Court Opinion

ID: 3210368
Source: CourtListenerOpinion
Date Created: 2016-06-08 16:00:47.233636+00
Date Added: 2024-06-11T07:39:29.280841
License: Public Domain

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

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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

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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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