Mr. Kravetz

Hospitality Law

How a Trump Presidency Impacts Labor Relations in the Hotel Industry

By Dana Kravetz, Managing Partner, Michelman & Robinson, LLP

President-elect Trump is unlikely to support continued federal labor and employment agency activism in wage and hour and other employment-related matters. What does this mean in the context of the hotel industry? Can hotel owners and franchisors expect immediate relief?

In the wake of the 2016 presidential election, we forecast a clear pro-business shift in labor and employment policy under Donald Trump. Republicans will assume control of not only the presidency, but both houses of Congress in 2017. Mr. Trump will also likely act quickly to appoint a conservative justice to the Supreme Court to replace Antonin Scalia, and he will possess the power to fill open seats as they arise on the 12 federal circuit courts. This consolidation of conservative perspectives will have significant consequences for the hotel industry's management-labor relationship, as Republicans will control federal agencies that govern wage and hour laws, union formation, and other significant employment issues.

Remaking the NLRB

Employers are eager to learn how this expected shift in policy will affect their business model and workforce. This sense of anticipation is no more pronounced than in the hospitality industry, where recent rulings by the National Labor Relations Board (NLRB) have upended the traditional hotel franchisor/franchisee model by lowering the bar for a finding of joint-employer liability. Two of the NLRB's five slots are currently vacant and another member's five-year term will expire next December. Mr. Trump will almost certainly fill the two immediate vacancies on the NLRB with Republicans, thus shifting majority control of the agency very early in his presidency. The new administration will no doubt act swiftly to slow or roll back some, if not most, of the labor-related actions of the Obama administration.

Despite his working class support base, President-elect Trump is not likely to support significant pro-labor legislation or regulation that could potentially be perceived as impeding business objectives. After all, in April, the NLRB certified a union for workers at the Trump International Hotel in Las Vegas, over management's objections, and on November 3, the agency officially ordered hotel management to bargain with the workers. Mr. Trump is no stranger to the NLRB's pressures on hotel owners and operators.

In order to understand what a Trump presidency may mean to the industry, it is helpful to examine the following three specific examples of ongoing national disputes related to federal labor rules that will be greatly affected by an increase in Republican executive, legislative and judicial authority. They include: 1) The NLRB's rulings on joint employer liability; 2) The Department of Labor's (DOL's) "persuader rule;" and 3) The NLRB's crack down on mandatory arbitration provisions. There are many other employment-related issues triggered by the recent presidential election, but the three addressed here should be front-of-mind for hotel owners.

Joint Employer Liability in the Balance

Will the hotel franchise model be offered a reprieve by a pro-business administration? That largely depends upon whether the NLRB, as refashioned by the Trump administration, scales back enforcement of a rather strict joint employer liability doctrine. The NLRB's decision in the Browning-Ferris Industries (BFI) case (currently on appeal) could create myriad issues in the hotel industry, including conflict between franchisors and franchisees over which is liable when lawsuits arise, as well as increased liability when working with contractors. This has been an area of high priority for hotel operators and their legal counsel over the past year, but it is likely that the NLRB and EEOC under a Trump regime will adopt a more franchisor- and employer-friendly stance on the issue.

In its highly controversial BFI decision, the NLRB revised its test for the joint employer doctrine, dramatically easing the criteria for a company to be considered a joint employer. For many decades, the traditional joint employer test focused on governance, wage and supervision decisions, and control. The test excluded "limited and routine" oversight and supervision, because "hiring, firing, discipline, supervision, and direction" were not considered essential or meaningful to the employment relationship. Under the new standard, a finding of joint employment is much broader and only requires that a business exercise "indirect" (or potential) control over workers. Hence, under the new test, a company may not only be held liable for its own labor violations, but also for those of the other entity.

The BFI case is relevant not only to franchisor/franchisee relationships, but, in fact, all relationships in which tasks and responsibilities are outsourced. The recent joint employer rulings affect all companies that outsource any aspect of their business. This includes contractors, suppliers or even outsourced cleaning or IT work. All of these business relationships can now be subject to review under the new joint employer standard. Unfortunately for hoteliers, the appellate court is unlikely to adjudicate the matter before year end, thereby ensuring that joint employment will remain a critical labor issue in the interim.

It remains to be seen how the appeal will play out in the courts, and to what extent the Republican administration will relax this joint employer standard. In its appeal, BFI contends that the NLRB's new joint employer standard runs counter to the prevailing definition of "employee" under federal law, destabilizes collective bargaining relationships and is "hopelessly vague."

For now, hotels and resorts should evaluate the following: 1) Employment Practices Liability Insurance (EPLI) policies, to ensure franchisees are covered; 2) Policies concerning which positions are filled by full-time or part-time employees; 3) Employee benefits, including holiday pay and sick leave; and 4) How work is assigned and job duties are delegated. We are seeing a rise in lawsuits seeking to hold corporate franchisors liable for the acts of their franchisees as well as claims against franchisors for labor violations, and thus owners and franchisors should try to create an environment where they are not controlling personnel decisions. Hoteliers should take action now to protect themselves from significant exposure, rather than simply hoping to be rescued by politicians in Washington.

Rethinking the "Persuader Rule"

The U.S. Department of Labor (DOL) issued its final "persuader rule" on March 23, 2016, which significantly expanded the requirement for employers and their labor relations consultants, including law firms, to file detailed public reports with respect to activities undertaken with "an object directly or indirectly to persuade employees concerning their rights to organize and bargain collectively." In other words, employers cannot utilize their legal counsel for such activities as supervisory training, providing material or communications for dissemination to employees, conducting union avoidance seminars, and implementing new personnel policies, handbooks or directives, without reporting such activities to the Labor Department. Previously, employer communication with outside labor attorneys or consultants did not have to be reported to the DOL if the legal counsel or other outside consultant had no direct contact with the employees themselves.

Since the passage of this new rule, the DOL has faced a number of lawsuits challenging its enforcement as unlawful and unconstitutional. In June of this year, a Texas federal judge blocked the DOL from enforcing the rule, granting a nationwide injunction against the regulation. A federal judge in Minnesota reviewing a similar challenge declined to grant an injunction in June. The differing outcomes suggest that the issue could ultimately be set up for appeal, possibly all the way to the Supreme Court. Currently, the DOL has reverted to the pre-2016 rule pertaining to discussions between employers and legal counsel, pending the outcome of the litigation.

Hoteliers, for the time being, do not have to comply with the terms of the "persuader rule" when conferring with labor counsel, but given the current federal litigation, and the transition to a Republican government, the issue is very much in flux. It is likely that a DOL controlled by the Trump administration would not make enforcement of this rule a priority.

Dubious Legality of Mandatory Arbitration Provisions

In recent years, the NLRB has prohibited employers from requiring employees to submit employment-related disputes to binding arbitration. Although the federal courts are divided on this issue (in some instances allowing binding employment arbitration agreements), the NLRB has taken an activist approach. This August, the Ninth Circuit took the side of the NLRB on the issue, joining the Seventh Circuit in invalidating class action waivers in mandatory arbitration agreements. And in September, the NLRB and the Justice Department filed a petition for certiorari in NLRB v. Murphy Oil, asking the U.S. Supreme Court to decide whether employment contracts requiring workers to arbitrate disputes individually are invalid under federal labor laws.

It should be clear why this is such a hot topic at the moment - not only are the federal courts split on the issue (and Supreme Court review is likely) - but the transition to a Republican executive branch and Supreme Court mean that an employer-friendly outcome is more likely than not. Mandatory arbitration provisions are now common in employment agreements, including within the hotel industry, and the ultimate resolution of this Circuit Court split will have huge ramifications for hoteliers. If class actions replace individual employee arbitrations, the potential exposure for hotel operators is multiplied exponentially. Will a Trump administration and conservative Supreme Court allow for the proliferation of such class action lawsuits? Only time will tell.

The employment law shockwaves created by Mr. Trump's election extend well beyond the makeup of the NRLB. During his term, we will also witness the appointment of other key employment policy positions within the federal labor agencies, including the Secretary of Labor, Solicitor of the U.S. Department of Labor, Assistant Secretary for Occupational Safety and Health, and Administrator of the Wage and Hour Division.

The NLRB, DOL and other federal agencies will likely become less active than under the Obama administration. As a result, we may see an increase in state and local activism on wage and hour, labor relations and worker-protection issues. Regardless, hotel operators and franchisors should monitor agency appointments and pending federal lawsuits closely, as they will have a substantial impact on their businesses.

Dana A. Kravetz is the Managing Partner of Michelman & Robinson, LLP (M&R) and leads the firm's Employment Litigation Practice Group. Mr. Kravetz focuses his practice on counseling and litigating on behalf of hotel and resort management. He routinely defends his clients in various employment matters, including discrimination, sexual harassment prevention, wrongful termination, reduction in workforce, hiring practices, and wage and hour issues, including class action litigation. Mr. Kravetz has significant experience with virtually every aspect of employment litigation. Mr. Kravetz can be contacted at 310-564-2670 or dkravetz@mrllp.com Please visit http://www.mrllp.com/professionals-Dana-Kravetz.html for more information. Extended Bio...

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