Hospitality Labor and Employment Law Blog

Hospitality Labor and Employment Law Blog

New Laws Affecting California Employers: Anti-Harassment Protections for Unpaid Interns, Anti-Bullying Training for Managers, and Mandatory Paid Sick Leave

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California has created additional protections for unpaid interns and created additional requirements for sexual harassment prevention training.  In addition, California has mandated a new requirement for most employers to provide their employees with paid sick leave.  This new sick-leave requirement will go into effect next summer on July 1, 2015. For a more detailed description of these changes, click here to review the Act Now Advisory written by our colleagues Jennifer L. Nutter and Marisa Ratinoff.

 

Illinois Court Holds That Meal Credit Program Is Valid

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Our colleague Jeffrey H. Ruzal recently wrote an article entitled “Illinois Court Holds That Meal Credit Program Is Valid,” which appears in the September 2014 issue of Hospitality Law.

Following is an excerpt:

Providing an employee meal program may be a nice gesture, but requires companies that do so to maintain proper records in case their meal plans are challenged.  An Illinois appellate court recently affirmed a circuit court’s dismissal of plaintiff restaurant worker’s class action claim that defendant restaurant employer took improper deductions from plaintiff’s wages to fund a meal credit program. 

Read the full article here.

Reprinted with permission from Hospitality Law. Copyright 2014 by LRP Publications. Palm Beach Gardens, FL 33418. All rights reserved. For details on this or other related products, visit www.shoplrp.com/hospitality.html or call toll free 1-800-341-7874

7-Eleven Franchise Operators’ Overtime & Minimum Wage Lawsuit Given Green Light by NJ District Court

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On Epstein Becker Green’s Management Memo blog, Maxine Neuhauser reviews New Jersey U.S. District Court’s ruling in Naik v. 7-Eleven that four franchise owner-operators may pursue overtime and minimum wage claims against franchisor 7-Eleven under both the federal Fair Labor Standards Act (“FLSA”) and the New Jersey Wage and Hour Law (“NJWHL”).

Following is an excerpt from the blog post:

On July 29, 2014 the NLRB’s General Counsel announced a decision to treat McDonald’s, USA, LLC as a joint employer, along with its franchisees, of workers  43 McDonald’s franchised restaurants with regard to unfair labor practices charges filed by unions on behalf of the  workers and authorized charges against of both the franchisees and McDonalds. (See our July 30 blog post  and Aug. 14 blog post)

To access the full blog post, please click here.

As Marijuana Becomes Legal in More States, How Should Employers Handle Positive Drug Tests?

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By:  Jordan Schwartz

Due to the ever changing laws surrounding the legality of marijuana, many of our hospitality clients have recently asked us whether it is lawful to terminate an employee who has tested positive for marijuana.  The answer varies greatly depending on the state in which you are located.  

States continue to pass legislation legalizing marijuana use for specific purposes.  On July 5, 2014, New York became the twenty-first state along with the District of Columbia to legalize marijuana use for certain medical conditions—joining Alaska, Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oregon, Rhode Island, and Vermont.  Two other states, Colorado and Washington, have legalized recreational marijuana use for individuals who are 21 years old or older, and Alaska and Oregon currently have similar legislation pending.

Most state laws legalizing marijuana do not address the employment issues implicated by these statutes.   Courts in several of these states have held that the protection afforded under these statutes is limited to the decriminalization of marijuana.  Therefore, courts have generally upheld employers’ right to discipline employees, including terminating their employment, when the employees’ marijuana use violates drug-free workplace policies.  However, some states, such as Arizona, Delaware, and Connecticut, prohibit employers from terminating an individual’s employment or failing to hire an applicant solely based on a positive drug test result.  Consequently, employers in those states should proceed cautiously when deciding whether to discipline an employee or fail to hire an applicant based on marijuana use.

Employers taking action against employees who have tested positive for marijuana can also run into issues with other state statutes, such as those prohibiting employers from taking adverse actions for lawful off-duty activities.  For example, Colorado prohibits an employer from firing an employee for lawful off-duty conduct.  Thus, even if an employee tests positive for marijuana, he can claim he is protected from termination, so long as his use of the drug occurred during non-working hours.  At this point, it is not clear whether such an argument will be successful.  So far, there has only been one Colorado case, Coats v. Dish Network, L.L.C., addressing this novel legal question, and the Colorado Court of Appeals affirmed the employer’s right to fire an employee for off-duty medical marijuana use.  However, the Colorado Supreme Court granted review of the case recently, so Colorado employers should monitor this case closely.  Therefore, employers in Colorado and other states that prohibit discipline for lawful off-duty activities should be careful when penalizing their employees for off-duty marijuana use.

Hospitality employers also need to be aware of potential violations of the Americans with Disabilities Act (ADA) associated with medical marijuana.  Employers with facilities in states that allow medical marijuana use may need to provide a reasonable accommodation under the ADA for employees with a valid doctor’s authorization.  For instance, the New York statute permitting medical marijuana use automatically classifies every individual who is considered a Certified Patient as disabled.  Therefore, New York employers must engage in an interactive process with the employee to determine whether they need to provide the employee with a reasonable accommodation.  Employers in other states may have similar obligations.

Employers should continue to carefully monitor legislation in their states as the laws continue to evolve.  To ensure legal compliance, employers should rewrite their workplace policies to include marijuana in their drug testing policy and state the potential consequences of an employee’s marijuana use.  Finally, in deciding whether to terminate an employee for marijuana use, an employer may want to focus on the employee’s impairment on the job and approach the situation in the same way as it handles an employee’s impairment from alcohol or prescription drugs.

BIG MAC ATTACK : NLRB General Counsel Argues Franchisees and McDonald’s Are Joint Employers

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With the  continued strength of franchising in the hospitality sector and the ever growing reliance on vendors and subcontractors to perform many functions in distribution, maintenance, asset protection and other functions  that hospitality employers historically  performed with their own employees, creating different levels of integration and affiliation between hospitality entities among providers and their various service providers and contractors, the issue of joint-employer status has become a prominent issue of concern. As the NLRB moves towards a broader definition of joint employer status, the  NLRB’s General Counsel’s position in a series of cases involving McDonald’s and numerous franchisees across the country appears to foreshadow the NLRB’s new, more aggressive position on what factors establish the joint employer relationship.

On Epstein Becker Green’s Management Memo blog, Steven M. Swirsky discusses this issue and the following is an excerpt from the blog post:

NLRB General Counsel Richard Griffin announced on Tuesday July 29th that he has authorized issuance of Unfair Labor Practice Complaints based on 43 of 181 charges pending against McDonald’s, USA, LLC and various of its franchisees, in which the Board will allege that the company and its franchisees are joint-employers. If the General Counsel prevails on his theory that McDonalds is a joint employer with its franchisees, the result would be not only a finding of shared responsibility for unfair labor practices, but could also mean that the franchisor would share in the responsibilities of collective bargaining if unions are successful in organizing franchisors’ workers.

To access the full blog post, please click here.

Coverall Case Pending in the First Circuit Could Have Major Impact on The Future of the Franchise Industry in Massachusetts

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By:  Barry Guryan and Jeff Ruzal

In a highly publicized March 23, 2010 decision, Awuah v. Coverall N. Am., Inc., 707 F.Supp.2d 80 (D. Mass. 2010), U.S. District Judge William Young for the District of Massachusetts rocked the Massachusetts business community by ruling that a group of janitorial franchisees were improperly classified as independent contractors, and that they were instead “employees” of commercial cleaning franchisor Coverall who are entitled to statutory protection under Massachusetts’ Wage laws including, among others, minimum wage, overtime pay, meal breaks and workers’ compensation.

Massachusetts law is known to have one of the most stringent employment classification tests in the country. Commonly referred to as the “ABC Test,” G.L. c. 149, § 148B(a), putative employers must satisfy the following three conditions to establish an independent relationship with individuals who perform services for them: (a) the individual is free from control and direction in connection with the performance of service; (b) the service is performed “outside the usual course of the business of the employer,” and (c) the individual is customarily engaged in an independently established business of the same nature as that involved in the service performed.  Id.  Prong B is by far the most challenging part of the Test because, in most instances, the services to be performed fall within the employer’s usual course of business.  This requirement does not exist under most state law classification tests.     

Seizing on prong B of the Test, Judge Young rejected Coverall’s argument that its franchising business is separate and distinct from the franchisee’s individual businesses in commercial cleaning.  Judge Young instead found that:

franchising is not itself a business[;] rather a company is in the business of selling goods or services and uses the franchise model as a means of distributing the goods or services to the final end user without acquiring significant distribution costs.  Describing franchising as a business in itself, as Coverall seeks to do, sounds vaguely like a description for a modified Ponzi scheme—a company that does not earn money from the sale of goods and services, but from taking in more money from unwitting franchisees to make payments to previous franchisees.

Awuah, 707 F.Supp.2d at 84 (emphasis added).  Concluding that Coverall franchisees did not perform services outside the course of Coverall’s business, the Court held that the franchisees were not independent contractors but Coverall’s employees.  Coverall thereafter filed its notice of appeal of this decision to the First Circuit Court of Appeals.   

On February 3, 2014, Coverall filed its brief to the First Circuit, arguing, among other points, that its regular activities and the services it performs are entirely different from the activities and services performed by franchise owners.  As Coverall explained, its regular activities are selling franchises, promoting the Coverall® brand, soliciting customer contracts, and providing billing and collections services to franchise owners.  By contrast, Coverall argued, franchise owners independently operate commercial cleaning businesses, which include scheduling cleaning services, staffing cleaners, purchasing cleaning equipment and supplies, and supervising their own employees. 

Echoing Coverall’s argument, the International Franchise Association (“IFA”), the largest trade association in the world, argued as amicus curiae in its April 17, 2014 brief to the First Circuit that the District Court failed to recognize the significant differences between Coverall’s and the franchise owners’ regular activities and services, and instead incorrectly focused on the irrelevant fact that they both ultimately depend on the sale of commercial cleaning services. 

The IFA further argued that Judge Young’s decision will severely damage the Massachusetts franchising business, referencing staggering statistics that highlight the importance franchising has on Massachusetts’ economy.  According to the Economic Impact of Franchised Businesses, in 2007, the most recent year for which comprehensive data is available, 13,676 Massachusetts franchise establishments produced 149,600 Massachusetts jobs totaling $6.4 billion in payroll.  www.buildingopportunity.com/download/Part1.pdf.  What is more, those 13,676 Massachusetts franchise establishments helped create 323,900 additional independent Massachusetts jobs supporting, but not directly tied to, the franchised businesses.  The IFA argued that Judge Young’s decision puts Massachusetts’ robust franchising business in jeopardy by, among other things, disincentivizing franchisees from supplying their own financial capital into new and existing franchises because as salaried or hourly “employees” they will not be entitled under the law to the profits they produce.  

Whether the First Circuit will agree with the IFA and thus look to narrow Judge Young’s expansive reading of prong B is an open question.  In any event, franchisors operating in Massachusetts must be mindful of the stringent ABC Test, and should consult with an attorney on compliance and best practices in the franchising business.  Franchisors outside of Massachusetts must likewise be aware of the classification laws unique to the states in which they operate to ensure utmost compliance.                  

OSHA and NLRB Agreement Opens New Door To Whistleblower Claims

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On Epstein Becker Green’s OSHA Law Update blog, Eric Conn reviews the agreement between the NLRB and OSHA, which allows employees to file out-of-date safety related whistleblower claims to be filed with the NLRB.

Following is an excerpt from the blog post:

On May 21, 2014, the National Labor Relations Board (NLRB) published a memorandum discussing a new agreement between NLRB and OSHA regarding a backdoor route for employees to file safety related whistleblower claims that are too stale to be filed with OSHA. The NLRB memo directs OSHA representatives to “notify all complainants who file an untimely [OSHA] whistleblower charge of their right to file a charge with the NLRB.” As a result of this agreement, employers should expect an increase in the number of unfair labor practice claims filed by employees alleging retaliation for protected safety related whistleblower activity.

To access the full blog post, please click here.

Kara Maciel Quoted in “For Fine Dining Sector, Tip Pools Can Be Legal Trap”

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Kara Maciel, a Member of the Firm in the Labor and Employment, Litigation, and Health Care and Life Sciences practices, in the Washington, DC, office, was quoted in an article titled “For Fine Dining Sector, Tip Pools Can Be Legal Trap.” (Read the full version – subscription required.)

Following is an excerpt:

As a wave of lawsuits hits restaurants over tip pool violations, fine dining establishments packed with sommeliers, mixologists and other high-end specialists that tend to take on some managerial duties face the greatest risks of becoming targets for litigation or Department of Labor audits, attorneys say. …

“It’s always an open question whether someone like a maitre d’ or sommelier or expediter should be included in the tip pool,” said Kara M. Maciel, a labor and employment litigator with Epstein Becker & Green PC.

And the stakes for being wrong on this can be high, since if a tip pool is found to violate federal or state laws, it could invalidate the tip credit that the restaurant took or was banking on for that period of time, Maciel says. …

The same goes with catering hall banquet captains, who might be tasked with taking care of brides and grooms on their big days but who also often supervise staff, according to Maciel.

California Supreme Court Opens the Door to Class Action Waivers, Shuts Door to Waiver of Representative Actions

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By Marisa S. Ratinoff and Amy B. Messigian

One of the main battlegrounds between employers and employees relates to the ability of employers to preclude class actions by way of arbitration agreements containing class action waivers. In California, the seminal case of Gentry v. Superior Court (“Gentry”) has had the practical effect of invalidating class action waivers in employment arbitration agreements since 2007. Gentry held that an employment class action waiver was unenforceable as a matter of California public policy if the class action waiver would “undermine the vindication of the employees’ unwaivable statutory rights” under the Labor Code. Thus, California hospitality employers and national hospitality employers with a business presence in California have found it extremely difficult, if not impossible, to enforce class action waivers in their employment arbitration agreements over the past seven years and have seen scores of California wage and hour cases proceed in court under the harsh hand of Gentry.

The landscape changed drastically in 2010 when the United States Supreme Court issued its decision in AT&T Mobility, LLC v. Concepcion (“Concepcion”). There, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state laws or policies that deem arbitration agreements unconscionable and unenforceable on the basis that they preclude class actions. While the Concepcion case related to a consumer arbitration agreement, many have questioned whether its impact extended to employment arbitration agreements, such as the ones invalidated on public policy grounds under Gentry.

Iskanian v. CLS Transportation Los Angeles, LLC is the first case to test this issue before the California Supreme Court. The decision takes one step forward and one step back. First, the Court held that Gentry has been abrogated by Concepcion. As such, courts may not refuse to enforce an employment arbitration agreement simply because it contains a class action waiver. The Court further rejected the argument that a class action waiver is unlawful under the National Labor Relations Act.

However, the Court also found that an employee’s right to bring a representative action under Private Attorney General Act (“PAGA”) is nonwaivable. Under PAGA, an employee may bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. Of the civil penalties recovered, 75 percent goes to the State of California and the remaining 25 percent go to the “aggrieved employees.” The Court held that “an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.” The Court also found that “the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude [California’s] Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf.” The Court explained that PAGA waivers do not frustrate the FAA’s objectives because the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the State, which is being brought in a representative capacity by the employee. Because the State derives the majority of the benefit of the claim and any judgment is binding on the government, it is the “real party in interest,” making a PAGA claim more akin to a law enforcement action than a private dispute. Because of this, it is within California’s police powers to enact PAGA and prevent the waiver of representative PAGA claims.

The practical effect is that even if a class action waiver is enforceable, any purported waiver of a representative PAGA action will be unenforceable. As a result, a complaint filed in court that includes a PAGA cause of action will arguably remain with the court unless the claims are bifurcated. As for Iskanian and his former employer, the Court left these questions to the parties to resolve. While it is possible that Iskanian will be appealed to the United States Supreme Court for guidance, at least for the foreseeable future employers should expect plaintiffs’ counsel to include PAGA causes of action in order to frustrate employer efforts to move wage and hour claims to arbitration.

Going forward, hospitality employers may want to consider adopting agreements with their California employees that expressly permit representative PAGA claims to be brought in arbitration while waiving all other class claims to the extent allowed by law. Alternatively, employers may revise their agreements to allow for bifurcation of claims or expressly exclude PAGA claims from the scope of the agreement. In either case, employers should use this opportunity to review the terms of their arbitration agreements and put new agreements in place with California employees, if necessary.

Stuart Gerson on the Supreme Court’s Harris and Hobby Lobby Decisions

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Our colleague Stuart Gerson of Epstein Becker Green has a new post on the Supreme Court’s recent decisions: “Divided Supreme Court Issues Decisions on Harris and Hobby Lobby.” 

Following is an excerpt:

As expected, the last day of the Supreme Court’s term proved to be an incendiary one with the recent spirit of Court unanimity broken by two 5-4 decisions in highly-controversial cases. The media and various interest groups already are reporting the results and, as often is the case in cause-oriented litigation, they are not entirely accurate in their analyses of either opinion.

In Harris v. Quinn, the conservative majority of the Court, in an opinion written by Justice Alito, held that an Illinois regulatory program that required quasi-public health care workers to pay fees to a labor union to cover the costs of wage bargaining violated the First Amendment. The union entered into collective-bargaining agreements with the State that contained an agency-fee provision, which requires all bargaining unit members who do not wish to join the union to pay the union a fee for the cost of certain activities, including those tied to the collective-bargaining process. …

An even more controversial decision is the long-awaited holding in Burwell v. Hobby Lobby Stores, Inc. Headlines already are blasting out the breaking news that “Justices Say For-Profits Can Avoid ACA Contraception Mandate.” Well, not exactly. …

Both sides of the discussion are hailing Hobby Lobby as a landmark in the long standing public debate over abortion rights. It is not EBG’s role to enter that debate or here to render legal advice, but we respectfully suggest that the decision’s reach is already being overstated by both sides.  In the first place, the decision does not allow very many employers to opt out of birth control coverage – only closely-held for-profit companies that have a good-faith ideological core, as clearly was the case for Hobby Lobby. That renders such companies functionally the same as non-profits that are exempted from the mandate by the government. Publicly-held companies are not affected by the decision (though some are likely to argue that Citizens United might require such an extension. Nor are privately-held companies that can’t demonstrate an ingrained belief system.

Read the full post here.

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