Staffing companies not always a panacea for catering

Hotels, private clubs, restaurants, caterers and other hospitality businesses often rely on third-party staffing companies to supplement their workforce for catered and other private events. These supplemental workers are necessary for the vitality of hospitality businesses whose workforce demands often ebb and flow seasonally, or even from week to week. However, using third-party staffing companies can create significant legal risk for a hotel concerning wage and hour liability. Nevertheless, there are a number of best practices that a hotel can implement to minimize the risk of being found to be a joint employer of the third-party staff. 

Over the past several years, the hospitality industry has had to defend lawsuits filed by the workers of third-party staffing companies claiming that the hotel, caterer or similar venue violated wage and hour law by not properly paying such workers, withholding gratuities that should have been paid to them, or assessing a fee that the “reasonable customer” would believe was a gratuity that should have been paid to the workers. 

Joint Employers

Essentially, these suits claim that the hotel and the third-party staffing company were the “joint employer” of such workers, enabling them to sue to hotel for damages. These actions are generally filed as collective and/or class actions in which the worker seeks to represent all workers of the hotel and all third-party staffing companies used by the hotel who were impacted by the same allegedly unlawful policy or practice. 

Such suits are extremely difficult for the hotel to defend because oftentimes most of the applicable records and information (including the names and contact information for all of the potential class members) lie not with the hotel, or even with the worker, but with the staffing companies, who are usually not a party to the lawsuit and often do not maintain appropriate time records.

A recent New York appellate court decision provides a roadmap for hotel to follow to mitigate their liability from such actions. In Velasquez v. Sunstone Red Oak, the plaintiff, Marianella Velasquez, who was directly employed by a third-party staffing company, sued a hotel at which she worked at various catered events alleging that the hotel charged guests a fee that the reasonable customer would believe was a gratuity that should have been paid to the service staff and instead was unlawfully retained by the hotel. 

Among other things, the defendant-hotel argued that it was not the employer or joint-employer of Velasquez. During discovery, the hotel moved for summary judgment contending that as a matter of law they were not plaintiff’s employer. While the trial court rejected the hotel’s motion, the hotel appealed and the New York Appellate Division overruled the trial court, granted summary judgment to the hotel, and dismissed the case.

In ruling for the hotel, the Appellate Division held that “[t]he critical inquiry in determining whether a plaintiff is an employee of a defendant is ‘the degree of control exercised by the purported employer[.]’” quoting Byong v. Cipriani Group. As such, the New York Court focused on five key factors:

  1. The staffing company recruited the plaintiff, sent her to work at various events and paid her. 
  2. The hotel did not set the plaintiff’s compensation or wage rate, did not determine plaintiff’s schedule and maintained no employment records for plaintiff.
  3. The staffing company sent a supervisor to every event in which its employees worked at the defendant-hotel’s events. This staffing company supervisor oversaw the employees at the events who were assigned to the event by the staffing company and signed them in and out. This supervisor had the authority to discipline the staffing company employees, a right which the hotel did not enjoy. In fact, if a hotel employee believed that the staffing company worker misbehaved, the hotel would notify the staffing company’s supervisor to address the issue.
  4. The staffing company workers wore different uniforms from the hotel employees. Most notably, the staffing company workers did not wear a uniform that contained the hotel’s logo, unlike the hotel employees. 
  5. The hotel had no authority to hire or fire the workers.

These five elements enabled the defendant-hotel to avoid liability and have the case dismissed. While many hotels would contend that they do not have the authority to hire, fire, discipline or set the schedules or compensation for their third-party staffing workers, they typically cannot explain how they do not “control” such workers when they work at events. 

Indeed, often these workers are supervised and overseen by hotel managers, and that is a significant weakness to their legal argument in these actions. Because the hotel manages the worker during the time the worker is engaged at the event, the hotel/caterer exercises some control over the worker—making the hotel vulnerable to an assertion that the hotel/caterer employed or jointly employed with the staffing company the worker. 

Avoiding Liability

What allowed Sunstone Red Oak to avoid liability was the fact that a third-party staffing company supervisor was on site during the catered event and that an independent Sunstone Red Oak employee supervised the third-party staffing company workers. More than any other, this fact demonstrated that the hotel did not control the workers and that control always remained with the third-party company.

Accordingly, to prevail on the argument that the hotel is not the employer of the third-party staffing agency, the hotel needs to ensure that the staffing company and not the employer “controls” the workers. That is, the staffing company needs to be able to demonstrate that:

  • The staffing company is the entity that hires, fires and disciplines the workers;
  • The staffing company sets their workers schedules, compensation and wage rates, and 
  • The staffing company assigns their workers to work events.

In addition to the above, there are a number of best practices that hotels and caterers can take to avoid a finding of joint employer status, hence liability for violations of wage and hour and other employment-related laws.

  • Consider having a third-party staffing company supervisor at the events and it is that supervisor who manages the third-party staffing company workers, disciplining them when appropriate and directing their workflow. Having a supervisory worker at the event will enable the hotel/caterer to more convincingly assert that they do not control the third-party staffing company workers at their events and that such control remains with the third-party staffing company; 
  • Hotels should ensure that such workers have separate clock in/out procedures; 
  • Staffing company workers should not receive their paychecks from the hotel or caterer;
  • Ensure that staffing company employees do not participate in trainings with individuals who are directly employed by hotels ; wear separate uniforms (if possible) from the hotel actual staff;
  • Ensure that staffing company workers do not receive or participate in the benefits plans of hotels; 
  • Importantly, make sure that staffing company workers do not routinely work on a fixed schedule at the premises of the hotel, and are otherwise treated differently than those who are directly employed by the hotel. 
  • Ideally, staffing company workers and the hotel employees should not work the same events. If they do overlap, job functions should be different to the extent possible.

Failing to follow these best practices could have drastic long-term implications for hotels/caterers as wage and hour class-actions suits have not let up.
Carolyn Richmond is a partner in Fox Rothschild’s New York offices where she is chair of its hospitality practice group. Glenn Grindlinger is a partner in Fox Rothschild’s New York offices and is practice leader for Fox Rothschild’s New York labor law department.