Mr. Kravetz

Hospitality Law

The Outlook for Hotel and Resort Operators Post-BFI

Waiting to Exhale

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

Eighteen months since the National Labor Relations Board (NLRB) revised its standard for the imposition of joint employer liability, and hoteliers remain in a state of legal limbo, unsure what 2017 and beyond have in store on the issue. For those hotel and resort operators whose best response to the question, "how should we continue to move forward in the wake of BFI?" is a shrug of the shoulders, a current scorecard for your consideration.

The BFI Decision

The NLRB shook the hotel franchisor/franchisee landscape with its jaw-dropping Browning-Ferris Industries of California (BFI) decision back in August 2015, which drastically eased the criteria for a company to be considered a joint employer. In lieu of the longstanding and traditional joint employer test that focused on governance, wage and supervision decisions and control, the NLRB in BFI adopted a new and much more lenient standard requiring that a business merely exercise "indirect" (or potential) control over workers to be held liable for labor violations committed by franchisors and contractors. While BFI involved a waste management company and its interaction with a contractor hired to clean and sort recycled products, the implications of the NLRB's ruling are far-reaching and apply to all relationships in which tasks and responsibilities are outsourced. After BFI, Plaintiffs' attorneys are left licking their chops.

The BFI Appeal

Not surprisingly, BFI promptly appealed the NLRB's decision, seeking review by the United States Court of Appeals for the District of Columbia Circuit. The appeal is scheduled to be heard on March 9, 2017, though it is anybody's guess when a ruling will be handed down, hopefully by year's end. In the meantime, executives in a range of industries, including hospitality, sit at the edge of their seats, hoping the D.C. Circuit Court accepts the following argument as set forth in BFI's reply brief:

"The board's decision ignores the longstanding rule that joint employment does not exist absent the exercise of substantial direct and immediate control by the putative joint employer, improperly holds that 'indirect' or 'reserved' control are sufficient standing alone to establish joint-employer status under the common law, and interprets the concepts of 'indirect' and 'reserved' control to include notions of economic influence which the board is prohibited from considering under the distinctive history of the NLRA."

Only time will tell, but even absent a favorable result on appeal, might personnel changes in our nation's capital signal some good news on the horizon for the hotel business?

President Donald J. Trump

Political leanings aside, there can be no doubt that President Trump is decidedly business-friendly and seemingly partial to the hotel and resort industry given his family's holdings. But will this translate to relief from the wide net of potential liability cast by the NLRB's ruling in BFI? In theory, the answer is a resounding yes.

Regarding labor and employment policy, there will likely be a shift, during the Trump presidency, away from the interventionist leanings of the Obama administration. To be sure, the new administration will move to reverse Obama's labor-related actions, efforts that will be facilitated by the Republican controlled Congress ultimately confirming a secretary of labor, a conservative justice to the Supreme Court of the United States who will likely replace Antonin Scalia, and President Trump filling open seats as they arise on the 12 federal circuit courts. There is more, Mr. Trump is also in line to appoint two of five members of the NLRB and, in the near future, the general counsel, who decides which cases are heard by the board.

The apparent incongruence in this prediction - that the president will put into place pro-business policies and appointees, which is, without a doubt, promising for hotel franchisors - is not lost on many industry followers. Then-candidate Trump promoted himself as a champion of working people, though his positions and appointments as president seem to demonstrate otherwise. Exhibit A: Andrew Puzder, Mr. Trump's original nominee to head the Labor Department.

The Secretary of Labor

Andrew Puzder has withdrawn his nomination to become secretary of labor. Had Mr. Puzder taken the helm of the Department of Labor, hoteliers would have been justified in breathing a collective sigh of relief. He is a fast food executive who led the parent company of Carl's Jr. and Hardees and is no fan of the NLRB's new standard for the imposition of joint employer liability, but his stances on that issue and minimum wage (Mr. Puzder is against it) along with a history of labor-law violations at his companies, among other things, made confirmation unlikely.

Mr. Puzder's replacement is Alexander Acosta. A former member of the NLRB, Mr. Acosta also served as an assistant attorney general for the Civil Rights Division under President George W. Bush, is dean of Florida International University College of Law, and is also chairman of U.S. Century Bank, headquartered in Miami. As his confirmation unfolds, it will be determined if Mr. Acosta is as supportive of business as President Trump's other appointees thus far, and whether, as labor head, he is likely to take steps to scale back what is now a rather strict joint employer liability doctrine.

So Where Are We Now?

Despite the changing of the guard in Washington D.C., and hopeful signs that indicate an easing of the NLRB's new standard for joint employer liability, the facts as we know them are unchanged: the BFI appeal has yet to be heard; the secretary of labor job continues to be vacant; there are still just eight justices on the U.S. Supreme Court; no open federal circuit court seats have been filled by President Trump; and he has yet to make any appointments to the NLRB. The upshot is that, at present, the ruling on joint employer liability as rendered in the BFI case remains viable, and hotel and resort operators, who continue to hope for the best, are advised to embrace the status quo and proceed accordingly.

While waiting to exhale (at least proverbially), hoteliers are encouraged to think about all of the following tips provided by the American Bar Association:

  • Steer clear of all essential employment decisions that are within a franchisee's purview (hiring, firing, disciplining, setting wages, and establishing work conditions). These are joint employer hot buttons and should be avoided at all cost. Consider, too, sending a clear message to potential litigants by having franchisees represent to their workers that the employer is the franchisee, not the franchisor.

  • Never set work schedules for franchisee employees.

  • Remember that franchisees are responsible for training their workforce. And while a franchisor may set minimum standards for a franchisee's workers, the franchisee must determine if those standards are met.

  • Scrub all franchisor/franchisee agreements as well as operating and training manuals and other documentation earmarked for franchisees and their employees that may include language that could be characterized as workplace rules.

  • Do not provide franchisees with sample employee handbooks. Instead, franchisors looking to help franchisees navigate local labor laws should recommend the services of qualified labor relations/human resources consultants or other related third-party providers.

  • Retain smart counsel capable of navigating the complexities of joint employer liability. This is particularly important for those operating in multiple jurisdictions, where different state and local standards may apply. A legal adviser can also carefully review franchisor/franchisee agreements (among others), keeping an eye open for proper indemnity provisions relative to joint employer liability. Likewise, an experienced lawyer can verify the placement of EPLI insurance and otherwise evaluate the adequacy of insurance protection (confirming coverage in the event a franchisor is sued as a joint employer, and making sure that a franchisee is covered for their own joint employer claims).

The Pendulum Swing and Perils of Complacency

When it comes to the NLRB, the pendulum swings back and forth and back again. Yes, the board's decision in BFI may well be overturned, and President Trump's partiality to the business community could scatter the clouds that hover over what is currently a gloomy environment for hotels and resorts. But politics are ever changing, as is the makeup of the NLRB, which means hotel operators cannot be complacent no matter the circumstance.

With the relatively recent expansion of joint employer liability, the needle has moved, and the march toward its more widespread imposition is unlikely to cease even if the standard reverts back to indirect control. There can be no doubt that the Plaintiffs' bar, post-BFI, will strive to stretch the definition of joint employer liability whether or not the NLRB's decision is reversed. Add to this, the drumbeat of union activism (which, notably, triggered the dispute in BFI) and the more liberal leanings of certain state and local governments (read, California), and the contentious legal landscape confronting the hospitality space will more than likely persist (at least on some level) going forward.

Do Not Exhale

Imagine, it is 7:30 p.m., prime dinner hour, and cars trying to park at a beautiful hotel franchise housing one of the hottest restaurants in town are backed up into boulevard traffic because three of five hotel valet parkers decided to go on break. Coincidentally, a driver of one of those waiting vehicles is the executive vice president of the hotel's franchisor. Should she confront the franchisee's management? Recommend a staggered break schedule to the valets? Clearly, in today's climate, she does so at her company's peril.

The Takeaway hotel and resort operators must be ever vigilant and careful not to tread into joint employer territory without fully understanding the lawful parameters. As otherwise stated, they should not exhale, at least not yet.

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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