News Type: Blogs

Without question, tourism-and by extension, hospitality-has been one of the industries hardest hit by the coronavirus pandemic. This remains the case even as stay-at-home orders begin to be phased out and states gradually reopen for business. Long story short: hotels will continue to feel the economic sting of COVID-19 for the time being as non-essential travel is still discouraged by the Center for Disease Control, if not altogether prohibited in some places by virtue of cross-border restrictions, among other things.

The good news is that, at some point, this too shall pass, and vacationers will once again be checking into hotels, both domestically and internationally. One study recently cited in USA Today suggests that nearly 90% of American travelers hope to be packing their bags for trips by the end of 2021, and search data from Expedia indicates a growing interest in destinations from Hawaii to Orlando. In the meantime, business travel is sure to resume as companies carry on, albeit in a corporate landscape colored by the coronavirus crisis.

A New Experience From Check In to Checkout

Exactly when hotels will see a significant upswing in reservations (be it for leisure or business travel) is hard to pinpoint with precision. What we know is when guests do come back in numbers, the hotel experience will look and feel a lot different than it was back in the good old days (read: January 2020). Hospitality experts expect a range of COVID-19-related modifications to be implemented, including check ins and checkouts to be completed without human contact when possible; temperature checks upon arrival at certain properties; reconfigured lobbies to facilitate social distancing; the use of digital room keys; masked and gloved employees; sanitizing stations at every turn; elevator monitoring to control overcrowding; and housekeeping’s use of electrostatic sprayers and ultraviolet light to ensure pristine guestrooms that will be designated with a seal after cleaning. Whatever precautions any given hotel ultimately introduces, stays at properties large and small will take on an entirely new vibe. This will be among the many legacies of the COVID-19 outbreak.

Beyond the Guest Experience: Potential Legal Exposure

All of the foregoing aside, there are several legal issues that hoteliers must be mindful of as they ramp up operations. As customers return, at whatever pace that may be, hotel owners and operators will need to rebuild their workforces, presumably by recalling furloughed employees-a process that must be handled with care. Likewise, hotel employers are obligated to do what they can to ensure the health and safety of their workers, requiring meaningful workplace policies and protocols. In addition to these personnel matters, those in the hotel space will likely face an onslaught of contractual problems linked to the coronavirus, particularly ones involving large booking and event cancellations.

Surely, the possibility of legal exposure is very real as the pandemic comes under a modicum of control and hotel doors are reopened to employees and guests. Here, Michelman & Robinson answers questions that hoteliers may have about how best to minimize the specter of liability.

Recalling Employees

Q. What should hotel employers be thinking about in terms of recalling employees from furlough to avoid class action or other employment-related claims?

A. Hotels from coast-to-coast have had to furlough or otherwise layoff employees as a result of the hospitality business nationwide coming to a screeching halt. On the plus side, some, if not many, of the affected employees may be subject to recall as occupancy rates recover over time. That being said, hotel employers should consider all of the following when deciding what workers to bring back-this in order to avoid or minimize the risk of litigation:

• Workers asked to return to their jobs must be selected in a way that is fair, non-discriminatory, and ideally based on identifiable business needs
• If there are multiple employees in line for an available position, the selection process must be based on non-discriminatory criteria such as tenure-e.g., recalling those with the most seniority first
• Favoritism when recalling employees must be avoided at all costs and legal counsel should review all hiring (or return to work) decisions
• Should managerial employees be asked to handle non-managerial duties upon their return to the workplace, they may lose their exempt status; in such an instance, hoteliers must ensure that these employees are properly classified in light of their altered duties so as to prevent misclassification or wage and hour lawsuits
• Layoffs made due to COVID-19 should not be used as a means to dismiss problematic employees in the absence of reasonable grounds for termination

The WARN Act

Q. How does the WARN Act factor into a hotelier’s decision-making regarding employees furloughed or laid off because of COVID-19?

A. As hotel owners and operators look toward an uptick in occupancy, personnel planning should be addressed with an eye toward the requirements of the federal Worker Adjustment and Retraining Notification (WARN) Act and state Mini-WARN statutes.

The WARN Act requires employers to provide written notice at least 60 calendar days ahead of a mass layoff-one involving 50 full-time employees and at least 33% of the active full-time employees at a single employment site, unless the layoff impacts 500-plus employees, in which case the one-third requirement does not apply.

The details of the WARN Act are plenty, and the amount of notice is subject to certain exceptions. For purposes of this answer, suffice to say that violations of the law can be quite costly. Covered employers that order mass layoffs without following the mandates of the WARN Act may be on the hook for back pay to impacted employees for each day of violation, as well as civil penalties, and the cost of health insurance benefits.

Of critical importance when contemplating the WARN Act as it relates to furloughed employees is this: WARN notification is only required for employees (1) laid-off for more than six months or (2) who have had their hours reduced 50% or more in any six-month period as a result of a mass layoff. Thus, the takeaway for hoteliers is all about timing and numbers. As most furloughs associated with the coronavirus began in mid-March, the WARN Act could be triggered in these cases if furloughed employees fail to be recalled by mid-September (depending, of course, on the total number of workers involved).

Of note, a handful of states, including California, Illinois, and New York, have enacted their own Mini-WARN statutes. As such, hotel employers should always check state law when dealing with the potential of a mass layoff. They should also keep in mind modifications to existing laws given the extraordinary circumstances presented by the COVIC-19 pandemic. For instance, California Governor Gavin Newsom has issued an executive order temporarily suspending the state’s WARN Act notification requirement for qualifying employers, provided certain criteria are met.

All things considered, hotel owners and operators would be wise to consult with legal counsel when staring down the barrel of a potential mass layoff. Depending upon specific circumstances, it may be recommended that hotel management provide a form of WARN notification to minimize the potential for related litigation.

Employee Health and Safety

Q. Regarding employee health and safety, what should be on hoteliers’ radar screens as the risk of COVID-19 persists?

A. This is a particularly difficult area for any employer given the patchwork of federal, state, and local guidelines concerning employee health and safety. It is especially challenging for hotel owners and operators, including those having multiple properties-some in states that have largely opened up for business and others where quarantine requirements are still in place. In such uneven circumstances, it is nearly impossible to implement consistent company-wide health and safety protocols.

One constant is the general duty clause of the Occupational Safety and Health Act (OSHA), which mandates that employers provide their employees with a “workplace free from recognized hazards likely to cause death or serious physical harm.” Prior to the onset of the coronavirus, this obligation was rather straightforward, but how the requirement will be interpreted as a legal standard in the face of a highly contagious virus remains unclear.

What we know is that OSHA, unions, and hotel employees will see the general duty clause as just that, a duty, as well as an aspirational standard requiring hoteliers to use their best efforts to comply. Consequently, hotel management should engage in a top-down review to determine how, and if, they can make their workplaces safer for employees upon their inevitable return. Among things to be considered is whether greater social distancing is possible given the design and operations of an existing property. Toward that end, staggered work hours, or having different teams reporting to work on different days in order to facilitate social distancing, could be a good solution.

On par with social distancing is the need for hoteliers to ensure that their workforces are healthy and not likely to infect others. That means mechanisms should be instituted to have hotel employees’ temperatures taken as they arrive for work, and to have personnel that are coughing or showing other observable symptoms of COVID-19 prevented from entering the workplace. Thankfully, the EEOC has determined that an individual with COVID-19, or symptoms of it, presents a significant risk of substantial harm to others, which justifies limited health inquiries and medical examinations and testing of employees, though employers must maintain all health-related information about an employee’s illness or condition as a confidential medical record. By virtue of this confidentiality requirement, hotel owners and operators must be thoughtful about whom they have asking medical questions and taking down health-related information, and how that data is being stored.

Regarding employee health and safety, one issue unique to the hospitality industry relates to protocols put in place for guests (e.g., the frequency in which guestrooms are cleaned, how food should be delivered, and whether guests will be tested for COVID-19). In other words, employees need to be protected not only from their co-workers, but also from hotel visitors, which may prove to be rather tricky as a practical and operational matter.

Another issue for hoteliers to keep top of mind is what personal protective equipment (PPE), if any, their employees should wear (e.g., masks, gloves, etc.) while on the job. To the extent PPP is necessary, employees will have to be trained in its use and proper disposal. Attention must also be paid to the most routine events, like managing the ingress and egress to a hotel property or, for example, its elevators to prevent congestion. Likewise, to mitigate the chance of another outbreak, it may be essential to limit undue density in a property’s breakrooms or other common areas.

Booking and Event Cancellation

Q. How should hotels approach contractual issues like large booking and event cancellations due to the coronavirus?

A. When it comes to significant room and event cancellations, hotels need to tread lightly, keeping in mind the possibility of PR- and brand-related fallout. The prospect of adverse publicity aside and with regard to contract performance, enforcement rights pertaining to booking and event agreements will largely hinge upon the principles of force majeure.

A force majeure clause operates to excuse performance under an agreement or to extend time of performance when an unforeseeable event-or one that is beyond a party’s control-causes that party to be unable to meet its contractual obligations. Arguably, the coronavirus may well qualify as a triggering event for purposes of a force majeure provision in a hotel contract, but that will not always be the case.

Force majeure language in an agreement must be very detailed, as many courts set the bar quite high and require specific reference to the problematic occurrence (here, a pandemic or virus). Nonetheless, force majeure could be grounds for the cancellation of a large booking or event. So too may the legal doctrines of frustration of purpose and impossibility of performance.

It is worth noting that several lawsuits have been filed over the last month in multiple jurisdictions-California, New York, and Texas included-calling into question the enforceability of force majeure provisions in light of COVID-19. Unfortunately for hotels juggling cancellations and strategizing as to how to respond to them, concrete answers will not be coming anytime soon as these cases will likely outlast the virus.

Beyond force majeure, hotel owners and operators should be aware that a number of class actions are being pursued in California under the Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL). These disputes-mostly related to large-scale events-are at least partly based on the venues’ failure to conspicuously outline cancellation and refund policies.

Checkout Time

In closing, hotel owners and operators must prepare for legal issues that are sure to arise in the wake of the COVID-19 crisis. Whether they stem from employee recall decisions, determinations about mass layoffs, health and safety procedures, guest cancellations, or any number of other complications fueled by the coronavirus, disputes and the associated risk of litigation are always a possibility. Nonetheless, by ramping up operations with eyes wide open and mindful of the items discussed above, hoteliers can certainly help keep exposure to a minimum.

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

This week, the U.S. Supreme Court agreed to hear a case of great consequence when it comes to judicial review of IRS guidance that arguably concerns tax collection or assessment. At issue in CIC Services LLC v. Internal Revenue Service is the scope of the Anti-Injunction Act and, more specifically, what constitutes the collection or assessment of taxes for purposes of the statute.

CIC Services LLC is a risk management consulting firm and material advisor to captive insurance companies. Its lawsuit relates to Notice 2016-16 issued by the Treasury Department and IRS, by which the federal government:

• Identified certain transactions entered into between taxpayers and related captive insurance companies as having the potential for tax avoidance or evasion (micro-captive transactions);
• Labeled micro-captive transactions as “transactions of interest;” and
• Subjected micro-transactions to reporting requirements and potential penalties associated with “reportable transactions.”

In a nutshell, Notice 2016-16 served to label micro-captive transactions as potentially abusive tax shelters, much to the chagrin of CIC Services. In response, the company filed its complaint against the IRS in the United States District Court for the Eastern District of Tennessee, seeking to render Notice 2016-16 and its mandates invalid. CIC Services alleged that in issuing the notice, the IRS failed to follow the requisite notice-and-comment rulemaking and congressional review procedure for legislative rules as set forth in the Administrative Procedure Act.

The trial court dismissed CIC Services’ complaint for lack of subject matter jurisdiction, holding that the Anti-Injunction Act divested it of jurisdiction because the lawsuit was “for the purpose of restraining the assessment or collection of any tax.” CIC Services appealed this ruling to the Sixth Circuit, arguing that the Anti-Injunction Act did not prohibit pre-enforcement review of Notice 2016-16 because it is not geared toward tax collection or assessment; rather, the Administrative Procedure Act compels such a review.

For its part, the IRS contended that compelling taxpayers to report on the use of potentially questionable tax shelters (read: micro-captive transactions) is (and was) related to tax collection and therefore protected by the Anti-Injunction Act. The Sixth Circuit agreed, finding that the Anti-Injunction Act barred CIC Services’ litigation.

By way of certiorari, the U.S. Supreme Court has stepped in and is set to hear CIC Services LLC v. Internal Revenue Service during its October 2020 term. Michelman & Robinson will be sure to follow this interesting case and convey the High Court’s decision.

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

In a dramatic departure from the rather flexible standard for joint employer liability embraced under the Obama administration, the Department of Labor has announced a final rule regarding joint employer status under the Fair Labor Standards Act (FLSA) that will surely please employers. It becomes effective in mid-March. The new rule is, in part, a response to the business community’s outcry against prior decisions finding franchisors to be joint employers of their franchisees’ employees, even when those franchisors lacked control over the terms and conditions of workers’ employment.

Four-Factor Balancing Test

In a nutshell, the DOL has adopted a four-factor balancing test to establish whether two or more affiliated businesses jointly employ workers that perform tasks for one company while simultaneously benefiting the other. As finalized, this test weighs whether a potential joint employer:

1. Hires or fires an aggrieved employee;
2. Supervises and controls the employee’s work schedules or conditions of employment to a substantial degree;
3. Determines the employee’s rate and method of payment; and
4. Maintains the workers’ employment records.

Of note, not every one of these factors must be satisfied for a business to be considered a joint employer.

Clearly, the DOL’s new rule is a far cry from the Obama standard, which made it easier for workers to sue their employees by considering a business to be a joint employer not only if it exercised direct control of an employee’s activities, but also if it had “indirect” or even “potential” control. The net effect of the rule as reworked will be to reduce joint employer liability, which is good news for businesses.

The Takeaway

All companies, including yours, should be mindful of joint employer liability because when two businesses are deemed joint employers under the FLSA, they share responsibility for their employees’ wages and can both be deemed legally liable for wage violations. That being said, the DOL’s final rule gives employers more leeway than previous incarnations, is limited to the FLSA, and has no effect on the issue of joint employer liability as it relates to other federal or state employment statutes.

Of course, the labor and employment attorneys at Michelman & Robinson, LLP are here to answer any questions you may have about joint employer liability or, for that matter, any other employment-related issue.

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

If you’re in management, there’s some good news to report out of the National Labor Relations Board-at least theoretically.

The NLRB has just ruled that it’s not a violation of federal law-namely, the National Labor Relations Act-when employers misclassify their workers as independent contractors, as opposed to employees.

Classification issues have made headlines of late, especially in the wake of the California Supreme Court’s decision in Dynamex Operations West Inc. v. Superior Court, which significantly relaxed the standard applied in California to determine whether any given individual may be acting as an employee or independent contractor. But let’s put a pin in that for just a moment.

In the matter before the NLRB, Velox Express (a medical logistics company) was found to have misclassified certain workers as independent contractors. Despite this conclusion, the Board held that the misclassification didn’t violate the NLRA, which makes it illegal for employers to punish workers for forming unions or otherwise engaging in “concerted activities.” The NLRB determined that misclassification on the part of Velox didn’t serve to suppress workers’ organizing rights-this because the workers in question weren’t “inherently threatened” with firing or other discipline for acting together (and misclassification, by itself, wasn’t tantamount to such a threat).

The takeaway from the case is straightforward-employers that misclassify workers aren’t subject to NLRB litigation in the absence of some other labor law violation-though perhaps it’s something of a non-issue given the impact of certain state laws.

In California, for example, misclassification violates state law and related claims can still be brought by aggrieved workers (either individually or in a representative capacity) and the Division of Labor Standards Enforcement – the administrative agency charged with enforcement of the Labor Code. That being said, and given the ruling in Dynamex-by which an individual may be denied the status of employee only if the worker is the type of traditional independent contractor (such as an independent plumber or electrician) who would not reasonably have been viewed as working in the hiring business-there may well be an uptick rather than downturn of misclassification cases notwithstanding the NLRB’s take on the topic.

Long story short: (1) misclassification should remain front and center on company radar screens, and (2) the upside of the NLRB’s Velox Express ruling is likely reserved for entities with locations in states that largely track federal law.

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

It’s a given that employers are prohibited from discriminating against employees on the basis of sex, race, color, national origin and religion – this according to Title VII of the Civil Rights Act of 1964, which generally applies to employers with 15 or more employees, including federal, state and local governments. It’s also been a given that a court lacked jurisdiction over a court action for discrimination under Title VII until and unless an employee first filed a charge of discrimination on the underlying claim with the U.S. Equal Employment Opportunity Commission (EEOC). Not anymore. By way of its recent ruling in Fort Bend County v. Davis, the U.S. Supreme Court has determined that this now-familiar administrative filing precondition is a “procedural obligation” and not a jurisdictional prerequisite to a lawsuit.

The “jurisdictional” vs. “procedural” distinction is important because if the failure to satisfy the charge-filing requirement itself does not divest a federal court of its jurisdiction over a Title VII lawsuit, an employer-defendant to a lawsuit must now affirmatively raise the plaintiff-employee’s failure to file a charge before a court is required to enforce the requirement. And critically, although the Court noted the plaintiff-employee’s charge-filing requirement is mandatory if properly raised, the defendant-employer may forfeit such requirement it “waits too long to raise the point.”

Translation: federal courts do not lack jurisdiction over discrimination claims simply because plaintiffs bypass the EEOC. Therefore, employers and their counsel must carefully review Title VII lawsuits to ensure they do not contain allegations and claims not previously specifically identified in an EEOC charge. Failure to timely object (e.g., in a responsive pleading) to such allegations and claims not raised to the EEOC may result in a waiver of the defense that a plaintiff has failed to exhaust administrative filing requirements.

Have questions about the EEOC, Title VII or anything in between? The labor and employment attorneys at Michelman & Robinson, LLP are here with answers.

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