Hospitality Law Conference tackles governmental changes

HOUSTON—With many policies and regulations from government agencies shifting, many sessions at the 14th annual Hospitality Law Conference, held here at the Royal Sonesta Houston, addressed what these changes mean and how hoteliers could cope and adjust with the changing times. 

A major issue affecting hoteliers is the recent ruling from the National Labor Relations Board (NLRB) regarding joint employers, which speakers Dana Kravetz, managing partner of Michelman & Robinson, LLP, and Christian White, associate general counsel for AccorHotels, noted has created a sense of fear and uncertainty for many in hospitality, as it relates to leased employees and franchising agreements. 

White noted that in recent years, “We’ve seen a dramatic extension of the definition of employee and employer in order to increase the labor organization’s ability to organize the workplace. One of the most sweeping is the Browning-Ferris Industries case where the NLRB has overturned 30 years of precedent and released a new joint-employer standard.” Whereas in the past, a company was considered a joint employer if it had direct control, under the new policies, a company with indirect control could be considered an employer.

Kravetz added that even if a company never asserts that control, it could still be considered an employer. “This is a situation where indirect control can mean employer, so much so that if you reserve the right within your contract to exercise control—even if you don’t exercise the control—you can still be considered the employer,” he said. “If you think practically about how that could play out, it could be devastating.”

White created a sample scenario to explain. “Say Dana is a major franchisor who comes to this conference here in Houston. He has a [franchised]hamburger joint nearby and goes to check it out. He pulls in and notices a lot of trash in the parking lot. The employees are not shouting out the slogan they’re supposed to shout out when the customer comes in. He notices that the uniforms, while almost to brand standards, don’t meet all of them. He’s standing in line and it takes 10 minutes. He orders coffee and the coffee is cold. What Dana has observed is a poorly run franchise location,” said White. “He sends an email to the franchisee and demands that workers be instructed to clean the parking lot twice a day, and instructs them to meet the brand standards and shout out the slogan in the proper uniform. He tells them he doesn’t want any customer to wait more than three minutes and, if that’s an issue, the franchisee needs to review scheduling and staffing. And, finally, the coffee must be hot. By doing that, are you now a joint employer?”

Kravetz answered, “When dealing with the brand or system standards, that’s one thing which, in theory, would not create a joint employer. My adherence to the slogan would be more of a brand system issue. Conceivably, if I’m requiring that, I could be OK. But, when I start delving into personnel issues and I start looking at solutions instead of support, then I’m probably stepping in it. Those are issues that lean toward joint employer and would be considered indirect control.”

To compound the issue, the speakers said, what constitutes a franchisor as a joint employer isn’t yet clear. In the recent Freshii Development LLC case, the NLRB issued an advice memorandum that said it was not a joint employer. But, in a McDonald’s case, it found the opposite. “In the general counsel’s brief to the board in Browning-Ferris Industries, they specifically requested the new joint-employer standard not apply to the franchisee/franchisor relationship, yet the board specifically chose not to address it in the decision,” noted White. “On the other hand, you see the GC go after McDonald’s, which has been postponed again due to technological issues.”

Because of this uncertainty, Kravetz noted, from a practical standpoint, it makes sense to take a look at franchise agreements. “You’ve got to scrub those agreements. If there’s anything that indicates indirect control that’s present there, that’s not about brand standards or system standards, that lends itself to a finding of potential joint employment,” he said. “In reality, in the franchise world, we don’t know where this will come out. 

“But, in leased employees, it’s certainly more clear,” he continued. “After Browning-Ferris Industries, with this indirect standard, there are very few ways to avoid [joint-employer status] without first taking a very clear view of the contract and seeing what’s in there.

White added that this is essential. “Your relationship with your vendor may have been ongoing for years; your general manager may not have ever looked at that agreement,” he said. “I have seen where the agreement states the hotel can remove any person at any time for any reason; that right there is indicative of a joint-employer relationship, and that’s a fairly common clause of that agreement.” 

The conference also addressed other issues, particularly those related to wages. Lara Shortz, partner, Michelman & Robinson, LLP, discussed issues related to minimum wage increases. “It’s not an issue that’s going to go away with an election,” she said, noting that there is a federal push to increase the minimum wage, but the increases are really at the state and the municipal level. “It’s going to have a large impact.

“How do we deal with this?” she asked. “There’s the easy way: raise the rates. That’s not a bad idea in this market—hotels are doing well—but can we think of some more creative ways to deal with it because the market may not stay this way and this also doesn’t work for every property. There’s also the resort fee, which is used consistently across the board. It’s not a bad idea and can be a useful tool, but there are other ways to deal with mitigating the increase in minimum wages. This requires really taking a look at your jurisdiction, where you are, where your clients are located and what the trends are in the area.

Shortz discussed several options hotels have for dealing with these increases, including seasonal work and eliminating part-time employees. “If your property or your client’s properties are seasonal, really look at the viability to bring in seasonal workers,” she said. “Does that make sense? This is a way to reduce some of the additional costs associated with the wage in terms of having employees when you need them. On the flip side of that, a lot of businesses have been looking toward part-time workers. This may be counterintuitive, but eliminating part-time workers from your core group of employees makes it easier to cross train an employee and reduces additional overhead costs. You want to be careful with that because of the issues with misclassification, but it is a way you can really evaluate who is working for you and how to minimize those costs.”

Shortz noted that layoffs can be a reality. “Typically you want to look at those higher paid employees—and they may be older employees—so you don’t want to get into a situation where age discrimination lawsuits are being brought upon you,” she noted.

Automation and amenities are another way of helping the budget. “Automation is something we’re seeing a lot more of: can this property have an automated check-in system? Do I need four people at the front desk or can I have an iPad where people swipe in and maybe have one employee there,” she said. “Amenities are a similar concept. We see a lot of success in the select-service market… Are you catering toward the business traveler, for example? Can you have a brown bag breakfast or is there really a need for a buffet-style and all the costs that are associated with that?

“Take a look at your properties, your customers and what are ways that you can cut costs without having a massive impact on your workforce,” she said. “Most jurisdictions, you know what the trends are looking like. Take a step back and think about ways you can reduce costs other than raising rates or taking on an extra fee.”

Andria Ryan, partner, Fisher & Phillips LLP, presented on the Department of Labor’s (DOL) new regulation on exemptions, and she echoed Shortz’s sentiment about this being an issue that is here to stay. While the DOL could still alter the proposed changes, “for those hoping something will change and it won’t go through, it will,” said Ryan.

One of the biggest issues for employers is that the new policy proposes to double the salary level required for an employee to be exempt to $50,440. The DOL is also proposing for the first time that the salary be adjusted annually. “If you’re thinking about moving [employees on the cusp]to this $50,440 number so they can continue qualifying for exempt, just remember you’re going to have to keep moving that,” said Ryan. 

As for the timing of the DOL’s final ruling, Ryan noted, “At a recent conference, a DOL official hinted it might be April. That seems early. We are thinking the summer is probably a safe bet.” She noted that an implementation date would likely be 60-120 days after. “More than 120 would be unusual and less than 60, there would be a huge outcry from the employer community,” she said. 

“There’s still time to prepare; review all exempt employees below $50,000,” she said, noting that the white-collar exemptions that most of these employees have previously fallen under aren’t the only exemptions out there. Some of these employees may very well fit different exemptions. “It’s possible some of these employees could meet the standard for other exemption rules, but hotels need to prepare to modify the pay of those who will no longer be considered exempt and think about how you’re going to communicate that to your employees,” she concluded.