Today, the American Hotel & Lodging Association, the U.S. Chamber of Commerce and other plaintiffs filed a lawsuit in the U.S. District Court for the Eastern District of Texas challenging the legality of the National Labor Relations Board’s new “joint-employer” regulation.
The suit contends the NLRB has violated the National Labor Relations Act and is acting arbitrarily and capriciously in violation of the Administrative Procedure Act.
The NLRB issued a new joint-employer standard on Oct. 26 that will "bring hotel brands to the collective bargaining table with franchised employees," according to AHLA. Currently, a company can be treated as a joint employer only if it has “substantial direct and immediate control” over a group of employees. Under the NLRB’s new regulation, which will take effect Dec. 26, a company can be treated as a joint employer and required to collectively bargain. According to the AHLA, this policy would be in effect “even when [the company] has no actual control over workers.”
In the NLRB's statement, under the new standard, an entity may be considered a joint employer of a group of employees if each entity has an employment relationship with the employees and they share or codetermine one or more of the employees’ essential terms and conditions of employment, which are defined exclusively as: (1) wages, benefits, and other compensation; (2) hours of work and scheduling; (3) the assignment of duties to be performed; (4) the supervision of the performance of duties; (5) work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline; (6) the tenure of employment, including hiring and discharge; and (7) working conditions related to the safety and health of employees.
“The Board’s new joint-employer standard reflects both a legally correct return to common-law principles and a practical approach to ensuring that the entities effectively exercising control over workers’ critical terms of employment respect their bargaining obligations under the NLRA,” NLRB Chairman Lauren McFerran said in a statement. “While the final rule establishes a uniform joint-employer standard, the Board will still conduct a fact-specific analysis on a case-by-case basis to determine whether two or more employers meet the standard.”
According to AHLA, the change "will make hotel franchisors jointly liable for workplace matters at franchise locations even though franchisors have no control over franchise employees, and it will force unions on hotel franchisees and their employees."
The current standard of joint-employer liability has been one that has been “successful, definitive and certain” for nearly 40 years, Chirag Shah, executive vice president, federal and political affairs & counsel at AHLA, told Hotel Management. This standard, he explained, defines an employer as someone who has “direct and immediate exercise control over a finite list of working conditions.” The new standard changes that definition to unexercised control and makes “employer” into a concept that is “very difficult to define,” he added. “They've also added new broad terms that are also undefined about the rules such as workplace health and safety. No one knows what that means. And so now that's just going to open Pandora's box in terms of subjective interpretation in an order to reach additional liability.”
“The NLRB’s joint-employer regulation is all about coercing businesses to the bargaining table with workers they do not actually employ to increase unionization” AHLA President & CEO Chip Rogers said in a statement. “To achieve this, the NLRB is intentionally taking a wrecking ball to one of America’s great economic engines—the franchise model—and jeopardizing millions of small-business jobs.
“The goal of this lawsuit is to reestablish the rule of law that has governed joint-employment designation for nearly four decades,” Rogers continued. “It will also prevent the destruction of the franchise business model that has provided prosperity for tens of thousands of American small business hoteliers.”
“The new joint-employer rule is really an existential threat to the hotel industry,” Shah said, calling the ruling “a threat to the American business model” overall.
Franchising is the “cornerstone” of successful entrepreneurship for “tens of thousands” of hotel owners, he continued, and the ruling “strikes at the heart” of the hotel franchise model and has the potential to rewrite numerous contracts, he cautioned.
Shah also criticized the manner in which the new rule was drafted, describing it as “so vague as to create so much uncertainty about who actually employs whom.” The rule also creates new liabilities on entities and businesses that did not have any liability before. “There's a potential that because of additional liability, in an opportunity to mitigate risk, or in an effort to mitigate risk, there may be consolidation in the industry,” he said. “Small business owners may have fewer opportunities to actually join the hotel industry—or the franchise business model, depending on the particular industry.”
Ultimately, Shah said the ruling could “require” small-businesses to drive up costs “because of a new business partner that they didn't contemplate when they were signing into their franchise agreement.” Moreover, the policies could hurt AHLA’s efforts to increase employment within the hospitality industry. “This would have dramatic implications for identifying who an employee is [and] who the employer is for each employee,” he said. “I think this is going to cause contraction in small business ownership, [and] the largest percentage of hotels in the country are owned by small businesses. It's going to have dramatic impacts on who these employees are, who they report to [and] what the working conditions will be in those specific hotels. It causes a lot of confusion. We don't believe that this is somehow going to expand opportunities for employees—in fact, quite contrary.”
According to the statement, the AHLA “fully supports” the right to form a union and collectively bargain with employers that have direct and immediate control over workers’ terms and conditions. “AHLA does not, however, support the NLRB’s new rule, which codifies a new standard that establishes indirect or unexercised control as sufficient to trigger joint-employer status,” the statement continued. “This subjective definition will create predisposed outcomes irrespective of genuine facts and circumstances.”
The AHLA hosted a webinar with Josh Ditelberg, partner at Seyfarth Shaw and AHLA Director of Federal Affairs Kat Fonda about the issue:
This is an ongoing story. Please check back for further updates.