Where does hotel industry joint employment liability end?

A big issue facing hotel owners is who is the employer—is it the owner or the manager, the franchisor or the franchisee, the client or the contractor? Who has the liability for employment claims? Many hotel owners today are real estate investment trusts, private funds, insurance companies and other institutional owners, which muddies dividing lines, as does the changing legal landscape.

Led by the National Labor Relations Board, there is a trend to hold multiple parties accountable, not only for their own employees, but also for the employees of their contractors, franchisees and others with whom they do business. This results from an apparent shift in public policy, and the corresponding expanding definition of and greater reliance on “joint employer liability” across administrative agencies, legislative bodies and the courts. 

In August 2015, the NLRB issued a decision in Browning-Ferris Industries of California, et al. v. Sanitary Truck Drivers, 362 holding that it was no longer necessary to exercise direct, immediate control over workers to be deemed a joint employer. Rather, if an employer exercises “indirect control” over working conditions or if it has “reserved authority” to do so, it is the joint employer, even over a staffing agency’s employees.

Some states like California have gone even further expanding the scope of liability for employers who contract with temporary staffing agencies. Under California Labor Code Section 2810.3, affected California employers now “share” civil responsibility and liability with their “labor contractors” regarding wages and workers compensation coverage of assigned temporary workers.

Even though the Browning-Ferris ruling involved a contractual relationship between a staffing agency and an employer and not a franchisor-franchisee relationship, there are many parallels between the two. In fact, using similar reasoning, the NLRB has filed complaints against McDonald’s USA with respect to employees of certain of its franchisees, contending that McDonald’s should be held to be a joint employer.

Employees of McDonald’s franchisees have also sued McDonald’s Corporation and McDonald’s USA alleging joint employment liability. While typically relying on traditional common law theories of joint employment liability, these cases are surviving summary judgment under the ostensible agency theory: “Ostensible agency exists where (1) the person dealing with the agent does so with reasonable belief in the agent’s authority; (2) that belief is ‘generated by some act or neglect of the principal sought to be charged’; and (3) the relying party is not negligent.”

There are a number of steps hotel owners, franchisors and managers can take to reduce the risk of liability. In the next part of this series, we address some of these steps.

Arthur Chinski and Ruth L. Seroussi are attorneys with Buchalter Nemer in Los Angeles.