Ms. Kane

Hospitality Law

Newly Enacted Employment Regulations Affecting Hotels

By Victoria Kane, Counsel & Compliance Manager, Shiftgig, Inc.

It feels as if the government is intentionally focusing on the hospitality industry by significantly changing and adding laws that have a greater impact in employment at our businesses, and at an unprecedented pace. Newly enacted employment regulations are not just coming down from the federal level, but frequently enacted by states, cities, and counties. In any business, a change in how people are hired, paid, scheduled, and managed generally impacts services, operations, turnover, satisfaction levels, finances, and can influence the public at large. Prior to when the employment relationship begins, employers should focus on these pre-employment issues: compliant practices in background screening; immigration law compliance with Form I-9 and international student visas; and the lawful use of social media.

Employers conducting background checks including criminal history, credit reports, and education verification, will have to keep compliance top of mind, as regulatory oversight has resulted in a growing number of class-action lawsuits. Additionally, there is the ever-present threat of data breaches compromising the personally identifiable information of what could be thousands of applicants for which there is no employment or contractual relationship, and thus consumer laws may apply, exposing the business to a different type of liability.

Most class-action lawsuits against employers are over alleged violations that could have easily been avoided by a review of forms and processes. The current focus is on consent and disclosure forms that include extraneous information by being embedded within the job application or by incorporating liability release statements for the employer. Screening firms are obligated to utilize "reasonable procedures to obtain maximum possible accuracy" under the Fair Credit Reporting Act (FCRA). In 2015, two of the nation's largest employment background check firms paid a total of $13 million for allegedly failing to take steps to ensure the accuracy of the information they reported about job applicants contained in background check reports. Legal risks resulting from FCRA violations, data breaches, and litigation over consent forms will lead employers, applicant tracking system (ATS) operators to review and modify compliance measures.

Vendors providing applicant tracking systems, screening services, and employers all will be responsible for any data collected and used as a basis of an employment decision. All parties will be held to the same standards and expectations for gathering, transmitting, using and storing such data. Litigation for FCRA violations is steadily on the rise. Keep in mind that if your company relies on an inaccurate report to reject an applicant for hire, and you agreed to indemnify the screening provider in the vendor contract, your company is on the liability hook, too. In 2015, BMW, Calvin Klein, Chuck E. Cheese, Food Lion, Home Depot and Whole Foods paid settlements ranging from $716,400 to $3 million in FCRA lawsuits.

Also impacting the hiring process are so-called "ban the box" and fair chance laws. Generally, ban-the-box laws prohibit employers from asking about criminal records until after making a job offer. A total of 24 states and over 150 cities and counties have adopted laws requiring employers to consider a job candidate's qualifications first, before an applicant's criminal record. In most cases, the employer can withdraw the job offer if the applicant has a conviction record that has a relevant relationship to the job duties and responsibilities. Other laws limit the number of years an employer can look back into an applicant's criminal history. Employers struggle to keep up with multiple ban-the-box ordinances, with their often too specific, and conflicting rules contrary to each other and federal EEOC guidelines.

Tightening immigration laws passed with conflicting guidance from multiple enforcement agencies are leading to compliance issues. People are becoming more confused and uncertain about the rules for completion of the federal Form I-9, used to verify all workers' authorization to work in the U.S. The penalties for Form I-9 mistakes and omissions, as simple as a wrong date, can be quite significant. A government agency can assess a civil monetary penalty for each and every substantive or uncorrected technical violation on a form. Moreover, the actual fine amount is based on a sliding scale - the more errors you have as a percentage of the whole, the more each violation will potentially cost you.

Effective August 1, 2016, the Department of Justice doubled the fines for I-9 violations. The fine for a technical violation (i.e. switched last name and first name) went from $110 to $1,100 per violation up to $216 to $2,126 per violation. In addition, the penalties for knowingly hiring, recruiting, referring, or retaining an unauthorized worker will increase per unauthorized individual from $539 to $4,313 for the first offense; from $4,313 to $10,781 for the second offense; and from $6,469 to $21,563 for subsequent offenses. The DOJ made such increases to civil monetary penalties across the board to account for inflation and ensure that the fines maintain a deterrent effect.

On August 25, 2016, the Office of Management and Budget (OMB) approved a revised Form I-9. By January 22, 2017, employers must use only the new version, dated 11/14/2016 N. Until then, they continue to use the version date 03/09/2013 N or the new version. But here's the new compliance twist, on November 4, 2016, the USCIS announced (quite clearly and unequivocally) that employers should not be pre-filling or auto-populating the candidate's personal information into Section 1 of an electronic Form I-9. Both the M-274 handbook and the Form I-9 instructions never contemplated that integrated onboarding technology would make the Form I-9 paperless, so they offer no guidance on this issue. However, automation with electronic I-9 software is being scrutinized to a higher degree lately. Most employers will adopt a conservative approach and avoid the automation and potential fines altogether, while others may need to change processes or even software systems.

Immigration law changes in training, hours and tenure restrictions for hiring J-1 and F-1 visa international students may impact the number of hotels employing them as supervisors and managers. Finding an experienced hotel supervisor or manager can be one of the most difficult jobs to fill in the U.S. Partnering with student visa-sponsoring organizations at no cost per hire has long been a popular and cost-efficient solution. Now, many U.S. employers are concerned about liability related to the employment of international students due to changes in the Immigration Reform and Control Act of 1986 and the Immigration Act of 1990; such as requirements to provide documentation of practical training, and the almost contractual terms imposed are complicating their employment.

The F-1 and J-1 visas allow students to work in jobs related to their major field of study. F-1 students can work on "practical training" and are eligible to work before completing their studies, as well as an additional 12 months of optional practical training, either before or following graduation, or a combination of the two. However, if they work full-time for one year or more of practical training, they are not eligible at all. While J-I students may work in "academic training." Students with a J-1 visa are usually eligible to work up to 18 months following graduation. They may also be eligible to work part-time during their program of study. However, the academic training has been challenged by enforcement officials, so visa sponsors are requiring more documentation to comply.

Another concern is that international students are taking jobs away from Americans. Currently, employers are not required to document that a F-1 or J-1 visa student took a job from a qualified American, and are only required to do so when hiring foreign citizens on a permanent basis and sponsor them for permanent resident status ("green card"). In the U.S, the pool of candidates for hotel supervisory jobs who have a college degree is much smaller compared to other countries. Here, hotel managers are more often "home-grown" in trainee programs or promoted from within based on potential after a solid track record in an hourly service-level position. Whereas, international students come ready to apply skills learned in college, such as: critical thinking; industry knowledge; legal issues, business, and finance acumen, and leading teams and projects. Another benefit is that J-1 or F-1 students have a positive effect on workforce diversity by introducing other cultures and languages, as well as bringing a different hospitality industry perspective from other countries.

The rapidly growing use of social media searches for sourcing candidates, screening based candidates; and using data science to predict worker qualifications, is translating into heightened legal issues for employers. The job board is dying, and the use of social networking and data science is exponentially advancing. According to CareerBuilder's annual social media recruitment survey, 60% of employers use social networking sites to research job candidates, up significantly from 52% in 2015, 22% in 2008 and 11% in 2006, when the survey was first conducted. Additionally, 59% of hiring managers use search engines to research candidates - compared to 51% last year.

Unfortunately, employers' social media use often skirts EEO regulations that encourage non-discriminatory recruiting - perhaps an assumption that different rules should apply. Not every job seeker and qualified candidate uses social media. This raises a concern about potential adverse impact on those who are economically less advantaged, which may correlate with certain racial and ethnic groups. Employers should focus on creating recruiting policies for how social media will be used; and on what basis hiring decisions will be made using social media content. There should also be proper record-keeping procedures of all used digital media to provide support for a legal defense when there are challenges to hiring practices.

Once employees are hired, employers must wrangle with wage-hour issues to fend off claims, agency investigations, class actions and lawsuits, including: employment types and benefits, incl. full-time, part-time, seasonal temporary; classifications incl. overtime exemptions, independent contractors, gig workers (on-demand), and interns; minimum wage increases; scheduling practices; paid time off policies; gratuities and service charges. The following highlights only some of the more challenging wage-hour compliance issues.

Employment types once defined by the employer's own policies, are now defined by laws like the Affordable Care Act (ACA) and paid leave laws. Under the ACA, employers must follow the general rule that if an employer offers group health coverage it must provide coverage to all full-time employees, defined as those working 30 or more hours per week or at least 130 hours per month. The employer also has the option of offering coverage to part-time employees (defined as those working 20 to 29 hours per week). This was a shift from employer definitions of full-time employment at 32 to 40 hours per week. The paid leave laws in New York and Illinois are examples of local ordinances requiring paid time off benefits for workers based on full-time or part-time status. Since 2014, employers with 5 or more employees who work more than 80 hours a calendar year in New York City must provide paid sick leave under NYC's Earned Sick Time Act. Employees accrue sick leave at the rate of one hour for every 30 hours worked, up to a maximum of 40 hours of sick leave per calendar year.

Likewise in Chicago, Illinois effective July 2017, employers must comply with both the City's Paid Sick Leave Ordinance and the state's existing Illinois Employee Sick Leave Act. Covered employers must offer benefits to any employee who performs at least two hours of work in any particular two-week period; and at least 80 hours in any 120-day period. The ordinance assumes that full-time employees work 40 hours per week. So while these laws define full-time employee eligibility by setting a threshold of weekly work hours, the administrative rules are silent about compliance for employees working on a flexible scheduling basis, such as telecommuting, compressed week (i.e. four 10-hr shifts), fluctuating workweek, and on-call scheduling resulting in variable hours per work week.

However, such flexible work scheduling may become unlawful in many jurisdictions if the legislatures at the federal, state and local levels are successful in passing laws stopping certain industries (i.e. hotels, foodservice, and retail) from what they are labeling as "erratic" and "volatile" work scheduling and practices creating pools of "involuntary part-timers." In the past few years, more than a dozen states are arguing over "secure" work schedules, advance notice requirements, reporting pay, and mandatory hours of rest. Interestingly, these legislators attempting to change work scheduling practices seem out of touch with the ever-growing population of workers nationwide who prefer working on-demand for multiple employers, choosing their own work schedules, and enjoying the overall flexibility in scheduling in order to achieve desired income levels, attend school, make appointments, and work around other job schedules, childcare, and elder care needs.

All signs point to the fact that hotel employers will continue to face compliance issues around newly enacted wage-hour and benefits laws in the coming year. What is certain is that more exciting challenges are sure to arise in regulations on employee classifications and the use of temporary workers, gig workers, or on-demand workers, as well as the continued over-analysis of the independent contractor or 1099 worker status. We may find out whether the DOL, the IRS, SSA, and other agencies and businesses will ever agree on "what is an independent contractor?" While some policymakers are advocating for a new category of worker, to be situated someplace between "employee" and "independent contractor" others want to leave well enough alone. Adding a third category, with a separate fact-intensive test to apply in order to determine the worker's status, would likely create even more confusion and litigation.

Speaking of confusion, there is ample advice and miles of misinformation available online on the new FLSA overtime exemption rule effective December 1, 2016. The DOL announced that the final salary and compensation levels were set to ensure that the FLSA's intended overtime protections are fully implemented and to simplify the identification of exempt employees. However, this assertion does not help the estimated 16,300 leisure and hospitality establishments explain to their 256,700 workers affected by the new overtime exemption rule, why their jobs have not changed, but they must now be treated as hourly employees. Many lawyers are advising employers to "blame the government."

Alternatively, here are options for bringing managers who are paid $35,000 a year and regularly work between 50-60 hours per week into compliance with the new OT rule. If, in fact, these employees are functioning as managers and not just wearing the title: raise annual salary levels to the threshold limit of $47,476 or higher; keep their wages at the same level, but decrease management duties and change job titles; adopt the fluctuating workweek; or maintain the salary and agree to pay overtime. In addition to providing an employment classification change letter and job description, employers will also have to update handbook and benefit administration policies to adjust eligibility rules based on being an exempt, salaried employee for any perks, benefits, bonus plans and other programs.

On September 19, 2016, a group of 21 states filed a lawsuit in the United States District Court for the Eastern District of Texas challenging the DOL's new overtime rule. The group challenging the rule is led by Texas and Nevada, and includes: Alabama, Arizona, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Utah, and Wisconsin. Thus, some employers in these states are choosing to delay compliance after December 1st. Although legal experts say that the claims that the new rule violates the Tenth Amendment may not offer any relief to private employers or local governments, but other arguments raised by the states could, in theory, result in the rule being blocked altogether.

Employers in states with wage-hour regulations that differ from the FLSA exemption, have to figure out compliance with multiple coverage. For example, under state of California's regulations, exempt employees must make twice minimum wage. At a $10 per hour minimum wage, exempt employees must make a salary of at least $41,600.00, (although higher than most of the country, is $5,876 shy of the new OT rule). But at $15 per hour in 2021, the new exemption threshold will jump to $62,400.00 (which is above the salary basis level under the new rule). The effect of this multiple coverage by different government sources is that when there are conflicting requirements in the laws, the employer must follow the stricter standard; that is, the one that is the most beneficial to the employee. Thus, since California's current law requires a higher minimum wage rate than does the federal law, all employers who are subject to both laws must pay the state minimum wage rate unless their employees are exempt under state law, then pay a salary at the higher FLSA threshold. Similarly, if a local entity has adopted a higher minimum wage, employees must be paid the local wage where it is higher than the state or federal minimum wage rates.

Employment screening, immigration, minimum wage, exemptions, and scheduling are all top issues where your compliance efforts should focus - not only for mitigating fines and claims, but also fixing oversights and past mistakes. Take this opportunity to break away from traditional organizational structures, work scheduling, and policies and explore technological platforms and partnerships to build a more cost-efficient, compliant, flexible workforce made up of full-time, part-time, and on-demand workers. Collaborations in planning strategies and commitment to continuously improving practices for compliance may result in creating long-term solutions, hiring differently, smarter training programs, buy-in, and desired financial and performance outcomes. Be bold and make impactful changes and lead compliance to deliver best practices and profitable operations.

Here is a collection of ideas to offset increases in wages due to compliance with new employment and benefits laws:

  • Take a closer look at how employees actually use paid time off benefits. Change the total number of paid days off, starting with observed holidays. Change how paid time off is accrued and paid out. Revise paid sick leave and vacation policies. Consider adding a cap or maximum earned benefit amount to avoid carry-overs and forfeitures. Re-evaluate whether the PTO policy costs more due to high turnover than separating buckets of paid time off. Improve time off reporting - typically salaried employees fail to report all days off.

  • Review labor hours scheduling in a different way. Calculate the breakeven point for just paying the overtime hours for a certain number of workers each shift or work week. Change start and end times of shifts based on actual hotel check-ins and outs, employee preference, and mass transit schedules - you may see productivity increases and less absenteeism and tardiness.

  • Streamline organizational reporting structures. Promote, transfer and cross-train between departments. Consider creating part-time or temporary positions to eliminate the tasks eating up valuable time of salaried managers and supervisors.

  • Learn about what people are actually doing during the entire workday - not assume they are doing what we pay them to do. More importantly, ask employees what they could do more efficiently if suggested changes are made, resources added (could be as simple as a additional computer or time clock).

  • Train people to think and work digitally, but with back-up system for crashes and electricity outages. Find more time in an employee's workday by eliminating out-dated, unnecessary, time-intensive paperwork in reporting and documentation that was automated, and integrated among upgraded systems.

Victoria Kane has extensive experience as legal advisor and management consultant in all areas of labor and employment law for various industries, such as hospitality, food service, staffing, advertising, marketing, technology, dealerships, colleges, government agencies and non-profit organizations. She has developed and implemented corporate university training for Fortune 500 businesses across North America. Currently, Victoria serves as Counsel & Compliance Manager for Shiftgig, Inc., connecting millions of people to millions of shifts with employers in hospitality, retail, customer service and light industrial verticals. Ms. Kane can be contacted at 312-489-5666 or vkane@shiftgig.com Please visit http://shiftgig.com for more information. Extended Bio...

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