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In Rush to Comply With Minimum Wage Ordinance, Remember Your Vendors

Article originally appeared in Hotel Association of Los Angeles (HALA) Newsletter.

As Los Angeles hotel operators brace for a minimum wage hike, those that fail to account for third party vendors will be in for a rude awakening. In September 2014, the Los Angeles City Council approved a minimum wage hike for hotel employees, requiring that all workers be paid at least $15.37 per hour. This law went into effect for hotels with more than 300 rooms on July 1, 2015. However, for hotels with 150 or more rooms, the law takes effect on July 1, 2016.

As hoteliers rush to develop a sound financial plan in anticipation of the new law, they would be wise to pay particular attention to vendor contracts. The Los Angeles ordinance has a broad reach, encompassing all employees from valets to wedding DJs and even fitness instructors. The law also applies to outsourced workers.

Under the Citywide Hotel Worker Minimum Wage Ordinance (Chapter XVIII, Article 6 of the LA Municipal Code; the “Ordinance”), the scope of the definition of “Hotel Employer” is very broad and includes any person or entity providing services at the hotel. The Ordinance does not differentiate between primary services that are provided at, as opposed to for the hotel.  Additionally, if the premises are connected to or operated in conjunction with the building’s purpose, or provide services at the building, they qualify as part of the “Hotel.” (Sec. 186.01(E)) Although this definition remains ambiguous, it does appear to indicate that non-hotel tenants or business owners, whose place of business is located in a building that houses both a hotel and other shops or stores, are subject to the Ordinance’s provisions. The City Council has not responded to HALA’s request for further clarification in this regard.

Similarly, the term “Hotel Worker” as defined in the Ordinance potentially encompasses any and all vendors on the property.

“Hotel Worker” means any individual whose primary place of employment is at one or more Hotels and who is employed directly by the hotel, Employer, or by a Person who has contracted with the Hotel Employer to provide services at the Hotel. “Hotel Worker” does not include a managerial, supervisory or confidential employee. (Sec. 186.01(F))

This language suggests that third party vendors must comply with the minimum wage ordinance, or the hotel could ultimately be held liable. Therefore, practically speaking, hotel operators should require all third parties to sign agreements that contain indemnification provisions. It is important that vendors state in writing that they will comply with applicable minimum wage laws and that they will reimburse the hotel for any damages incurred as a consequence of the vendor’s failure to abide by the Ordinance.

This is a good time for hoteliers to review their vendor relationships and work with counsel to analyze and bolster existing agreements. It is imperative for hoteliers to ensure that all vendors are in compliance with the minimum wage ordinance as of July 1, 2016, or risk being in violation of the law.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.