Why labor and employment liability remain a persistent threat

Investors looking to avoid union affiliation are wary of certain cities.

NEW YORK—Wednesday’s decision by the Labor Department to walk back on existing joint-employment standards came as a surprise, but the process of removing these standard has yet to even begin. This was the topic of conversation at the NYU International Hospitality Industry Investment Conference’s workshop titled “Traversing the Perilous Road of Labor and Employment Issues,” where those in attendance were certain the National Labor Relations Board is far from a decision regarding the future of joint employment.

The current joint-employment standards find businesses liable in the event of employment and civil-rights violations when a company has “indirect control” over the workplace. This definition is the result of an expanded concept amended in 2015 under the Obama administration, and was previously defined as only “direct control.” Issues with joint-employment liability now crop up with properties that are operated by a management company, but involved owners overstep their bounds when making stipulations as to how a hotel should be run.

Why is this important? According to Jerrold Goldberg, shareholder at law firm Greenberg Traurig, hotels bound to collective-bargaining agreements due to union affiliations that are found to have joint-employment liability are opened up to an accretion clause capable of tying the liable party to all of its other assets in a market. 

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And it doesn’t end there—Goldberg said this accretion clause also opens up affiliates to collective-bargaining agreements. In some cases, this can mean investors.

“Many investors are gun shy of New York,” he said. “They are aware of the costs to doing business there as it is a city with a large union presence, and that relationship could affect other properties they invest in. I’ve had clients that have backed away from properties due to this. In some cases, where a property isn’t unionized they expose themselves to being unionized very easily though these relationships, which has lowered the ability for investors to transfer properties in the big city.”

Restaurants are often on the hook for labor-based lawsuits.

Slow Change

Currently the joint-employment rules are being rolled back under the Labor Department, but the NLRB  has so far made no moves to do the same. Christian White, counsel at law firm BakerHostetler, said he doesn’t expect this to change any time soon. This is primarily because the NLRB is an organization with five member seats, only three of which are occupied at the current time, with elections for future appointments not scheduled until late this year.

“Even if [the vacant seats were] nominated tomorrow, there is a significant backlog in the Senate to have them confirmed,” said Brian Crawford, VP, government and political affairs for the American Hotel & Lodging Association. “The NLRB is not really a priority over missing folks in the state department, assistant secretary… there are almost 400 vacancies to be confirmed right now.”

Because of this political backlog, Crawford said more action is taking place at the state and local level. In the meantime, Roy Salins, partner at national business and litigation law firm Davis Wright Tremaine, said he advises operators to continue to act as if the joint-employer rule will not be changed, considering how long the process is expected to take.

“It’s important when negotiating these agreements that third-party vendors will be able to provide their services without the owner incurring much liability,” Salins said. “Housekeeping, wait staff, it must be clear which organization is responsible for supervising these employees and hiring them. If they don’t, hoteliers can end up liable for violations that are not their fault.”

Crawford said that it’s the less-sophisticated hoteliers that open themselves up to lawsuits regarding joint-employment liability, but according to Goldberg, the majority of these suits come from the restaurant side of the business.

“I track the lawsuits being filed in the New York area, and there are at least 10 a day being filed for wage and hour disputes in restaurants,” Goldberg said. “Part of that goes back to sophistication; some of these restaurants don’t know how to pay people.”

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