovan v. Grim Hotel Co., 747 F.2d 966, 972 (5th
Cir.1984) (observing that an individual qualifies as an employer if he "independently exercised control
over the work situation"), cert. denied, 471 U.S. 1124, 1124, 105 S.Ct. 2654, 2655, 86 L.Ed.2d 272
(1985). We review the district court's ultimate conclusion that Charles Cranford is an "employer" de
novo and review the court's subsidiary findings for clear error.
Charles Cranford does not have an ownership interest in Circle C and does not control the
day-to-day operations of Circle C.4 His "consulting" agreement with Circle C purports to exclude
personnel matters from his responsibilities. But the testimony at trial convinces us that Charles
Cranford exercised control over the work situation: he was the driving force behind Circle C; he
hired two of the dancers who testified at trial; several of the witnesses ident ified him as their
supervisor and testified that he gave specific instructions to employees; when he was at the
nightclubs, the dancers were required to dance to his favorite songs; he removed money from Circle
C's safes; he signed employees' payroll checks; he ordered one employee to refrain from keeping
records of the tip-outs; and he spoke for Circle C during the Secretary's investigation of possible
FLSA violations. In addition to the above evidence, the Secretary introduced an inter-office
memorandum that purports to be from Charles Cranford. The memorandum reports fines that had
been assessed for rule infractions and warns of future fines if certain rules were not obeyed. Charles
Cranford denies dictating or writing this memorandum. One of the Secretary's witnesses, however,
testified that inter-office memorandums from Charles Cranford were common.
Based upon our review of the record, we cannot say that the district court committed error
in its determination that Charles Cranford was an employer within the meaning of the FLSA.
C. Other Issues on Appeal
1. Secretary's witnesses
4At one time, Beatrice Cranford was the sole owner of Circle C. Several of the witnesses,
however, testified that they thought Charles owned the nightclubs.

The defendants contend that the district court erred by allowing the testimony of witnesses
whom the Secretary did not identify before trial. After the witnesses testified, the defendants
requested a continuance. Despite its belief that the testimony did not surprise the defendants, the
district court granted the defendants a continuance. But then the defendants withdrew their request
for a continuance, claiming that "the damage had been done" and that they were under pressure to
quickly resolve the matter.
This court will not disturb an evidentiary ruling unless it substantially prejudices the
complaining party. FED.R.CIV.PRO. 61; Smith v. Wal-Mart Stores (No. 471), 891 F.2d 1177, 1180
(5th Cir.1990). We find no evidence of substantial prejudice, especially considering the defendants'
refusal to take advantage of the district court's continuance offer.
2. Prejudgment interest
Prejudgment interest on back wages is appropriate in actions brought under section 17 of the
FLSA. See Marshall v. Hope Garcia Lancarte, 632 F.2d 1196, 1199 (5th Cir.1980); Usery v.
Associated Drugs, Inc., 538 F.2d 1191, 1194 (5th Cir.1976). The district court erred by not
including prejudgment interest in its judgment and must correct this error on remand.
3. District court's calculation of back wages
The district court determined that the defendants owe employees $539,630.00 in back wages.
In his cross-appeal, the Secretary contends that the district court's calculation of back wages is
incorrect because it fails to take into account (1) the "tip-outs" paid by the dancers and waitresses (2)
expenditures for costumes and uniforms worn by the dancers, disc jockeys, and waitresses; and (3)
fines imposed on employees.
The district court failed to address in its order the Secretary's request for reimbursement of
these costs and fines, despite the fact that the Secretary raised this issue during pretrial proceedings,
during trial, and in post-trial documents. These costs and fines were specifically included in the Wage
and Hour compliance officer's back-wage calculation, which the Secretary presented during trial and
in his proposed findings of fact and conclusions of law. We remand to the district court for specific
findings of fact and conclusions of law on whether reimbursement for these costs and fines should be

included in the calculation for back wages and, if so, the proper amount to be included. See Utley
v. Commissioner, 906 F.2d 1033, 1041 (5th Cir.1990) (remanding cause because the district court
failed to specifically address an issue raised by the parties).
III. CONCLUSION
We agree with the district court's determination that the dancers are "employees" covered by
the FLSA and that Charles Cranford is an "employer" within the meaning of the FLSA. But we
vacate the judgment and remand the cause with instructions that the district court (1) enter judgment
in favor of Beatrice Cranford, (2) include prejudgment interest in its judgment against Charles
Cranford and Circle C, and (3) make the necessary findings of facts and conclusions of law with
respect to the Secretary's request for reimbursement of certain costs and fines.
VACATED and REMANDED.