Playing with Employees' Hours Could Get You in Hot Water under the ACA and FLSA

By:  Kara Maciel, Adam Solander and Lindsay Smith

As the Employer Mandate compliance deadline looms for employers under the Affordable Care Act (“ACA”) and employers are closely monitoring employee hours, it is critical that employers take appropriate and lawful steps to record all hours worked by an employee.  If employers try to play games and manipulate how time records are maintained, they could find themselves in hot water under both the ACA and the Fair Labor Standards Act (“FLSA”). 

In what appears to be one of the first lawsuits challenging how hours are recorded under the ACA, an employee filed a putative collective action against Sun Holdings, LLC, a fast food franchisee.  The employee, a busboy at a Golden Corral restaurant, alleged that his managers required him to work under his real name and an alter ego to avoid paying him for all hours worked.  This set-up allegedly was designed to avoid having to pay overtime compensation under the FLSA and to count him as a full-time employee eligible to receive health benefits under the ACA.   

Accurate calculation and recording of the total number of hours worked by an employee is essential to compliance with the provisions of both the FLSA and the ACA.  Under the FLSA, an employer must pay an employee at least the minimum wage for all hours worked.  An employer must also provide overtime compensation at one and a half times the employee’s regular rate of pay for any hours worked in excess of 40 hours per week, unless that employee is classified as exempt.  Therefore, if an employer attributes some amount of time worked by one employee to an alter ego through which the employee cannot claim his time, the employee may be deprived of the overtime compensation he has earned.

Additionally, the ACA only provides benefits to employees who reach a certain amount of hours and binds employers with a certain amount of employees meeting that hour threshold.  The ACA applies to employers with 50 or more employees working 30 or more hours per week.  Only those employees working 30 hours or more per week are entitled to the health care coverage required by the ACA.  Therefore, an employee may lose the benefits to which he would otherwise be entitled if a portion of his hours worked is attributed to someone else, causing him to fall below the 30-hour minimum.  Furthermore, an employer may avoid the obligations of the ACA if it records 30 hours or more of work time for less than 50 of its employees. Although the Employer Mandate, which puts the employer-provided coverage into effect, does not kick in for large employers until January 1, 2015, applicability of the ACA depends upon the size of the affected workforce during the prior calendar year.      

A claim of this kind could be very costly for an employer because, as is the case here, such claims are often brought as collective actions.  In this case, the employee filed his claim on behalf of himself and all others similarly situated.  Although the amount of unpaid wages and liquidated damages he seeks only amounts to approximately $15,000.00, the franchisee owns roughly 400 restaurants in Texas and Florida.  Thus, a court award, or even a settlement, could be quite significant.

These allegations demonstrate the importance of correctly tracking employee hours and ensuring that an employee receives compensation and benefits in accordance with the total amount of hours worked.  Often times, this may mean training your managers as to the correct protocol for recording and compensating hours worked and monitoring to ensure managers are following that protocol. 

Importantly, this case forecasts what could be an emerging and growing area of litigation under the ACA, so employers must be ever vigilant about putting into practice protocols that ensure they are complying with the ACA and not manipulating hours to avoid the Employer Mandate’s requirements.  Considering that an analysis under the Employer Mandate’s look-back methodologies should be done this year, any changes to employees’ hours should be closely reviewed with legal counsel.  Although overtime compensation and benefits coverage can create increased financial burdens on employers, the cost of not complying can be even greater. 

Epstein Becker Green to Participate in the 8th Annual National HR In Hospitality Conference & Expo

Epstein Becker Green is pleased to be participating in the 2014 National HR In Hospitality Conference & Expo at the Aria Hotel in Las Vegas on April 28-30, 2014.  EBG is sending two of its hospitality industry experts to represent the Firm, Kara M. Maciel and Jeffrey H. Ruzal.

Kara, a Member of the Firm in its Washington, DC office, is Chair of the Hospitality Employment and Labor Law Outreach Group.  Kara’s practice is concentrated on issues related to the hospitality industry where she has represented national hotel chains, hospitality management groups, restaurants and spas. Kara also counsels employers on compliance with the Affordable Care Act, including the Employer Mandate for unionized and non-unionized employers. In 2013, she was appointed Chair of The Affordable Care Act and Wellness Interest Group of the HRA-NCA's Legislative Committee.

Jeff, a Senior Counsel in EBG’s New York office, is a member of the Hospitality Employment and Labor Law Outreach and Wage and Hour groups.  Jeff’s practice is focused on wage and hour compliance and litigation related to the hospitality industry.  Jeff has represented national restaurant chains, hotels and country clubs.  Prior to joining EBG, Jeff was a trial attorney with the U.S. Department of Labor, Office of the Solicitor where he was responsible for FLSA enforcement investigations and trials.  Jeff regularly handles frequently litigated wage and hour issues in the hospitality industry, such as misclassification, tip pool and credit issues, and recordkeeping and notice violations.

Kara and Jeff look forward to sharing their expertise in hospitality law and discussing best practices to avoid many of the recurring legal issues plaguing the hospitality industry.  You can reach Kara at (202) 861-5328 or at Kmaciel@ebglaw.com, and Jeff at (212) 351-3762 or at Jruzal@ebglaw.com.          

How Hoteliers Must Comply With WARN

By Kara M. Maciel

When hoteliers are considering purchasing, selling or remodeling hotels, one of the most overlooked issues during the due diligence and planning phases relates to the Worker Adjustment and Retraining Notification Act.

This statute requires covered employers to provide 60 days’ notice to employees, union representatives, state agencies and localities before carrying out plant closings or mass layoffs.[1] Congress intentionally devised WARN to provide affected employees adequate time to prepare for employment loss, seek and obtain alternative employment, and/or arrange for skill training or retraining to compete successfully in the job market.

Accordingly, hotel buyers, sellers, owners and management companies should be mindful of WARN’s obligations and be aware of potential liability for failure to provide written notice.

WARN’s Threshold Requirements

To fall under WARN, a hotel must employ at least 100 full-time employees, or employ 100 or more full-time and part-time employees who work at least 4,000 hours per week (exclusive of overtime). In determining whether a hotel has the requisite number of employees, hotels must count temporary employees and individuals who are temporarily laid off or on a leave of absence but who have a reasonable expectation of recall toward the threshold number of “full-time” employees.

In contrast, part-time employees are excluded from determining if a hotel satisfies the threshold levels. Part-time employees are individuals who work on average fewer than 20 hours per week, or who have been employed fewer than six of the 12 months preceding the date on which notice is required (e.g., recent hires working full-time schedules and seasonal workers).

Covered Employees and Content of Notices

Hotels covered by WARN must provide 60 days’ notice of a qualifying termination event to each hourly and salaried employee, manager and supervisor who may reasonably expect to experience employment losses. This notice requirement applies to both full-time and part-time employees.

Although temporary employees are counted for purposes of determining coverage under WARN, they are not entitled to advance notice so long as they were hired with the clear understanding that their employment was limited in duration.

The required content of written WARN notifications vary depending on whether the hotel is notifying employees, union representatives or government entities. Nevertheless, common to all notifications are (1) a description of the termination event and a statement as to whether the event is expected to be permanent or temporary; (2) the expected date(s) when the layoffs will commence; and (3) the name and telephone number of a hotel official to contact for further information.

Triggering WARN Notice Requirements

Fundamentally, three types of termination events trigger WARN notification requirements where 50 or more full-time employees experience employment losses. Those events are:

  • A plant closing that is a permanent or temporary shutdown of a “single site of employment” or one or more facilities or distinct operating units within a single site of employment that results in an employment loss during any 30-day period for 50 or more full-time employees.
  • A mass layoff (exclusive of a plant closing) of at least 50 full-time employees where the employment loss consists of at least 33 percent of the full-time employees at the single site.
  • A mass layoff of 500 or more full-time employees at a single site of employment, regardless of its proportion of the total employment at the site or if the employment loss is part of a plant closing.

Additionally, WARN defines “employment loss” as involuntary separations of workers exceeding six months; or a reduction in hours worked of at least 50 percent during each month for a six-month period. Any employment losses during a 30-day period are considered a single event for the purposes of the WARN Act.

Notably, even if a hotel’s initial terminations during a 30-day period do not constitute a covered termination event, WARN may be retroactively applied under certain circumstances. If two or more groups of employees suffer employment losses at a single site of employment during a 90 day period, and each group alone does not meet the threshold employee levels, the groups can be aggregated and treated as a single event.

Thus, when smaller layoffs that occur within 90 days collectively satisfy the WARN threshold level, each affected employee must receive 60 days’ notice prior to his or her date of termination. To avoid treating group terminations as a single event, hotels must establish that (1) the employment losses are unrelated and distinct; and (2) they have not structured or phased the terminations to avoid the WARN requirements.

Additionally, if a hotel announces a non-WARN covered layoff of six-month or less but subsequently extends the layoff past six months, the hotel may have WARN notification responsibilities. Unless the hotel can establish that the layoff extension was due to unforeseeable circumstances at the time of the original layoff, the matter is treated as if notice was required for the original layoff.

Finally, plant closing or mass layoff stemming from a relocation or consolidation of all or part of a hotel’s business is not considered an “employment loss,” if before the event (1) the hotel offers to transfer an employee to another site within a reasonable commuting distance and not more than a six-month break in employment occurs (regardless of whether the employee accepts or rejects the offer); or (2) the employee accepts a transfer to another site (regardless of distance) with no more than a six-month break in employment, within 30 days of the hotel’s offer or the closing or layoff, whichever is later.

Notification Exceptions

The WARN Act specifies exceptions in which hotels may provide less than 60 days’ notice to employees, state agencies and localities affected by an employment loss. The primary exceptions are:

  • Faltering Company Exception. Hotels can provide reduced notice for plant closings — but not mass layoffs — where they are actively seeking new capital or business to prevent the closing, have a realistic chance of obtaining sufficient funds or new business, and believe in good faith that giving notice would prevent it from obtaining the necessary capital or business to remain open.
  • Unforeseeable Business Circumstances Exception. Hotels can provide reduced notice where plant closings and mass layoffs are caused by business circumstances that were not reasonably foreseeable at the time notice would otherwise have been required (e.g., swift onset of a deep economic downturn, a nonnatural disaster).
  • Natural Disaster Exception. Hotels can provide reduced notice if a natural disaster, such as hurricane, flood or earthquake, directly causes a plant closing or mass layoff. Although this exception does not apply when the natural disaster indirectly causes the closing or layoff, the unforeseen business circumstances exception above might.

If the hotel provides less than 60 days’ notice under one of the aforementioned exceptions, it must explain in the notice the reason for the reduced notice period.

Who Must Give Notice in Shutdown: Owner or Operator?

Although hotel owners more often decide to shut down operations permanently rather than the managing entities that operate the hotels, the managing entity bears the primary responsibility for giving WARN notices.[2]

Accordingly, in negotiating management agreements, prudent hotel managers should secure protection from the owner against WARN liability for a permanent shutdown. That protection may be requiring the employer to notify the manager of a shutdown with sufficient time for the manager to comply with the WARN Act and securing indemnification against WARN liability if the owner gives insufficient notice to allow for WARN compliance.

Sale of Hotels

The general rule under WARN is that the responsibility to notify affected employees of a mass layoff or plant closing shifts at the time of sale. In this regard, when part or all of a business is sold and WARN’s threshold requirements are satisfied, the seller is responsible for providing notices to affected employees for any closing or layoff, up to and including the effective date of the sale. After the effective date of the sale, however, the buyer is responsible for providing notice for any such event.

Under WARN, however, employees who are merely transferred from the seller to buyer as part of the sale are not deemed to have suffered an employment loss.[3] In other words, the obligation to notify affected employees of a mass layoff is not triggered by the actual sale but by the employment loss.

The U.S. Department of Labor’s corresponding regulations further provide that employees who remain the sellers’ employees until the effective date of the sale and then are terminated, even if on account of the sale, will be treated as if they are employed by the buyer thereafter.

Thus, as the seller’s employees are treated as employed by the buyer after the sale, the seller will have no WARN responsibilities in connection with the post-sale termination of employees incident to the sale. The buyer will be responsible for WARN compliance if it elects not to retain those employees.[4]

If the seller has knowledge that a significant number of employees might be terminated within the first 60 days after the sale is consummated and the seller can identify those affected employees, the seller, although not required to do so, may send WARN notices to the affected employees as the agent of the buyer.[5] The regulations also encourage the parties to discuss and arrange who will bear the WARN obligations and include the specifics in the purchase agreement with appropriate indemnity language.

For the seller to avoid WARN obligations and liabilities, the seller should, to the extent possible, postpone any terminations incident to the sale until after the effective date of the transaction. In addition, a seller should notify employees who are laid off prior to completion of the transaction if their layoffs are temporary, (i.e., expected to be for less than six months), and that the buyer expects to hire some or all of them.

Under these circumstances, short-term layoffs incident to the sale do not constitute an employment loss under WARN and do not trigger WARN notice requirements. The notice obligations would only arise if the buyer fails to rehire a sufficient number of the seller’s employees. In this case, however, the buyer is solely responsible for giving any WARN notices.

It would therefore be prudent for the seller to obtain a provision in the purchase agreement that indemnifies the seller and obligates the buyer to comply with WARN under such circumstances. If, of course, the seller assumes WARN obligations, then it must also comply with WARN’s specific notice requirements.

Enforcement and Penalties

Federal courts enforce WARN through private right of actions, as the U.S. Department of Labor lacks investigative and enforcement authority for the act. Since district court lack injunctive authority to stop a plant closing or mass layoff, a plaintiff’s remedies are limited to statutory damages, attorneys’ fees and costs, and/or civil penalties.

In sum, in light of WARN’s potential for significant financial exposure, hoteliers should carefully plan in advance any notice requirements prior to the purchase, sale or remodel of a hotel.

[1] See 29 U.S.C. §§ 2101-2109 (1988). Many states have mini-WARN laws which may provide more generous notice to employees; therefore, it is critical that hoteliers check state law in addition to the federal notice provisions under WARN.

[2] See Local 217, Hotel and Restaurant Employees Union v. MHM Inc., 976 F.2d 805 (2d Cir. 1992) (finding the hotel’s management company to be liable under WARN for firing its staff in the wake of the hotel’s closing, even though the hotel owner ordered the shutdown).

[3] See Wiltz v. MG Transport Servs., 128 F.3d 957 (6th Cir. 1997) (holding that the actual sale was not a WARN event and that employees who the buyer retained did not fall under WARN).

[4] See Local 54, Hotel Employees International Union v. Elsinore Shore Associates, 724 F. Supp. 333 (D.N.J. 1989) (holding that whoever is the employer at the time of the plant closing or mass layoff is responsible for notifying the employees 60 days in advance).

[5] 29 C.F.R. § 639.4(1).
 

Arbitration in Multiemployer Withdrawal Liability Disputes

Most unionized hospitality employers have collective bargaining agreements which require contributions to multiemployer pension funds. In recent years, many of these pension funds have slipped into “endangered” or even “critical” status, and employers who have exited these funds have been hit with substantial assessments of withdrawal liability. These assessments often amount to millions of dollars in withdrawal liability.

Many employers are unfamiliar with the complicated procedures for contesting an assessment of withdrawal liability from a multiemployer pension fund. As a result, pension funds win a substantial percentage of litigated cases on procedural technicalities.

EBG partner Mark M. Trapp recently wrote an article entitled “Going Through Withdrawal: A Step-By-Step Guide to Arbitration in Multiemployer Withdrawal Liability Disputes” which appears in the current issue of the ABA Journal of Labor & Employment Law (members only).

Mark’s thoroughly researched and straightforward article sheds some light on a process unfamiliar to most employers, and provides a step-by-step guide to challenging assessments. Going Through Withdrawal can be used as a reference guide to ensure that hospitality employers faced with an assessment of withdrawal liability avoid missteps that could cost millions. As Mark notes in his article:

Successfully challenging an assessment of withdrawal liability is difficult enough without making any unforced errors. By avoiding procedural mistakes, a knowledgeable employer can keep the focus of the proceedings on the merits of the fund’s assessment and maximize its chances of prevailing.

The full article can be accessed here.

Hospitality Employers: Prepare for NLRB Social Media Policy Scrutiny

In a recent Law360 article, "NLRB Social Media Push Looms Large for Hospitality Sector" (subscription required), our colleague Mark Trapp comments on the importance for unionized and non-unionized hospitality employers to review their social media policies.

Following is an excerpt:

With the National Labor Relations Board increasingly interjecting into non-union issues, hotels, restaurants and other labor-intensive hospitality companies need to brace for potential claims and tread carefully when crafting social media policies for employees, experts say.

Over the last few years, the NLRB has been extending its reach — traditionally centered on union or collective bargaining matters — to include the actions and speech rights of groups of employees, even when those groups are not unions, according to a report released Wednesday by the the Cornell Institute for Hospitality Labor and Employment Relations. In these actions, the NLRB often targets companies' broad social media policies for limiting the rights of employees to band together over wrongful job conditions, wages or terms, experts say.

"Certainly you want to take a look at your policies for social media, take a look at your handbook ... and take a look at disciplinary policies," said Mark Trapp of Epstein Becker & Green PC. "It used to be that you didn't have to pay attention to that as a non-union employer, but now you do."

Wage and Hour Update

Our colleague Kara M. Maciel of Epstein Becker Green wrote a wage and hour update in this month’s Take 5 labor and employment newsletter.

Here’s a preview of the five items:

1. IRS Will Begin Taxing a Restaurant's Automatic Gratuities as Service Charges
2. The New DOL Secretary, Tom Perez, Spells Out the WHD's Enforcement Agenda
3. DOL Investigates Health Care Provider and Obtains $4 Million Settlement for Overtime Payments
4. Federal Court Strikes Down DOL Tip Pooling Rule
5. Take Preventative Steps When Facing WHD Audits

Read the full article here.

 

Take 5 Views You Can Use: Wage and Hour Update

By:  Kara M. Maciel

The following is a selection from the Firm's October Take 5 Views You Can Use which discusses recent developments in wage hour law affecting the hospitality industry.

IRS Will Begin Taxing a Restaurant’s Automatic Gratuities as Service Charges

Many restaurants include automatic gratuities on the checks of guests with large parties to ensure that servers get fair tips. This method allows the restaurant to calculate an amount into the total bill, but it takes away a customer’s discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer’s voluntary act, the Internal Revenue Service (“IRS”) will begin classifying automatic gratuities as service charges, taxed like regular wages, beginning in January 2014.

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor automatic gratuities into the hourly wage of the employee, meaning the employee’s regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount that its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit.

Considering that the IRS’s ruling could disadvantage servers as well, restaurants may now want to consider eliminating the use of automatic gratuities. Otherwise, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday.

Some restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or increased food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure that employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.

The New DOL Secretary, Tom Perez, Spells Out the WHD’s Enforcement Agenda

On September 4, 2013, the new U.S. Secretary of Labor, Tom Perez, was sworn in. During his remarks, Secretary Perez outlined several priorities for the U.S. Department of Labor (“DOL”), including addressing pay equity for women, individuals with disabilities, and veterans; raising the minimum wage; and fixing the “broken” immigration system.

Most notably, and unsurprisingly, Secretary Perez emphasized the enforcement work of the Wage and Hour Division (“WHD”). Just last year, the WHD again obtained a record amount—$280 million—in back-pay for workers. Employers can expect to see continued aggressive enforcement efforts from the WHD in 2013 and 2014 on areas such as worker misclassification, overtime pay, and off-the-clock work. In fact, Secretary Perez stated in his swearing-in speech that “when we protect workers with sensible safety regulations, or when we address the fraud of worker misclassification, employers who play by the rules come out ahead.” By increasing its investigative workforce by over 40 percent since 2008, the WHD has had more time and resources to undertake targeted investigation initiatives in addition to investigations resulting from complaints, and that trend should continue.

Federal Court Strikes Down DOL Tip Pooling Rule

In 2011, the WHD enacted a strict final rule related to proper tip pooling and service charge practices. This final rule was met with swift legal challenges, and, this summer, the U.S. District Court for the District of Oregon (“District Court”) concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013).

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the U.S. Court of Appeals for the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other “back of the house staff,” so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). According to the Ninth Circuit, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA.

In 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back-of-the-house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its final rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

Shortly after the issuance of the DOL’s final rule, hospitality groups filed a lawsuit against the DOL challenging the agency’s regulations that exclude back-of-the-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the District Court granted the plaintiffs’ summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The District Court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit.

The District Court’s decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL’s regulations. Given the District Court’s implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever. Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

Take Preventative Steps When Facing WHD Audits

In response to a WHD audit or inspection, here are several preventative and proactive measures that an employer can take to prepare itself prior to, during, and after the audit:

  • Prior to any notice of a WHD inspection, employers should develop and implement a comprehensive wage and hour program designed to prevent and resolve wage hour issues at an early stage. For example, employers should closely examine job descriptions to ensure that they reflect the work performed, review time-keeping systems, develop a formal employee grievance program for reporting and resolving wage and hour concerns, and confirm that all written time-keeping policies and procedures are current, accurate, and obeyed. Employers should also conduct regular self-audits with in-house or outside legal counsel (to protect the audit findings under the attorney-client privilege) and ensure that they address all recommendations immediately.
  • During a DOL investigation, employers should feel comfortable to assert their rights, including requesting 72 hours to comply with any investigative demand, requesting that interviews and on-site inspection take place at reasonable times, participating in the opening and closing conferences, protecting trade secrets and confidential business information, and escorting the investigator while he or she is at the workplace.
  • If an investigator wants to conduct a tour of an employer’s facility, an employer representative should escort the investigator at all times while on-site. While an investigator may speak with hourly employees, the employer may object to any impromptu, on-site interview that lasts more than five minutes on the grounds that it disrupts normal business operations.
  • If the DOL issues a finding of back wages following an investigation, employers should consider several options. First, an employer can pay the amount without question and accept the DOL’s findings. Second, an employer can resolve disputed findings and negotiate reduced amounts at an informal settlement conference with the investigator or his or her supervisor. Third, an employer can contest the findings and negotiate a formal settlement with the DOL’s counsel. Finally, an employer may contest the findings, prepare a defense, and proceed to trial in court.

In addition, employers should review our WHD Investigation Checklist, which can help them ensure that they have thought through all essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit.

Following these simple measures could significantly reduce an employer’s exposure under the FLSA and similar state wage and hour laws.

Restaurant Sues Former Chef to Recover H-1B Visa Expenses When He Quits Before his Contract Expired

By: Robert S. Groban, Jr. and Matthew S. Groban

On June 28, 2013, a District of Columbia restaurant sued its former executive chef to recover the expenses incurred to secure his H-1B visa.  See Rasika West End LLC v. Tyagi, No. 13-0004426 (D.C. Super. Ct. filedJune 28, 2013). According to the complaint, the employer entered into a thirty-six (36) month contract with the H-1B employee, and claimed that it would take that long to recover, among other things, funds spent to secure the approved H-1B petition the employee needed to assume the position. The complaint further alleges that the restaurant was entitled to recover these expenses because the contract required the employee to pay them if he voluntarily left the employment before thirty-six (36) months elapsed. 

The U.S. Department of Labor regulations do not permit an H-1B employer to require a prospective employee to pay these H-1B expenses at the outset. These regulations appear to permit sponsoring employers to recoup these expenses as “liquidated” damages if the sponsored employee fails to live up to his or her employment commitment. The area is a complex one, however, so employers contemplating this type of recoupment need to consult experienced immigration counsel to be sure that the provisions they prepare are enforceable and do not adversely affect either the employment or H-1B relationship.

Oct.10: Data Privacy and Security Webinar - Legal Strategies Amid Growing Liability Threats

We’d like to recommend an upcoming complimentary webinar, “Data Privacy and Security in the Hospitality Industry Webinar: Legal Strategies Amid Growing Liability Threats"  (Oct. 10, 2:00 p.m. EDT), by our Epstein Becker Green colleagues Kara M. Maciel, Robert J. Hudock, Alaap B. Shah,and Adam C. Solander.

Below is a description of the event:

Privacy and security concerns are natural for businesses in the hospitality industry given the growing use of interconnected electronic data systems to manage transactions and customer accounts. Any information system containing credit card information is a natural target for data theft.

Hospitality businesses must also be concerned about misuse of their data for identity theft purposes and about possible exposure to federal HIPAA ramifications if they possess Protected Health Information ("PHI") within an employee benefits database or elsewhere.

During this informative webinar, we will discuss: 

  • Employee training including policy and procedures;
  • High-strength security protocols in response to identified risks; and
  • Reponses to security breaches in order to mitigate the impact of, and reduce or prevent, identity theft.
  • Privacy and security risk assessments;

To learn more about it, visit Epstein Becker Green or click here for complimentary registration.

Serving Up More Taxes - IRS to Begin Taxing Automatic Gratuities as Service Charges

By: Kara M. Maciel

Many restaurants include automatic gratuities on guests’ checks with large parties to ensure servers get fair tips. This method allows the restaurant to calculate an automatic gratuity or tip into the total bill, but it takes away the customer’s discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer’s voluntary act, the IRS has decided that it will separately tax automatic gratuities.

In 2012, the IRS issued a ruling to clarify earlier tax guidance on tips, particularly automatic gratuities, but because restaurants persuaded the IRS to hold off for a year, the IRS did not immediately enforce that ruling. As of January 2014, however, the IRS will begin classifying automatic gratuities as service charges, taxed like regular wages. 

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor any automatic gratuities into the hourly wage of the employee, meaning the employee’s regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit. Finally, it will produce more paperwork and add to the already rising costs restaurants will incur due to the Affordable Care Act. 

Restaurants considering eliminating the use of automatic gratuities are unlikely to face much backlash from employees, as the IRS’s ruling could disadvantage them as well. For example, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday. For those waiters and waitresses used to coming home with money in their pockets each workday, such a delay could prove a serious financial hardship.

Some restaurants have begun moving toward the use of suggested tips on a customer’s bill instead of charging an automatic gratuity in light of this change. For example, Darden Restaurants Inc., has begun implementing a new system in some of its restaurants in which three suggested tip amounts, 15%, 18% and 20%, appear on all customer bills. This system allows the customer to exercise discretion in choosing whether and how much to tip. In its ruling, the IRS suggested that such a practice would not be subject to federal withholdings because the decision to leave a tip is still voluntary. Therefore, this practice presents a viable alternative to automatic gratuities as it provides some protection for employees without incurring increased tax penalties.

Other restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.   

ADA Compliance: Implications for Owners and Managers When Acquiring or Developing New Lodging Facilities

On September 18, 2013, our hospitality practice attorneys, Kara Maciel and Mark Trapp, have the pleasure of speaking at the Lodging Conference in Scottsdale, Arizona on key financial and legal issues under the Americans with Disabilities Act impacting hotel owners and managers when acquiring, selling, developing or managing properties. 

Under the 2010 ADA Standards, which became effective in March of 2012, hotels must take steps to remove access barriers for individuals with disabilities. The new federal standards encompass some key changes for hotel owners, operators and developers.   Our Round Table discussion will focus on hot-button issues facing the hotel industry, including:

·         Why Owners and Managers Should Care about ADA Compliance when Purchasing / Selling / Developing / Managing a Property

·         Key Financial Issues In Acquiring / Selling Properties

·         Key Financial Issues in Developing New Construction / Renovating Older Properties

·         Key Financial and Operational Issues in Management Agreements 

·         Best Practices for Compliance under the ADA for Lodging Facilities

Attendees will leave the workshop better equipped to address the critical operational issues affecting their deals and profit margins, including:

·         How to conduct Due Diligence to minimize financial exposure and legal risks

·         How to negotiate and maximize your financial investment in a Purchase Sale Agreement

·         What issues are important in a Management Agreement

·         How to draft and implement employment and related policies to minimize the risk of ADA lawsuits

For more information about this important topic impacting the lodging industry, contact Kara or Mark. 

ADA Accessibility Notes from the Resort Hotel Association Conference

By:  Kara Maciel

Last week, I had the honor of attending the Resort Hotel Association’s (“RHA”) Annual Conference at The Edgewater Hotel in Seattle.  RHA is comprised of 130 independently-owned resorts, hotels, city clubs and spas in the United States and specializes in insurance programs that address the risks unique to the lodging industry.  For the second year in a row, RHA invited me and my colleague, Jordan Schwartz, to speak on the Americans with Disabilities Act (“ADA”) and public accommodations issues that hotel and lodging operators face. The room was packed and due to constant questions from the audience we were unable to review all our material in the 75 minute speech. Needless to say, ADA compliance remains a hot topic within the hospitality industry! 

Here are the main points from our speech:

1. ADA Lawsuits continue to the flood the federal courts since the 2010 ADA Standards took effect in March 2012. Civil penalties increased to $55,000 per violation, and many lawsuits are now being filed after a potential guest merely calls the property to ask about accessibility standards. Hoteliers continue to struggle with responding to complaints from national advocacy groups and professional plaintiffs across the country.

2. Pool Lifts - Fixed lifts should be in place at each pool, spa, Jacuzzi on property since January 1, 2013 unless you can demonstrate it is not readily achievable. Lifts must remain in operation at all times the pool is open which means batteries must be charged, covers must be removed, and lifts can't be locked away in storage pending a guest request. Hoteliers remain concerned about the significant liability and exposure from children or other unauthorized persons playing on the lifts that could lead to injury. Many operators at the conference reported that while they have installed the lifts, they have yet to be used in practice. 

3. Room Reservations – Under the 2010 ADA Standards, hotels must now modify their policies, practices, or procedures to ensure that individuals with disabilities can make reservations for accessible guest rooms during the same hours and in the same manner as other individuals; be able to identify and describe accessible features in the hotel and guest rooms offered through their reservations service; ensure that accessible guest rooms are held for use by individuals with disabilities until all other guest rooms of that type have been rented and the accessible room requested is the only remaining room of that type; and prevent accessible guest rooms from being double booked.   As a practical matter, this will require many hotel operators to revise their electronic reservations systems and to train employees who take reservations so that they understand the features of accessible rooms.

4. Food Allergies – The Department of Justice has now identified all severe food allergies as disabilities, which could trigger reasonable accommodation requirements under the ADA.  This pronouncement could have wide-ranging implications for all hoteliers that serve food, either as a primary or secondary practice. Thus, hospitality opera­tors should evaluate their practices for offering and providing accommodations for food allergies to minimize any potential exposure to disability discrimination charges under the ADA. While there may not be a “one size fits all” solution to this issue, hospitality companies can take prudent steps to ensure that guests with allergies have the ability to fully and equally enjoy the dining services and the social benefits that accompany such services

5. Website Accessibility – Online marketing is a key tool for hotels and resorts, and most individuals will review a hotel’s website before booking their stay. Thus, it is critical that hotels position themselves as an ADA-friendly property, with notices about their accessible rooms and amenities. In addition, to the extent hotels allow guest to check room availability or book a stay online, the website must be accessible for individuals with visual and other impairments. The Department of Justice has begun to focus on website accessibility for online retailers, and more individuals are filing civil suits over inaccessible on line services. 

Overall, the hospitality industry should continue to be vigilant and proactive in ADA compliance ensuring their property meets accessibility requirements before a civil complaint is filed. Necessary steps include an internal audit and inspection of the entire property to ferret out areas needing improvement, staff training on ADA policies and procedures and how to respond to guest inquiries on the phone or in person, and finally, removing architectural and structural barriers where readily achievable to ensure barriers to access are eliminated. 

Our next speech will be at The Lodging Conference in Scottsdale on September 16 where we will discuss "ADA Compliance: Implications for Owners and Managers When Acquiring or Developing New Lodging Facilities." 
 

Court of Appeals Rules NLRB Notice Posting Violates Employer Free Speech Rights

By Adam C. Abrahms and Steven M. Swirsky

In another major defeat for President Obama’s appointees to the National Labor Relations Board (NLRB or Board), the US Court of Appeals for the DC Circuit found that the Board lacked the authority to issue a 2011 rule which would have required all employers covered by the National Labor Relations Act (the “Act”), including those whose employees are not unionized, to post a workplace notice to employees. The putative Notice, called a “Notification of Employee Rights Under the National Labor Relations Act,” is intended to ostensibly inform employees of their rights to join and be represented by unions and to engage in other activity protected by the Act. The rule would also have made it an unfair labor practice for an employer to fail to post the required notice and such failure also could be considered proof of anti-union animus in other Board proceedings.

Although proposed in 2011 and scheduled to become effective on April 30, 2012, the requirement has yet been put into effect. As we discussed previously, last year, the US District Court for the District of Columbia had held that the Board lacked the authority to make it an unfair labor practice for an employer to fail to post the notice, holding that this exceeded the Board’s authority under the Act. Just prior to the rule going into effect, the DC Court of Appeals issued an emergency injunction in support of the District Court’s opinion and the NLRB opted to not enforce the rule pending the appeal.

Perhaps what is most noteworthy about the Court’s recent opinion, authored by Senior Circuit Judge Randolph, is the Court’s reliance on employers’ free speech rights which are protected by Section 8(c) of the Act. That section of the Act ensures employers the right to communicate their views concerning unions to their employees. The Court noted that while Section 8(c) “precludes the Board from finding non coercive employer speech to be an unfair labor practice, or evidence of an unfair labor practice, the Board’s rule does both.” That is because under the rule an employer’s failure to post the required notice would constitute an unfair labor practice and the Board’s rule would have allowed the Board to “consider an employer’s ‘knowing and willful’ noncompliance to be ‘evidence of anti union animus in cases in which unlawful motive [is] an element of an unfair labor practice.”

The Court focused on the question of the right of employers to “free speech,” under both Section 8(c) of the Act and under the First Amendment to the Constitution, noting that the rule would have required employers to disseminate information and that “the right to disseminate another’s speech necessarily includes the right to decide not to disseminate it,” relying on analysis from prior Supreme Court and appellate court decisions which it referred to as “compelled speech” cases.

Interestingly, the Court’s conclusion that the Board’s rule violates Section 8(c) because it makes an employer’s failure to post the Board’s notice an unfair labor practice, and because it treats such a failure as evidence of anti-union animus, suggests the Board might be able to find an alternate route to a notice posting requirement if it did not seek to create such a remedy for an employer’s failure to post the notice. However, the Court refused to leave the portion of the Board’s rule requiring the Notice posting in effect even without the enforcement and remedial provisions, because they were an inherent part of the Board’s purpose in adopting the rule. For now the beleaguered Board will need to decide whether it wishes to appeal this decision to the Supreme Court, attempt to craft a new rule with the currently constituted Board that this same Court of Appeals has ruled was unconstitutionally appointed in its Noel Canning decision or postpone any action until a new Board is confirmed by the Senate.

Epstein Becker Green Releases New Version of Wage & Hour Guide App

We are pleased to announce the release of a new version of our Wage & Hour Guide app that puts federal and state wage-hour laws at employers’ fingertips. To download the app, click here

The new version features an updated main screen design; added support for iOS 6, iPhone 5, iPad Mini, and fourth generation iPad; improved search capabilities; enhanced attorney profiles; expanded email functionality for sharing guide content with others; and easier access to additional wage and hour information on EBG’s website, including the Wage and Hour Division Investigation Checklist  and other resources.  The new version continues to be offered at no cost.    

“The wage-hour app has proved to be an incredibly valuable tool for employers, answering many of their questions in seconds, while also providing them with a link to our wage-hour blog, where they can find developments in this ever important area of the law,” said Michael Kun, co-creator of the app and national Co-Chairperson of EBG’s Wage and Hour, Individual and Collective Actions practice group, in the Los Angeles office.

How Does the App Work?

Rather than searching through a variety of cumbersome resources to locate applicable wage and hour laws, users of the Wage & Hour Guide app can follow easy-to-navigate steps to find the answers to many of their questions, including citations of federal statutes, regulations, and guidelines, as well as those of California, the District of Columbia, Georgia, Illinois, Maryland, New York, Texas, and Virginia. The following state guides were added after the initial launch of the app: Connecticut, Massachusetts, and New Jersey.  To provide the best experience possible, the app enables users to download the guide to their iPhone or iPad device for reference anywhere, at any time, with or without a connection. 

EBG's 2013 Hospitality Labor and Employment Breakfast Briefing Series - Atlanta Office

Epstein Becker Green is pleased to announce its 2013 Hospitality Labor and Employment Breakfast Briefing Series

Where:                                  

Epstein Becker Green                         

Resurgens Plaza
945 East Paces Ferry Road
Suite 2700
Atlanta, GA 30326-1380

Time:

8:30 a.m.- Registration, Breakfast and Networking

9:00 a.m. - Briefing

10:30 a.m. - Question & Answer

MARK YOUR CALENDARS

May 8, 2013

Trade Secrets and Non-Competes for Hospitality Companies


June 12, 2013
Avoiding Wage and Hour Liability in the Hospitality Industry

September 11, 2013
Liability Under Title III of the ADA

October 9, 2013
How to Avoid Liability Through Enforceable Employment  Policies and a Well-Drafted Employee Handbook

Seating is limited.   Click here to register to attend the May 8, 2013 briefing

Questions? Contact Elizabeth Gannon or 202/861-1850

The NLRB--Organizing by Pop-Up Unions in Break-Out Units

By: Allen B. Roberts

I wrote the February 2013 version of Take 5 Views You Can Use, a newsletter published by the Labor and Employment practice of Epstein Becker Green. In it, I discuss an alternative view of five topics that are likely to impact hospitality employers in 2013 and beyond. One topic involved the potential for labor organizing by pop-up unions in break-out units.  

Despite some perceptions of cohesiveness and political acumen, influence and wherewithal following the 2012 election cycle, labor unions represent only about 7.3 percent of the private sector workforce in the United States, and only 6.6 percent of workers are actually union members. When concentrations in certain industries and geographic areas are factored, that leaves entire swaths entirely union-free, or substantially so.

Foreseeably for the next four years, unions will continue to benefit from a National Labor Relations Board ("NLRB") that has innovated changes in substantive law and introduced procedures during the past four years that facilitate organizing and restrict the time for responsive employer communications. That advantage has not yet translated into material membership gains by "Big Labor"—although it may still.

However, together with other breakthroughs by way of social media and electronic and physical access to employer premises and communications systems, expanded interpretations of protected concerted activity, and such movements as Occupy Wall Street and grass roots organizations, conventional unions may be eclipsed, if not displaced, by one-off, special purpose organizations formed solely to serve discrete affinity groupings of employees in new bargaining units. If this occurs, it will be enabled by two bedrock principles of the National Labor Relations Act ("NLRA"), aided by a recent interpretation in case law.

First, notwithstanding the attention given by supporters and critics alike to large, well-financed conventional unions with institutionalized structures and processes, the NLRA defines a "labor organization," capable of winning certification as the exclusive representative of employees, to mean any body that exists, in whole or in part, for the purpose of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work. This means that an outside force, planning and funding offsite meetings and campaigns, is not necessary; something as simple as a homegrown pairing or grouping of workers having common interests or worries could qualify as a labor organization.

Second, with respect to the NLRB's formulation of a unit appropriate for collective bargaining purposes, it is not necessary that the unit be the most appropriate or that it conform to management's organizational structure. Historically, the NLRB has been mindful of its authority to make determinations of the unit appropriate for purposes of collective bargaining, consistent with legislative policy assuring that employees have the "fullest freedom" in exercising statutory rights to organize. If it survives Circuit Court of Appeals challenge on review, an NLRB standard adopted in 2011 could lead to a proliferation of small, fractionated bargaining units; it would place the burden on an employer contesting the appropriateness of a labor organization's preferred bargaining unit to show that employees excluded from the unit sought by the petitioning labor organization share an "overwhelming community of interest" with another readily identifiable group. If a readily identifiable group exists based on such factors as job classification, department, function, work location, and skills, and the NLRB finds that the employees in the group share a community of interest, the petitioned-for unit will be an appropriate unit, despite an employer's contention that employees in the unit could be placed in a larger unit that also would be appropriate—or even more appropriate.

Much as the NLRB's approach has been perceived to benefit large, established unions, it may not be surprising if employee groups, newly aware of the NLRB's outreach and enlargement of rights to engage in protected concerted activity through social media and other means, realize also that they are capable of becoming homegrown, single-purpose labor organizations with authorization from the NLRB to define a bargaining unit by its lowest common denominator—or to invade and fractionate existing bargaining units currently represented by Big Labor.

For more Take 5 Views You Can Use, read the full version here.

EBG Provides a Wage and Hour Division Investigation Checklist for Hospitality Employers

Epstein Becker Green is pleased to announce the availability of a Wage and Hour Division Investigation Checklist, which provides hospitality employers with valuable information about wage and hour investigations and audits conducted by the U.S. Department of Labor (DOL). Like EBG’s first-of-its kind Wage and Hour App, which provides detailed information about federal and state laws, the Checklist is a free resource offered by EBG.

The Checklist provides step-by-step guidance on the following issues: preparation before a Wage and Hour Division investigation of the DOL; preliminary investigation issues; document production; on-site inspection activities; employee interviews; and back-wage findings, and post-audit considerations.

“The multitude of wage and hour claims and lawsuits that workers have filed under the Fair Labor Standards Act and its state law counterparts have made wage and hour law the nation's fastest growing type of litigation. And federal and state agencies are investigating and pursuing wage and hour claims more aggressively than ever,” said Michael Kun, the national Co-Chairperson of the firm's Wage and Hour, Individual and Collective Actions practice group. “We hope that our Checklist will serve as an important resource for hospitality employers to use when confronted with an audit – and perhaps help them avoid an audit altogether.”

               Click Here to Download EBG's Wage and Hour Division Investigation Checklist

Five Actions Hospitality Employers Should Consider Taking to Comply with the Affordable Care Act

By Greta Ravitsky

I wrote the January 2013 edition of Take 5: Views You Can Use, a newsletter published by the Labor and Employment practice of Epstein Becker Green.

In it, I summarize five actions that hospitality employers should consider taking in 2013 as the DOL steps up its audit efforts under the leadership of the reenergized Obama administration,

  1. Assess the Workforce
  2. Choose Whether to “Pay” or to “Play”
  3. Evaluate Existing Wellness Programs and/or Implement New Wellness Programs to Enhance Employees’ Health Profiles and to Avoid or Minimize the “Cadillac Tax”
  4. Understand and Be Ready to Comply with New Tax-Related Changes and Requirements
  5. Conduct Self-Audits to Ensure Compliance

The following is an excerpt:

With the U.S. presidential election behind us, it is clear that the Patient Protection and Affordable Care Act (“Affordable Care Act”) is likely here to stay, having survived a U.S. Supreme Court case challenge last June. While affected employers can avoid facing penalties until 2014 for not making health care coverage available to their workforce, the U.S. Department of Labor (“DOL”) has begun auditing employers’ group health plans for compliance with other requirements of the law that are already in effect. As the DOL steps up its audit efforts under the leadership of the reenergized Obama administration, below are five actions that employers should consider taking in 2013.

Read the full version on EBGlaw.com.

IRS Releases New Affordable Care Act Guidance on the Employer Mandate

By: Kara M. Maciel, Adam Solander, Brandon Ge and Philo Hall

As we blogged about previously, the Affordable Care Act provides unique compliance obligations for hospitality employers, many of whom employ large numbers of part-time and seasonal employees.  On December 28, 2012, the Internal Revenue Service (“IRS”) released a Notice of Proposed Rulemaking (“NPRM”) on Shared Responsibility for Employers Regarding Health Coverage (the “Employer Mandate”) under the Affordable Care Act (“ACA”). The NPRM largely incorporates previously released guidance on the subject (IRS Notices 2011-36, 2011-73, 2012-17, and 2012-58).  Employers may rely on these proposed regulations for guidance until final regulations are issued.

Comments on the NPRM are due to the IRS by March 18, 2013.  The IRS has also scheduled a public hearing on April 23, 2013 to receive feedback on these issues. The Employer Mandate requirements under the NPRM take effect on January 1, 2014.

Overview

The Employer Mandate provides that employers with 50 or more full-time employees (including full-time equivalent employees) will be penalized if any full-time employee receives a premium tax credit or cost-sharing reduction to purchase health coverage through an Affordable Health Insurance Exchange (“Exchange”). Generally, an employee is eligible for a cost-sharing subsidy if: (1) an employer does not offer its full-time employees the opportunity to enroll in coverage; or (2) an employer offers its employees the opportunity to enroll in coverage, but the coverage is “unaffordable” or does not provide “minimum value.”

Applicable Large Employers

Under ACA, employers are considered to be “applicable large employers” and, therefore, subject to the Employer Mandate if they employ 50 or more “full-time” employees or a combination of “full-time” and part-time employees that equals 50 “full-time” equivalent employees.  

A full-time employee is an employee (including seasonal employees) who provides an average of 30 hours of service per week.  To calculate the number of “full-time equivalent” employees, an employer must aggregate the number of hours worked by all part-time employees (including seasonal employees) and divide this figure by 120.  The average monthly number of full-time employees plus “full-time equivalents” for the preceding calendar year determines whether an employer is an “applicable large employer.”

There is a seasonable employee exception, which applies when an employer’s workforce exceeds 50 full-time employees for no more than 120 days or four calendar months (which need not be consecutive) during a calendar year if the employees in excess of 50 during that period were seasonal employees. Employers may use a reasonable, good faith interpretation of the term seasonal worker until the IRS issues further guidance.

For purposes of determining whether an employer employs at least 50 full-time employees, companies that have common ownership or are otherwise related (such as certain franchises) will be combined using a test codified at Section 414 of the Internal Revenue Code.  However, this aggregation rule will not be applied to companies for the purposes of determining potential liability and payment amount under the Employer Mandate.

Full-Time Employees

An employee’s hours of service include each hour for which the employee is paid for performance of services, or entitled to payment even when no work is performed (for example, due to vacation, illness, or leave of absence).

Previous guidance proposed, and the NPRM adopted, a “look-back stability safe harbor method” for determining whether employees worked the requisite average of 30 hours per week to be considered full-time. Generally, under this approach, employers are allowed to select a period of time between three months and one year to use as a “measurement period” to determine if an employee worked an average of 30 hours a week.  If an employee provided 30 hours of service per week during the “measurement period,” then the employer must treat the employee as a full-time employee for a corresponding “stability period” regardless of the number of hours of service the individual works over that time period. Generally, an employer must use the same look-back period for all employees but may use different periods for certain categories of employees.

Offer of Coverage/Dependent Coverage

The Employer Mandate imposes liability on employers who do not offer their full-time employees the opportunity to enroll in minimum essential coverage. One of the more controversial aspects of the NPRM is that it requires employers to offer coverage to not only full-time employees, but their dependents as well. The NPRM defines dependents as children up to age 26, but does not include spouses in the definition.

To provide employers sufficient time to implement these changes, the NPRM provides a transition relief period with respect to dependent coverage for 2014. Under this relief, any employer that takes steps in 2014 to fulfill its obligations to offer coverage to dependents of full-time employees will not be liable for any tax payment under the law solely on account of failing to offer coverage to dependents in plan year 2014.

Determination of Affordability and Minimum Value

If an employer offers full-time employees the opportunity to enroll in minimum essential coverage, the employer will still be liable if the coverage is either “unaffordable” or does not provide “minimum value.” Coverage is affordable if the employee’s premium obligation for self-only coverage does not exceed 9.5 percent of the employee’s household modified adjusted gross income. Because, household income is not readily known to employers, the NPRM provides three safe harbors that provide more certainty with regard to the affordability of coverage.

The minimum value standard will be further addressed in subsequent guidance. A calculator will be available that will be similar to the actuarial value calculator provided by the U.S. Department of Health and Human Services. A plan will be deemed to provide minimum value if it covers at least 60 percent of the total allowed cost of benefits that the plan is expected to incur.

Calculation of the Penalty

If an applicable large employer does not offer coverage or offers coverage to less than 95 percent of its full-time employees, it must pay a penalty of $2,000 for each full-time employee (minus the first 30) if any employee receives a premium tax credit.

For employers that offer coverage for some months but not others during a calendar year, the penalty will be computed separately for each month in which the employer did not offer coverage.

This penalty will be equal to 1/12th of $2,000 for each full-time employee employed for the month (minus up to the first 30 depending on whether the employer is related to other employers).

If an employer offers coverage to 95 percent or more of its full-time employees, it must nonetheless pay the tax penalty if one or more full-time employees receive a premium tax credit on the basis of the coverage not being “affordable” or not providing “minimum value.” This penalty will be equal to 1/12th of $3,000 for each full-time employee who received a premium tax credit for the month.  The NPRM provides that the amount paid under this scenario cannot exceed the amount the employer would have had to pay if it did not offer coverage.

EBG counsels clients on ACA implementation requirements and will continue to track developments in the area.

Pool Lifts Must Comply With ADA Regulations By End of January

By Kara Maciel and Jordan Schwartz  

As a reminder, January 31, 2013 is the deadline for hotels and other places of public accommodation to comply with the Americans with Disabilities Act’s (“ADA”) requirements set forth in the 2010 Standards for Accessible Design (“2010 Standards”) related to the provision of accessible entry and exit to existing swimming pools, wading pools and spas (including pool lifts). 

As we explained here, although the effective date for the 2010 Standards was March 15, 2012, in response to public comments and concerns, the U.S. Department of Justice (“DOJ”) provided a 10-month grace period for compliance. This grace period will end on January 31, 2013. Our recent blog post explains the 2010 Standards’ requirements and sets forth what pool and spa owners and operators must do to ensure compliance with the law.

There are substantial risks of non-compliance with the 2010 Standards. Indeed, the DOJ may obtain civil penalties of up to $55,000 for just one ADA violation, and penalties up to $110,000 for any subsequent violation. Furthermore, a lack of compliance greatly increases the risk that a “drive-by” plaintiff will commence a costly lawsuit against your property. 

Are Your Employees Entitled to Leave to Vote?

By Elizabeth Bradley

With Election Day tomorrow, employers must be prepared to respond to employees’ request for time off to vote.  While there are no federal laws that require such leave, many states require that employees be provided with leave to vote.  Some states, such as California, Maryland and New York, require this leave to be paid.  Failing to comply with these requirements could result in financial penalties. 

As illustrated below, state requirements vary greatly with regard to whether the leave must be paid, when employees are eligible for the leave, the length of the permissible leave, and whether notice is required.  All employers should take a moment to review their state law requirements in advance of Tuesday. 

California:  Employees must be provided with enough time off that will enable them to vote; however, only 2 hours of the leave must be paid.  The leave must be at the beginning or end of the scheduled shift, unless otherwise mutually agreed.  Employees are eligible for paid time off for voting only if they do not have sufficient time outside of working hours to vote.  Employees must provide the employer with 2 days’ notice of the need for time off to vote.  Employers are required to post notice of the provisions of the voting law no fewer than 10 days prior to a statewide election.

Georgia: Employees may take up to 2 hours off to vote with reasonable notice to their employers.  The employer may specify the hours the employee may be absent to vote.  An employee is not entitled to time off if the employee’s workday begins at least 2 hours after the polls open or ends at least 2 hours before they close.  There is no requirement that employers pay employees for the time taken to vote. 

Maryland:  Employers must provide up to 2 hours of paid time off to vote if the employee is registered to vote and does not otherwise have 2 hours of continuous off-duty time during the time the polls are open.  Employees must provide the employer with proof that they voted or that they attempted to vote, which can be obtained from the election judges upon request.

Massachusetts:  Employees in manufacturing, mechanical and mercantile establishments are not permitted to work during the two-hour period after the polls open if the employee has submitted an application for absence for voting.

New York:  Employees who are registered to vote may take off the amount of time that, when added to voting time outside working hours, will allow enough time to vote if that employee does not have sufficient time outside of working hours to vote.  If an employee has 4 consecutive hours off while the polls are open, the employee has sufficient time outside of work to vote.  Up to 2 hours of the time taken to vote must be paid.  Time off to vote must be taken at either the beginning or end of the shift unless otherwise mutually agreed upon between the employee and employer.  Employees who need time off to vote are required to provide notice to the employer no more than 10 days or less than 2 days before the Election Day.  Not less than 10 days before every election, employers are required to post a notice setting forth the provisions for time-off-to-vote law in a conspicuous place.

Texas:  Employers cannot take any deductions from wages for an employee who takes time off to vote.  There are no provisions setting forth the amount of time off allowed but the Attorney General has construed the law as giving employers the right to designate hours, provided sufficient time is allowed.  Employees are not entitled to leave to vote if the polls are open for 2 consecutive hours outside the voter’s working hours. 

Virginia:  Virginia does not have a provision that requires leave for employees to vote.  However, employees who serve as an officer of election cannot be discharged or have any adverse employment action taken as a result of their absence from employment due to such service provided that the employee provided the employer with reasonable notice of the service.  In addition, any employee who servers for 4 or more hours, including travel time, as an officer of election, cannot be required to start any work shift that begins at or after 5 p.m. on the day of service or begins before 3 a.m. on the day following service.

In addition to the above, the following states have provisions governing voting leave:  Alabama, Alaska, Arizona, Arkansas, Colorado, Hawaii, Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Puerto Rico, South Dakota, Tennessee, Utah, Washington, West Virginia, Wisconsin, and Wyoming.  Interestingly, while the District of Columbia considers political affiliation to be a protected class, it does not require employers to provide their employees with time off to vote.

HR Guide for Employers, on Responding to Natural Disasters

HR Guide for Responding to Natural Disasters

Kara M. Maciel, contributor to this blog and Member of the Firm at Epstein Becker Green, has released the "HR Guide for Responding to Natural Disasters."  Following is an excerpt:

Natural disasters such as hurricanes, earthquakes, and tornadoes have posed unique human resource challenges for employers. While many employers are working around the clock on recovery efforts, other employers find themselves unable to function for extended periods of time because of damage or loss of utilities.

The economic effects of a natural disaster will have long-term consequences on businesses in the region.

Although no one can ever be fully prepared for such natural disasters, it is important to be aware of the federal and state laws that address these situations. This quick go-to guide can be used by employers in navigating through the legal and business implications created by events such as Hurricane Sandy. In addition, the information contained in this guide may be applicable to other disasters, such as fires, flu epidemics, and workplace violence.

Read the full advisory on the Epstein Becker Green website.

Hurricane Sandy Is About to Blow Our Way: Wage & Hour Implications for the Hospitality Industry

By: Kara Maciel

Hurricane Sandy is approaching this weekend, so hospitality employers along the East Coast should refresh themselves on the wage and hour issues arising from the possibility of missed work days in the wake of the storm.

A few brief points that all employers should be mindful of under the FLSA:

  • A non-exempt employee generally does not have to be paid for weather-related absences. An employer may allow (or require) non-exempt employees to use vacation or personal leave days for such absences. But, if the employer has a collective bargaining agreement or handbook policies, the employer may obligate itself to pay through such policies.
  • An exempt employee generally must be paid for absences caused by office closures due to weather, if he/she performs work in that week. The Department of Labor has stated that an employer may not dock a salaried employee for full days when the business is closed because of weather. Partial day deductions for weather related absences are not permitted.
  • If certain employees are required to be on-call (such as public safety, IT, or other essential personnel) during the storm, and the employee cannot use the time effectively for his or her own purpose, the on-call time is compensable and the employee must be paid. However, if the employee is simply at home and available to be reached by company officials, then the time is not working time and an employer does not have to pay for that time.

Policies and procedures to keep in place:

  • Decide whether your company will offer “weather days” for non-exempt workers who are absent because of disasters.
  • Ensure that your payroll systems are prepared for employees working from home, longer shifts, or not taking lunches.
  • Decide whether employees absent because of weather will be allowed / required to use vacation or PTO time.
  • Ensure safety of payroll records and ability to process payroll from alternate location if needed.

Natural disasters pose a myriad of employment and HR issues from wage-hour to FMLA leave and the WARN Act. The best protection is to have a plan in place in advance to ensure your employees are paid and well taken care of during a difficult time. Our reference tool contains answers to common questions, and while aimed at employers in the Gulf Coast, if you have operations anywhere along the East Coast, you should find it helpful.

NLRB Deflates Hotel Bel-Air's Severance Agreements to Union Employees

By Paul Burmeister

The National Labor Relations Board (“NLRB”) has ruled that negotiations between the Hotel Bel-Air and UNITE HERE Local 11 were not at impasse when the employer implemented its last, best final offer, which included severance payments to union employees. Hotel Bel-Air, 358 NLRB 152 (September 27, 2012). The NLRB upheld the ALJ’s order for the employer to bargain with the Union and to rescind all the signed severance agreements containing a waiver of future employment with the Hotel Bel-Air.

The Hotel Bel-Air is a luxury hotel located in Los Angeles. The Hotel Bel-Air (“Employer”) has a lengthy collective bargaining history with the Union. The last collective bargaining agreement between the parties had expired on September 30, 2009.  Shortly before the expiration of that contract, the Union sent a notice to the employer to bargain a successor contract. However, the Employer responded that the Hotel was scheduled to close for a period of two years for renovation, and that the parties should meet to bargain the effects of the closure.

Over a six month period following the expiration of the contract, the parties met on several occasions, but were unable to hammer out a successor agreement or a culmination of effects bargaining. On April 9, 2010 the parties met across the table and were unable to come to a fruitful conclusion of the bargaining. The Employer declared the April 9, 2010 proposal as its last, best and final offer and stated it would deem negotiations at impasse if the offer was not accepted in a week. Not only did the deadline for acceptance get extended, but the parties continued ‘off the record’ discussions to resolve the collective bargaining agreement and the effects bargaining.

Despite the continued ‘off the record’ discussions, the parties were unable to come to an agreement, and the Employer eventually implemented its April 9, 2010 last, best and final offer on July 7, 2010. As part of the implementation, the Employer sent each of the union employees a severance agreement and a general release offering payment in exchange for a waiver of any recall right to employment following the reopening of the Hotel Bel-Air.

The Union filed an unfair labor practice charge alleging the Employer implemented its offer without bargaining to an impasse and for dealing directly with the employees. In both instances, the NLRB ruled in favor of the Union.

The NLRB decided that the parties were not at impasse. Since the parties continued meeting after April 9, 2010, albeit ‘off the record’, those meetings were considered in whether impasse was reached. As there was evidence of continued bargaining and in some instances, agreement, the possibility of a fruitful discussion between the parties would have broken any impasse.

Second, without a valid impasse, the letter sent on July 7, 2010 offering terms of severance directly to the employees circumvented the union and was considered direct dealing. Further providing evidence of direct dealing, the cover letters to the employees stated that the Employer was “very happy to give you the opportunity to decide for yourself whether you want to accept this offer.” The Employer’s arguments that the employees no longer worked for the Hotel also fell flat. The employees were informed in the letter that they were waiving their recall rights, obviously evidencing the possibility of a return to work. Accordingly, the severance packets sent to employees were direct dealing and ordered rescinded by the NLRB. The Board allowed the Employer to negotiate the recoupment of severance payments already made instead of barring the Employer from such a request.

When negotiating with labor unions, hospitality employers should keep the following tips in mind: 

  • Management should use ‘off the record’ discussions during bargaining with trepidation. While it may be a tool in advancing bargaining, they are considered to be part and parcel with the negotiations. If there is an impasse, even off the record discussions discussing settlement likely will break the impasse.
  • Management should consider whether an impasse exists or not prior to communicating changes to terms and conditions of work directly to employees.

*Posted by permission from the Management Memo blog.

California Supreme Court To Review Class Action Waiver Issue

By Michael Kun and Aaron Olsen

To the surprise of few, the California Supreme Court has decided to review the Court of Appeal’s decision enforcing a class action waiver in Iskanian v. CLS Transportation Los Angeles, LLC. 

We wrote in detail about that decision on this blog earlier this year.  

In reaching its conclusion, the Court of Appeals relied on the April 2011 United States Supreme Court’s landmark decision in AT&T Mobility, LLC v. Concepcion.  Whether the California Supreme Court will follow Concepcion or attempt to distinguish it is impossible to predict.   Unfortunately, while they await that decision, employers may not rely on Iskanian, which has been depublished pending review.

New York Labor Law Significantly Expands the Scope of Permissible Wage Deductions

Jeff Landes, Bill Milani, Susan Gross Sholinsky, Dean Silverberg, Anna Cohen, and Jennifer Goldman have prepared an Act Now Advisory on the amendment to Section 193 of New York’s Labor Law, which is scheduled to take effect on Nov. 6, 2012. The amendment expands the list of employee wage deductions that New York employers may lawfully make, so long as the employee authorizes such deductions.

 

Requiring Confidentiality During HR Investigations May Violate National Labor Relations Act

By:  Steven M. Swirsky, Adam C. Abrahms, Donald S. Krueger, and D. Martin Stanberry

In another foray by the National Labor Relations Board (“NLRB” or the “Board”) into new territory affecting non-union workplaces, a divided three-member Board panel found that an employer’s direction that employees not discuss matters under investigation with their co-workers violated Section 8(a)(1) of the National Labor Relations Act (the “Act”) because it “had a reasonable tendency to coerce employees in the exercise of their rights” under the Act. Banner Health System, 358 NLRB No. 93 (July 30, 2012).

In concluding that the request for confidentiality “had a reasonable tendency to coerce employees,” the majority gave no weight to the fact that the request was not tied to a threat of discipline. Instead, without offering any explanation, the Board held that “[t]he law… does not require that a rule contain a direct or specific threat of discipline in order to be found unlawful.”

Read the full advisory online

NLRB's Scrutiny of Employment-at-Will Disclaimers Signals a Trend to Employers

By:  Bill Milani, Susan Gross Sholinsky, Dean Silverberg,  Steve Swirsky, and Jennifer Goldman

EBG has prepared an Act Now Advisory on the NLRB’s recent stance on employment-at-will disclaimers, which are generally incorporated in employee handbooks. Two recent claims filed before the National Labor Relations Board in Arizona alleged that language used in employers handbooks regarding at-will employment (and how that arrangement could not be changed) were overly broad and could therefore chill employees’ rights under the National Labor Relations Act.

Hospitality employers should review their employee handbooks in light of the NLRB's recent enforcement position. 

Timeline of Highlights for Employer Group Health Plan Compliance with the Affordable Care Act

Now that the Supreme Court of the United States has upheld essentially all of the provisions of the Obama administration's Affordable Care Act ("ACA"), hospitality employers are faced with looming deadlines to bring their group health plans into compliance with the ACA's numerous new requirements. We have prepared for employers a timeline of the highlights of the upcoming deadlines for compliance with the ACA that apply to non-grandfathered group health plans.

Click here to access a copy of the timeline.

 

EBG's Free Wage-Hour App Has Been Updated to Include New Jersey Law And Changes In California Law

By Michael Kun

Earlier this year, we were pleased to introduce our free wage-hour app for iPhones and iPads.  The app puts federal wage-hour law, as well as that for many states, at users’ fingertips.

We have recently added New Jersey law to the app, as well as updated it to reflect changes in California law following the long awaited Brinker v. Superior Court decision clarifying meal and rest period laws.

The app may be found here:  http://itunes.apple.com/app/wage-hour-guide/id500292238?mt=8

Tip Pools: Challenging DOL's Amended Rule on Employee Participation

By:  Kara M. Maciel

In April of 2011, the U.S. Department of Labor (“DOL”) changed its rule defining the general characteristics of tips in an attempt to overrule the U.S. Court of Appeals for the Ninth Circuit’s decision in Cumbie v. Woody Woo, Inc. ruling that the FLSA does not impose any restrictions on the kinds of employees who may participate in a valid tip pool where the employer does not claim the “tip credit.”

DOL’s Recent Position on Tip Pool Participation

The DOL’s amended rule provides that tips are the property of the employees, and may not be used by the employer for any purpose other than as a tip credit or in furtherance of a valid tip pool, regardless of whether the employer actually uses the “tip credit.”  Accordingly, the DOL will now find a tip pool to be invalid if it includes employees who do not “customarily and regularly receive tips” – a requirement that the DOL generally interprets to limit tip pools to employees who provide direct service to customers.

Earlier this year, the DOL issued a memorandum stating that it would be enforcing its new rules on tip pools uniformly throughout the country.  Accordingly, employers who have established mandatory tip pools but who do not use the tip credit may find themselves faced with DOL enforcement actions if they permit employees who do not provide direct service to participate in the tip pools.  Those businesses faced with such enforcement actions may find it in their interest to challenge the validity of the DOL’s position on tip pools and argue that it conflicts with the plain language of the FLSA. 

Legal Arguments to Challenge DOL’s Interpretation on Tip Pools

For those businesses seeking to challenge the DOL’s new rule on tip pooling, the Ninth Circuit’s opinion in Woody Woo, provides useful guidance.  Specifically, the Court concluded that that the plain language of Section 203(m) of the FLSA imposes limitations on mandatory tip pools only when the employer takes a “tip credit,” and does not state freestanding requirements for all tip pools.  Further, under the U.S. Supreme Court precedent, when a federal statute addresses a particular issue, courts must apply the plain language of the statute and may not rely on a federal agency’s interpretation of the law, particularly if the agency’s interpretation conflicts with the plain language of the statute.  Based on this case law, an employer could argue that the DOL’s position on tip pools is invalid because it conflicts with the plain language of Section 203(m) of the FLSA.  Specifically, the DOL has attempted to extend to all tip pools a restriction that Congress clearly limited to tip pools involving workers for whom the employer claims the “tip credit.” 

The DOL has attempted to get around this argument by claiming that Section 203(m) of the FLSA left a “gap” in the statutory scheme regarding the treatment of tips which the DOL may fill through its interpretation of the law.  Under Woody Woo, the problem with the DOL’s argument is that it mischaracterizes Congress’ clear intent to limit the FLSA’s restrictions on mandatory tip pools to those involving employees for whom the employer claims the “tip credit” as “silence” on the issue of whether those same restrictions apply to other kinds of tip pools.  However, a legislative decision to limit a particular rule’s application to one situation does not create a “gap” for a federal agency, like the DOL, to then apply that rule to other situations.  Indeed such an expansion of the rule would conflict with the limitations on its application that were expressly established by Congress.

While a federal agency, like the DOL, can fill “gaps” left by a statute it enforces, the agency does not have the power to simply make new law.  To the extent that the FLSA is “silent” about the restrictions on mandatory tip pools in situations in which the employer does not claim the “tip credit,” that is because the statute does not address the subject matter at all.  Rather, as the Ninth Circuit noted in Woody Woo, it regulates tip pools only to the extent that they are comprised of employees for whom the employer claims the “tip credit.”  A rule or enforcement position that imposes restrictions on such tip pools does not fill a “gap” left by Congress; it is nothing more than an attempt to create new law – something the DOL cannot do.

Review Tip Pool Practices

In light of the DOL’s enforcement efforts, all hospitality employers should review their tip pooling practices to ensure compliance with both federal (and state) laws.  While the safest approach to administering a tip pool may be to comply with the DOL’s current interpretation, and restrict participation to non-management employees who provide direct service to customers, hospitality businesses that are faced with enforcement actions based on their past practices may find it useful to raise these challenges to the DOL’s position.  A successful challenge to the DOL’s enforcement position can allow hospitality businesses to avoid significant monetary penalties and preserve valid tip pool arrangements that promote cooperation and harmony among their employees.

Fitness Club Responds to ADA Claim from Child with Special Needs with Updated Policies and Procedures

By: Kara M. Maciel and Jordan Schwartz

A recent allegation of disability discrimination from the parents of a three-year old boy with special needs has resulted in a national fitness club chain revising its policies and procedures and implementing staff training.  The alleged discrimination occurred after the child had been playing with toys in the fitness club’s Kids’ Club and had refused to move from his position in front of a slide.  Upon learning from his parents that he had autism, a staff member informed them that, had the staff known that he was autistic, they would not have allowed  him to play in the Kids’ Club.

In response to this incident, the fitness center has taken immediate steps to revise its policies and procedures and institute training to ensure that similar incidences do not occur in the future.  In particular, the fitness center has developed new card check technology which will make certain that staff members are aware of children with special needs and will monitor staffing levels.  Additionally, the national fitness center also sent a memorandum to all of its employees instructing them on how to better attend to children with autism. 

Title III of the Americans with Disabilities Act (“ADA”) requires places of public accommodation, including fitness and health clubs, to make goods and services available to and usable by individuals with disabilities on an equal basis with the general public. As our blog readers are well aware, to ensure compliance with the ADA, all employers–including fitness health club owners and operators–must regularly evaluate and modify their policies and procedures to ensure sensitivity towards customers with disabilities.  Employers must also provide sufficient training to their managers and front-line staff members regarding their revised policies and procedures, accessible elements within the club and effective communication and interaction with customers with disabilities.  Indeed, despite the best crafted policies, a manager’s ill-advised communication is often the genesis of an ADA discrimination lawsuit. 

This recent incident serves as an excellent reminder for all fitness and health clubs that evaluating and revising policies and instituting staff training on such policies should be your two most important “take-aways” to best protect your club from costly legal exposure resulting from violations of the ADA.

New California Supreme Court Decision Will Affect Whether And When Parties Obtain Witness Statements In Litigation, Particularly In Class Actions

By Michael Kun

On Monday, June 25, 2011, the California Supreme Court issued its long-awaited decision in Coito v. Superior Court, addressing the issue of whether a party in litigation could rely upon the work product doctrine to withhold witness statements obtained by its attorneys or the identities of persons who had given such statements. 

In short, while parties in California have long relied upon dicta in the Court of Appeal decision known as  Nacht v. Lewis for the proposition that such information is protected from disclosure by the work product doctrine, case-by-case determinations will now be required to determine whether a party must provide such information to its opponent in discovery in California state court cases. 

In its decision, the Court rejected the dicta in Nacht that provided for an absolute privilege for such witness statements, holding instead that witness statements may be entitled to an absolute privilege under some circumstances. 

The Court explained, “In light of the legislatively declared policy and the legislative history of the work product privilege, we hold that the recorded witness statements are entitled as a matter of law to at least qualified work product protection. The witness statements may be entitled to absolute protection if defendant can show that disclosure would reveal its ‘attorney’s impressions, conclusions, opinions, or legal research or theories.’ (§ 2018.030, subd. (a).)  If not, then the items may be subject to discovery if plaintiff can show that ‘denial of discovery will unfairly prejudice [her] in preparing [her] claim . . . or will result in an injustice.’ (§ 2018.030, subd. (b).)” (Emphasis added.)

As for the identities of persons who provided witness statements to counsel, those will now be easier to obtain in California state court cases.  The Court explained, “As to the identity of witnesses from whom defendant’s counsel has obtained statements, we hold that such information is not automatically entitled as a matter of law to absolute or qualified work product protection. In order to invoke the privilege, defendant must persuade the trial court that disclosure would reveal the attorney’s tactics, impressions, or evaluation of the case (absolute privilege) or would result in opposing counsel taking undue advantage of the attorney’s industry or efforts (qualified privilege).” (Emphasis added.)

This decision will have a great impact on the manner in which cases are litigated in California, particularly as they relate to litigation strategy.  The decisions whether to require a party to turn over witness statements obtained by its attorneys, or disclose the identities of persons who provided statements, will generally be left to the discretion of the judge.  Of course, all judges differ.  Some judges may be more inclined to require the production of this information than others.  Accordingly, parties will have to give considerable thought to when they wish to obtain written statements, mindful that they may have to disclose them to the opposing party. 

This will be an especially important strategic decision in class actions and collective actions, where defendants often obtain a great many written statements from putative class members early in the case for use later.  A defendant must now be concerned that it may be required to turn over all of those statements early in the case, educating the plaintiff’s counsel about the defendant’s strategy in the process and, perhaps, encouraging them to contact those putative class members to try to get them to recant their statements or to try to stop other putative class members from speaking with defendant’s counsel.  It will also be an important strategic decision in those cases where attorneys seek to have witnesses sign statements early to “lock in” their testimony, with no intention of using those statements in the case unless the witness later changes his or her testimony. 

Employment "At-Will": What UK Companies Doing Business in the US Need to Know

By Matthew Sorensen and Dana Livne

One of the major ways in which American employment law has traditionally differed from its British counterpart has been its entrenched employment “at-will” doctrine. The “at-will” employment doctrine provides employers with the right to terminate their relationships with their employees at any time, with or without notice or cause.  UK companies doing business in the US are often relieved to be advised that they become “at-will” employers to their US-based employees. In the US, unless an employer has entered an employment contract or collective bargaining agreement that expressly limits the employer or employee’s rights to terminate the employment relationship, employment is considered “at-will.” 

In the UK, on the other hand, under the Employment Rights Act 1996 (ERA), every employee must be provided with a written statement of the terms and conditions governing their employment within two months of commencing work. In fact, under the Common Law, some changes to working conditions cannot be made without the employee’s consent.  The controversial Beecroft Report, commissioned by the UK government, has recently called for changes in the dismissal procedures in Britain to mimic the American “at-will” doctrine.  The theory is that if employers are permitted to terminate workers with more ease and less “red tape,” it will encourage the UK’s financial growth, support business, and boost the economy. Indeed, according to the Institute of Directors, the UK business community is supportive of these measures, with a third of companies surveyed claiming that it would lead them to hire more workers.

However, the experience of “at-will” employers in the US has been not without its challenges. Although employers in the US who are not parties to employment contracts or collective bargaining agreements have a significant amount of discretion in determining whether and how to discharge an employee, the freedom afforded by “at-will” employment has been eroded in many respects by robust anti-discrimination laws.  Even in the context of “at-will” employment relationships, employers must remain cautious when disciplining and terminating employees.  A misstep can potentially lead to costly discrimination claims.

The US has developed a comprehensive body of law that places a number of limitations on employers’ rights to terminate “at-will” employees.  Title VII of the Civil Rights Act of 1964 (“Title VII”) prohibits employment discrimination on the basis of the individual’s race, color, sex, religion, or national origin (the “protected classes”).  The Age Discrimination in Employment Act (ADEA), prohibits discrimination against individuals that are older than 40 years old on the basis of their age.  Individuals with disabilities are protected under the Americans with Disabilities Act (“ADA”), and the Genetic Information Nondiscrimination Act of 2008 (GINA) prohibits discrimination on the basis of genetic information. In addition to the protections established by these federal laws, many US states have also enacted their own state-specific statutes that provide additional protections to employees, such as prohibiting discrimination on the basis of sexual orientation, political affiliation, and physical appearance.  Enforcement of these statutes has led to a long line of cases in which state and federal courts in the US have found that employers wrongfully terminated “at-will” employees based on protected characteristics.  Even layoffs or termination policies that seem neutral on their face have been found to be discriminatory when they had a disproportionately negative impact on a “protected class” of employees. 

Charges of discrimination can be damaging to workplace morale, public relations, productivity and the company’s bottom line.  Indeed, even in cases involving baseless claims of discrimination, employers may be forced to expend significant resources to defend themselves in administrative and court proceedings.  Employers in the US must implement creative strategies to thwart potential claims of discrimination before they arise, and to best position themselves to defend any claims of discrimination that do arise. The first step in protecting against claims of discrimination related to termination decisions is to ensure that the employer has a clear policy governing employee conduct and discipline that specifically reminds employees that their employment remains terminable “at-will.” The policy should provide a uniform and fair manner to respond to performance failures and misconduct by employees. For example, it may be appropriate to implement a progressive discipline policy.  Such policies typically establish a schedule of progressively severe disciplinary sanctions for performance failures or acts of misconduct, often beginning with oral warnings and ending in termination. However, entities that establish progressive discipline policies should reserve their rights to short-circuit the progressive disciplinary process and immediately terminate the employment relationship or take other appropriate disciplinary action as they deem necessary.

In addition, employers must ensure that they follow their discipline and termination policies consistently.  Those companies that do not consistently apply their rules to similarly situated employees can frequently encounter problems in discrimination lawsuits where it can be essential to have evidence that a worker was treated the same as other employees holding his or her position who are not members of the worker’s “protected class.” Companies are advised to maintain clear and consistent documentation of all disciplinary actions. A trail of properly documented disciplinary actions is always the best evidence to defend against allegations that an employee was terminated or subjected to other disciplinary action for discriminatory reasons. Employers should also conduct periodic anti-discrimination training for their employees and managers. For managers, particular attention should be given to reinforcing the need for consistent and non-discriminatory application of the company’s disciplinary policies.

In a competitive economy, the benefits to an “at-will” employment setting are clear.  Employers can quickly dismiss workers who fail to comply with the company’s disciplinary rules or who do not add the expected value to business operations.  However, to protect against charges of discrimination, companies operating in the US should carefully craft their discipline and termination policies and ensure that their managers are properly trained in the application of those policies. A proactive approach to planning and implementing uniform and fair procedures governing discipline and discharge will help companies avoid costly discrimination claims and focus on the continued success of their business in the US.

OSHA's Battle Against Hotel Operators Continues

By Paul H. Burmeister

The OSHA/Hyatt Hotels saga continued with a recent exchange of letters between OSHA and the hotel chain’s attorney.  In April, OSHA issued a “5(a)(1) letter” to the CEO of Hyatt Hotels, indicated that OSHA believed there were ergonomic risks associated with the daily work activities of the company’s housekeeping staff. The letter put the hotel chain “on notice” that while OSHA did not believe that a “recognized hazard” existed at the time of the inspection, such that a General Duty Clause citation should issue, if the same hazard was later identified in a subsequent inspection, OSHA would assert that this letter made the hazard a recognized one, for purposes of enforcement. Therefore, if the hotel chain does not follow OSHA’s recommendations, subsequent inspections would likely result in a citation. As well publicized as this battle has been, OSHA would likely take the same position with other hotel operators. In other words, the entire industry may now be “on notice.”

The OSHA letter culminated what was nearly a year-long OSHA investigation of Hyatt hotels across the country. The inspection activity was prompted in 2010 by multiple employee complaints filed in concert by housekeepers (through their Union, Unite HERE) across the country complaining of ergonomic injuries related to bending, stooping, twisting, and lifting while cleaning and making beds.

Hyatt responded to the OSHA letter through counsel and pointed out that despite the numerous employee complaints, OSHA did not have the evidence to issue one citation to the hotel chain. In its response letter, Hyatt also reiterated its serious concern that the housekeepers' union was using the Agency to drive its organizing efforts in the hospitality industry.

Hotel employers should be on alert for OSHA inspections at their properties. As OSHA inspections involve interaction with local management, training at the property level is key to successfully managing an OSHA inspection. Hotel operators with more than one location should also be aware of OSHA’s efforts to amplify the impacts of a single enforcement action throughout an entire corporate enterprise and to pursue follow-up inspections at related facilities in search of high dollar Repeat violations. Accordingly, OSHA activity at one of your facilities should be clearly communicated to other similarly-situated facilities, and any of OSHA’s findings should be corrected throughout the enterprise.

NLRB Launches Website Targeting Non-Union Employees

by Adam C. Abrahms

Continuing its effort to “outreach” to non-union employees and educate them on their rights under the National Labor Relations Act, the NLRB has launched a new webpage on Concerted Activity.  The NLRB’s announcement  of its new webpage made clear the page is designed to inform employees of their rights “even if they are not in a union.”   

The webpage, in addition to giving basic descriptions of concerted activities, asserts that “The law we enforce gives employees the right to act together to try to improve their pay and working conditions or fix job-related problems, even if they aren’t in a union.”  The main feature of the webpage is an interactive map of the United States which highlights cases from various regions as examples of the Board’s activities on behalf of non-union employees who were engaged in activity the Board considers protected even though it is unrelated to union organizing.  Examples include cases involving employees complaining about safety issues, employees posting statements on Facebook and videos on YouTube critical of the employer, employees discussing workplace issues with the news media, employees “violating” an employer handbook’s unlawful confidentiality policy and employees  signing letters to management complaining about wage cuts.

The new webpage is part of the NLRB’s concentrated effort to inform non-union employees of the rights protected by the Act and the availability of the agency as a resource to employees who feel they had their rights violated.  This new webpage should be viewed in the same vein as the Board’s parallel efforts to require all employers to post  a “Employee Rights Notice Posting,”  print and distribute brochures and bring media attention to its aggressive pursuit of cases involving employers’ social media policies.  While the posting requirement has been enjoined by the U.S. Court of Appeals, the other more informal efforts of education and outreach like the webpage, brochures and media attention cannot be challenged and are likely to continue to expand.

In announcing the new webpage NLRB Chairman Mark Gaston Pearce made the agency’s goal clear, stating:

A right only has value when people know it exists…  We think the right to engage in protected concerted activity is one of the best kept secrets of the National Labor Relations Act, and more important than ever in these difficult economic times. Our hope is that other workers will see themselves in the cases we’ve selected and understand that they do have strength in numbers.

Given the NLRB’s continuing efforts, hospitality employers must be more mindful than ever that their policies and actions could be scrutinized by an aggressive National Labor Relations Board even if they do not have a union.  As the agency’s efforts continue, employers should expect more employees to be aware of their option to bring complaints to the Board for adjudication.  When employees do so, employers can also expect for the agency’s investigation to reach not only the specific incident involving the complaining employee but potentially the lawfulness of the employers’ general policies and procedures.  Either way, employers must consider whether their policies and actions impact or interfere with protected concerted activity even where there is no union present. 

NLRB v. Specialty Healthcare: The Hot Debate Rages On

By: Paul Rosenberg

Last week the National Labor Relations Board (“NLRB”) urged the U.S. Court of Appeals for the Sixth Circuit to uphold its controversial Specialty Healthcare decision.  The NLRB’s 3-1 split decision in Specialty Healthcare and Rehabilitation Center of Mobile, overturned a 1991 decision and held that an employer that challenges a proposed bargaining unit on the basis that it improperly excludes certain employees is required to prove that the excluded workers share “an overwhelming community of interest” with those in the proposed unit. 

The NLRB argued its ruling merely codifies an old standard – not created a new one.  The NLRB also asserted that it is only required to approve an appropriate bargaining unit – not the most efficient unit or the one that is the most convenient for the employer.  On the contrary, in its brief before the Court, the company argued that the NLRB's decision to approve the “mini unit” represented a “sea change” that will have an impact not merely in the health care industry, but in all cases falling within the board's jurisdiction.  That brief argued that the “overwhelming community of interest” standard effectively makes every discrete job classification (i.e. job title) a viable bargaining unit and essentially delegates unit determination to the petitioning union.

Congress has also entered into the fray.  Earlier this week, South Carolina Senator Graham announced that he would introduce an amendment to the Labor, Health and Human Services appropriations bill when the Senate Appropriations Committee marks it up.  The measure would ban the use of federal funds to implement the Specialty Healthcare ruling.  Senator Graham explained the legislation is necessary to protect the private sector: 

You expect an agency not to become a political advocacy group, and this ruling is just creating havoc in the private sector when the private sector is not doing fine.

Hospitality employers should continue to monitor whether Specialty Healthcare is allowed to stand.  Should the ruling remain in-tact, UNITE HERE, IUOE and other labor unions will have an open road to cherry pick job titles within departments.  To prepare for this possibility hotels’ executive committees should conduct quarterly reviews with department heads to determine if there are weak areas within specific departments which may be susceptible to organizing.  Once areas of vulnerability are discovered they should be promptly corrected.

10 Best Practices For Avoiding Tip-Related Liability

By Evan Rosen

Hospitality employers continue to get hit with class action lawsuits alleging that they are unlawfully taking the tip credit for their employees.  Under federal law, and the law of most states, an employer may pay less than the minimum wage to any employee who regularly and customarily receives tips.  The difference between the minimum wage and the hourly wage rate is called the "tip credit."  

This compensation system, when administered correctly, has the advantage of saving employers a significant sum of money.  But employers must implement several safeguards to avoid potential liability.  Indeed, if the employer's tip policy is unlawful, employers will be liable, not only for the amount of tips that were wrongfully distributed, but will also be on the hook for the entire tip credit for all tipped employees, and under some state laws, liquidated, punitive, and/or treble damages.

Here are some tips (no pun intended) to ensure that your company is compliant.

1) Provide written notice to all employees for whom your company is taking a tip credit.  Among other things, the notice should inform the employees of their hourly wage rate, the amount claimed by the employer as a tip credit, and that all tips received by the employee are to be retained by the employee (except for a valid tip pooling arrangement).

2) Regularly audit your payroll to ensure that that all employees for whom your company is taking a tip credit is earning at least minimum wage when tips are included into their overall compensation.

3) Ensure that all tipped employees are earning at least $30 a month in tips.

4) Do not allow tipped employees to spend more than 20% of their shift performing non-tipped related work (i.e. side work, room set up, etc.).

5) Employees with managerial responsibilities should not participate in the tip pool.  Keep in mind it is the individual's actual duties that are dispositive, not their job title.

6) Back of the house employees (expeditors, dishwashers, stewards, cooks, etc.) should typically not receive tips.

7) Be mindful of state law.  Some states, like Massachusetts, have their own unique tips law.  Other states, like California, prohibit employers from taking a tip credit.

8) If you reduce tips by a percentage paid to a credit card company, be sure that such reductions only occur for credit card tips and not for cash tips.  Likewise, ensure that any such reductions do not bring the employee below minimum wage.

9) If your company is taking a tip credit, the regular rate for calculating overtime payments of a tipped employee should be based on the minimum wage, and cannot be based on their lower hourly wage rate. 

10) Train your managers and audit your policies and procedures at least once a year.

California Court of Appeals Upholds Arbitration Agreement With Class Action Waivers


ByMichael S. Kun and Aaron F. Olsen

Earlier this week, the California Court of Appeals issued a ruling in Iskanian v. CLS Transportation Los Angeles, LLC that illustrates how the legal landscape in California has shifted in favor of enforcing arbitration agreements with class action waivers.  This, of course, is a welcome development for employers with operations in California, which have been besieged by class action lawsuits alleging wage-and-hour violations for the past 10+ years.

In 2006, the plaintiff in Iskanian filed a putative class action complaint against his employer alleging various California Labor Code violations.  The plaintiff had signed an arbitration agreement agreeing to arbitrate any claims arising out of his employment.  The arbitration agreement contained a class and representative action waiver in which the plaintiff agreed that he would not bring any claims as a class action or as a representative action.

In March 2007, the trial court granted the employer’s motion to compel arbitration.  However, the plaintiff appealed the decision in light of the California Supreme Court’s   decision in Gentry v. Superior Court, which held that a class action waiver provision in an arbitration agreement should not be enforced if “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” Thus, the California Court of Appeals in Iskanian ordered the trial court to reconsider its ruling.  Accordingly, the defendant withdrew its motion to compel arbitration, and the parties proceeded to litigate their case.  In October 2009, the Court granted Plaintiff’s motion to certify the case as a class action.

In April 2011, several years after the Court of Appeals had ordered the trial court to reconsider its prior order granting defendant’s motion to compel arbitration, the United States Supreme Court decided AT&T Mobility, LLC v Concepcion, which reiterated the rule that the principal purpose of the Federal Arbitration Act (“FAA”) is to ensure that arbitration agreements are enforced according to their terms and held that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”  Shortly thereafter, the Iskanian defendant renewed its motion to compel arbitration and to dismiss the class claims, arguing that Concepcion  was new law that overruled Gentry.  This time, the California Court of Appeals agreed with the defendant and held that the arbitration agreement and the class and representative action waivers were effective.  Thus, the Court of Appeals upheld the trial court’s order granting the defendant’s motion to compel arbitration and dismissed the plaintiff’s class claims.

Importantly, in Iskanian, the California Court of Appeals expressly declined to follow the NLRB’s controversial decision in D.R. Horton, wherein  the NRLB held that an employers’ mandatory agreement requiring that all employment-related disputes be resolved through individual arbitration (and disallowing class or collective claims) violated the National Labor Relations Act.   In rejecting the plaintiff’s argument, the Iskanian Court noted that Concepcion made no exception for employment-related disputes.

Importantly, the Iskanian Court also held that representative claims brought under California’s Private Attorneys General Act (“PAGA”) – sometimes referred to as the “Bounty Hunter Law” or the “Sue Your Boss Law” --can be waived in arbitration agreements.  The California Court of Appeals disagreed with the opinion in Brown v. Ralphs Grocery Store, which held that Concepcion does not apply to representative actions under PAGA.  Once again, this is a welcome development as many plaintiff’s lawyers have attempted to minimize Concepcion by arguing that even if employees can waive their right to bring a class action, they cannot waive their right to bring representative actions.  However, the disagreement between the Iskanian and Brown Courts about PAGA claims seems to guarantee that the issue will have to be resolved by the California Supreme Court.

 

Preparing for Non-Compete Litigation

We are pleased to announce that “Preparing for Non-Compete Litigation,” a guide published by The Practical Law Company and authored by EpsteinBeckerGreen’s Peter A. Steinmeyer and Zachary C. Jackson, is now available in PDF format. The guide is a valuable discussion of the primary considerations for employers seeking to initiate legal action to enforce a non-compete agreement.

California Court Denies Certification of Misclassification, Meal Period and Rest Period Claims against Joe's Crab Shack Restaurants

By Kara Maciel and Aaron Olsen

After five years of litigation, a Los Angeles Superior Court has denied class certification of a class action against Joe’s Crab Shack Restaurants on claims that its managers were misclassified as exempt and denied meal and rest periods in violation of California law.  The court found that the plaintiffs had not established adequacy of class representatives, typicality, commonality or superiority, and emphasized a defendant’s due process right to provide individualized defenses to class members’ claims.

Because the case was handled by our colleagues in our Los Angeles office, we think it best not to comment on the decision other than to say that it highlights the need for creative strategies in defending against wage-hour class actions.   

Illinois Court Gives EEOC a Boost On Controversial Pre-Lawsuit Techniques

By Forrest Read

            In recent years, the Equal Employment Opportunity Commission (EEOC) has taken the aggressive approach of expanding charges it receives from one or a few individuals into larger-scale class actions in federal courts.  Last week, in EEOC v. United Road Towing, Inc., the U.S. District Court for the Northern District of Illinois declined to challenge the adequacy of the EEOC’s administrative practices, thus giving ammunition to the EEOC to continue its approach of widening litigation involving alleged discrimination.

            In that case, the employer, URT, argued that the EEOC had failed to satisfy its pre-lawsuit obligations regarding charges initially brought by two disabled employees under the Americans with Disabilities Act claiming unlawful denial of reasonable accommodation, termination of employment, and refusal to rehire.  Specifically, URT contended that the EEOC added 17 plaintiffs during discovery whose claims it had failed to investigate during its administrative investigation and that its conciliation efforts were deficient because it did not disclose the number or identities of the other purported class members.

            In denying URT’s motion, Judge Castillo took a hands-off approach to judicial review of the EEOC’s administrative practices.  He wrote that the court could not undertake an evaluation of the EEOC’s investigatory practices because doing so would stray from the validity and merit of the actual claims.  As to conciliation, Judge Castillo concluded that the EEOC’s determination letter stating that a class of members had been subjected to violations and its identification of those violations were sufficient triggering of and engagement in conciliation, even without including the specific names and quantity of purported members.

Although other courts have reached different conclusions faced with similar facts, this ruling emboldens the EEOC to continue to decline or neglect to investigate the experiences of each purported class member to the same extent it investigates those of named charging parties.  Moreover, it means the EEOC has authority for continuing its pre-lawsuit practice of pointing to little specificity and vague details in support of requested monetary relief during conciliation.

Hospitality employers should understand that class actions – whether privately or agency-initiated, whether in the discrimination or wage-hour context – continue to be an epidemic from which they should protect themselves to the fullest extent possible.  While it is not possible for employers to ensure that disabled employees will never file charges, developing and following policies that engage in the interactive process and constructively discuss the possibility of reasonable accommodations is vital to minimizing the possibility of having to defend against would-be class actions.  Similarly, in order to reduce the possibility of facing class action lawsuits on other bases, hospitality employers should regularly monitor their policies, pay rates, benefits, and other company practices to ensure that they are consistently and uniformly applied to similarly situated employees.

DOJ Postpones ADA Compliance Date for Pool Lifts

By:  Kara Maciel

On March 15, 2012, the U.S. Department of Justice (“DOJ”) had temporarily postponed compliance with the 2010 ADA Standards as it relates to providing accessible entries and exits to pools and spas.  That day was set to expire later this month, on May 21, 2012, but the DOJ has announced that it will extend that compliance date to January 31, 2013 – a nine month extension from the original compliance date of March 15, 2012.

This extension to January 31, 2013, however, does not change the substance of the DOJ’s requirement that lifts be “fixed.”  The DOJ failed to address concerns raised by the lodging industry and associations through the public comment period that fixed lifts could increase liability to operators from children or misuse around unattended pools, that lifts should be able to be shared between multiple pools and spas, or the concerns over extensive electrical and construction work that would be associated with installing a fixed lift. 

What this means for pool and spa operators is that, while they now have additional time to bring their property into compliance, the requirement that a single fixed lift be installed for every pool and spa on the facility remains firm, and non-compliance could subject the owner and operator to liability under the ADA from a DOJ investigation or from a private lawsuit. 

D.C. Circuit Puts the Kybosh on the NLRB's Ambush Election Rule Quipping that "Eighty Percent of Life is Just Showing Up"

By: Kara M. Maciel and Elizabeth Bradley

The U.S. Court of Appeals for the D.C. Circuit is rapidly becoming the champion of employers in the fight against the National Labor Relations Board’s (the “Board”) attempt to implement radical new rules governing the workplace.

Last month, on April 17, 2012, the D.C. Circuit enjoined the implementation of the Board’s rule requiring that employers post a notice informing employees of their right to join or form a union. Yesterday, the D.C. Circuit struck another blow to the Board by holding that its proposed union election rules are invalid. The Court reasoned that the Board did not have authority to issue the rule because it lacked the required three-member quorum when it was enacted.

In its opening sentences, the Court’s decision aptly quipped, “According to Woody Allen, eighty percent of life is just showing up. When it comes to satisfying a quorum requirement, though, showing up is even more important than that. Indeed, it is the only thing that matters – even when the quorum is constituted electronically.”

Although the National Labor Relations Act provides that “three members of the Board shall . . . constitute a quorum,” the December 16, 2010 final rule revising union election procedures was only voted on by Chairman Pearce and Member Becker. Member Hayes did not vote; nor did he affirmatively abstain from voting. In its decision, the Court held that Member Hayes could not be counted toward the quorum requirement because he took no affirmative action in response to his receipt of the final rule. Because the final rule was not acted upon by three members of the Board, the quorum requirement was not met and the Court held that the rule is invalid. 

The Court declined to address the other procedural and substantive challenges to the rule. While this decision does not prohibit the Board from properly constituting a quorum and voting on the proposed rule; for now, representation election will continue to proceed under the old procedures.

In response, the NLRB suspended the implementation of changes to its election representation case process, which had taken effect April 30.  The Board also withdrew the guidance to regional offices issued prior to the effective date and advised regional directors to revert to their previous practices for election petitions starting today.  About 150 election petitions were filed under the new procedures. Many of those petitions resulted in election agreements, while several have gone to hearing. 

For more information about what employers should do in response to the Court's decision, please see our Act Now Advisory.

 

Texas Roadhouse, Inc. Settles Its Beef With Wait Staff For $5 Million

By  Kara Maciel and Casey Cosentino

The restaurant and hospitality industries are no strangers to the tidal wave of wage and hour class action lawsuits. Restaurants and hotel operators located in states with employee-friendly laws like Massachusetts, New York, and California, are particularly vulnerable. This vulnerability was recently confirmed on April 30, 2012, when Texas Roadhouse, Inc. agreed to pay $5 million to settle a putative class action suit filed by wait staff employees from nine restaurants in Massachusetts.

In Crenshaw, et. al, v. Texas Roadhouse, Inc. (No. 11-10549-JLT), the plaintiffs alleged that Texas Roadhouse violated Massachusetts Tips Law by retaining and distributing proceeds from their gratuities to managers and other non-wait staff employees, including hosts/hostesses. Additionally, because the plaintiffs did not receive all of their gratuities, they asserted that Texas Roadhouse improperly claimed the tip credit against the minimum wage in violation of Massachusetts Minimum Wage Law. As such, Texas Roadhouse allegedly paid the plaintiffs less than minimum wage. The plaintiffs, therefore, argued that they were entitled to full minimum wage for all hours worked.

Under Massachusetts law, employees who receive at least $20 per month in gratuities may be paid $2.63 per hour (“tip credit”), provided that the gratuities and hourly pay rate when added together are equal to or greater than the state minimum wage of $8.00. If the employee does not receive the equivalent of the minimum hourly wage with his or her tips, the restaurant or hotel must pay the difference. Although restaurants and hotel operators are prohibited from retaining employees’ gratuities, they may distribute properly pooled tips. Accordingly, when the tip credit is claimed to satisfy the minimum wage, only employees who customarily and regularly receive tips are eligible to participate in the tip pool. These employees include wait staff employees (e.g., banquet servers and bussers); service employees (e.g. baggage handlers and bellhops); and bartenders. Conversely, employees not eligible for tip pool arrangements include kitchen staff, cooks, chefs, dishwashers, and janitors. Also, under no circumstances are employers, owners, managers, or supervisors permitted to share in the tip pool.  

The Texas Roadhouse settlement illustrates the importance of adhering to state and federal minimum wage laws. A violation of a tip pool arrangement can lead to high exposure for restaurants and hotels, not only with respect to money wrongfully withheld from employees, but also with potential tip credit violations. With the flood of class action suits, restaurants and hotel operators must continue to make compliance with wage and hour laws a top priority. As a best practice, restaurants and hotel operators should conduct regular self-audits of their wage and hour practices, in consultation with legal counsel. Identifying and correcting wage and hour mishaps before plaintiffs collectively seek action is the first defense to preventing class action suits and reducing legal liability.

EEOC Propounds Guidance on Use of Arrest and Conviction Records in Employment Decisions

By Jeffrey M. Landes, Susan Gross Sholinsky, and Jennifer A. Goldman, with Teiko Shigezumi

On April 25, 2012, the U.S. Equal Employment Opportunity Commission ("EEOC") issued an enforcement guidance document titled "Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et. seq." (the "Guidance"), with respect to employers' use of arrest and conviction information in connection with employment decisions.

Disparate Treatment v. Disparate Impact

Although Title VII of the Civil Rights Act of 1964 ("Title VII") does not prohibit employers' use of criminal background checks, the Guidance reaffirms the EEOC's longstanding position that employers may violate Title VII if they use criminal background information improperly. The Guidance, which updates and consolidates existing EEOC guidance documents on the subject that have previously been left unchanged since 1990, focuses on employment discrimination based on race and national origin.

According to the EEOC, there are two ways in which an employer's use of criminal history information may violate Title VII. First, Title VII prohibits employers from engaging in "disparate treatment" discrimination – that is, treating job applicants with the same criminal records differently because of their race, color, religion, sex, or national origin. Second, even where employers apply a criminal record exclusion under a neutral policy (e.g., uniformly excluding applicants based on certain criminal conduct), the exclusion may still operate to disproportionately and unjustifiably keep out people of a particular race or national origin. This is referred to as "disparate impact" discrimination. If the employer does not show that such an exclusion is "job related and consistent with business necessity" for the position in question, the exclusion is unlawful under Title VII.

Read the full advisory online

D.C. Circuit Limits OSHA's Recordkeeping "Madness"

By Eric J. Conn and Casey M. Cosentino

In what has been good news for hospitality employers, the past month has been a rough stretch for OSHA in terms of Injury and Illness Recordkeeping enforcement.  As we reported last month on the OSHA Law Update Blog, in March, the Seventh Circuit beat back OSHA’s attempt to expand the meaning of “work related” for purposes of determining whether an injury or illnesses is recordable.  Then last month, the District of Columbia Circuit further and dramatically limited OSHA’s authority to cite Recordkeeping violations, by insisting that the injury that is the subject of the recordable case actually have occurred within 6-months and 8 days of the citation. 

In this most recent development, the U.S. Court of Appeals for the D.C. Circuit strictly applied the 6-month statute of limitations for issuing violations under the Occupational Safety and Health Act (“OSH Act”). See AKM LLC, d/b/a Volks Constructors v. Sec’y of Labor, No. 11-1106 (D.C. Cir. Apr. 6, 2012).  By way of background, the OSH Act states that “[n]o citation may be issued . . . after the expiration of six months following the occurrence of any violation.” 29 U.S.C. § 658(c).  The OSH Act further provides that “[e]ach employer shall make, keep and preserve” records of workplace injuries and illnesses “as the Secretary . . . may prescribe by regulation.” 29 U.S.C. § 657(c)(1).  Pursuant to this delegated authority, the Secretary of Labor has issued regulations that require employers to:

1.      Record work-related injuries and illnesses on OSHA’s 300 Log and 301 Report “within seven (7) calendar days of receiving information that a recordable injury or illness has occurred;”

2.      Prepare a year-end summary report of all recordable injuries during the calendar year on OSHA’s 300A Summary Form; and

3.      Maintain or save the 300 Logs, 301 Reports, and 300A Summary Forms for 5 years.

In the Volks case, OSHA issued Volks Constructors (“Volks”) citations on November 8, 2006, for allegedly failing to maintain complete injury and illness records from 2002 through 2006.  Volks was not cited, however, for failing to save the logs and forms for the requisite 5 years.  Rather, the violations related to Volks not recording or not properly recording individual recordable injuries or illnesses on the 300 Log.

Volks moved to dismiss the citations as untimely because none of the referenced injuries occurred within the 6 months preceding the citations.  In opposition, OSHA contended that Volks’ duty to maintain injury and illness logs and forms for 5 years tolled the 6-month statute of limitations.  The administrative law judge assigned to the case sided with OSHA, and the Occupational Safety and Health Review Commission (“OSHRC”) later affirmed the ALJ’s decision. OSHRC concluded that because of the duty to preserve the log for 5 years, Volks’ failure to record the employee injuries and illnesses constituted “continuing violations,” which extended the 6-month statute of limitations until six months after the end of the 5-year retention period.

On appeal, the D.C. Circuit reversed and vacated the citations. In doing so, the D.C. Circuit found that the OSH Act’s express language rendered the citations untimely because every alleged failure-to-record violation and every workplace injury that gave rise to the violations “occurred” more than 6 months before the citations were issued.  The Court stated that, under the Secretary’s argument, “the statute of limitations Congress included in the Act could be expanded [infinitely] if, for example, the Secretary promulgated a regulation requiring that a record be kept of every violation for as long as the Secretary would like to be able to bring an action based on that violation. There is truly no end to such madness.”  The Court further noted that “[n]othing in the statute suggests Congress sought to endow this bureaucracy with the power to hold a discrete record-making violation over employers for years, and then cite the employer long after the opportunity to actually improve the workplace has passed.”

Under the Volks decision, OSHA may only cite employers for failing to record a work-related injury from the 8th day after an unrecorded injury occurred until 6-months and 8 days after the injury.  The precedential value of the Volks decision is significant because the decision was issued by the D.C. Circuit, which has jurisdiction to hear any case appealed from the OSH Review Commission.

The timing of the decision is also noteworthy because it coincided with the expiration of OSHA’s two and a half year long Recordkeeping National Emphasis Program, an enforcement program that resulted in hundreds of Recordkeeping-focused inspections.  Alleged Recordkeeping violations were found and cited by federal OSHA in two-thirds of the inspections carried out under the Recordkeeping National Emphasis Program, and yielded nearly 1,000 total Recordkeeping violations.  At the time the inspections were conducted and citations issued, OSHA was continuing its practice of citing employers for Recordkeeping issues as old as five years.  We understood that OSHA had intended to renew the Recordkeeping NEP.  Perhaps the Volks decision lead to an early retirement (or temporary hold) on that program.

Regardless of the expiration of the NEP and this new time crunch imposed by the Volks decision, hospitality employers should expect OSHA to find new ways to continue citing Recordkeeping violations, such as by amending its regulations or requiring electronic submission of Injury and Illness records to OSHA.

New HazCom Standard: The Most Frequently Cited Standard in the Hospitality Industry Gets a Facelift

By Eric J. Conn and Casey M. Cosentino

For years, OSHA’s Hazard Communication Standard (“HazCom”) has been the standard most frequently cited against hotel and other hospitality employers.

In FY 2011 37 hotel companies were cited for violations of the HazCom Standard, including, primarily, alleged failures to:

(1) maintain a written Hazard Communication Program;

(2) ensure each container of hazardous chemicals (such as cleaning agents) is labeled, tagged, or marked;

(3) maintain a complete set of Material Safety Data Sheets (“MSDS’s”) for each hazardous chemical at the workplace; and

(4) train employees in the written program and how to use MSDS’s

This important OSHA Standard, that has long impacted hospitality employers, received a major facelift last month. On March 26, 2012, OSHA issued a final rule that integrates the United Nations’ Globally Harmonized System of Classification and Labeling of Chemicals (“GHS”) into OSHA’s Hazard Communication Standard (“HazCom”). 

The new HazCom Standard requires employers to classify chemicals according to their health and physical hazards, and to adopt new, consistent formats for labels and Safety Data Sheets (“SDS’s”) for all chemicals manufactured or imported in the United States. According to Assistant Secretary Michaels, “OSHA's 1983 Hazard Communication Standard gave workers the right to know . . . this update will give them the right to understand.”

In preparing to implement the new HazCom Standard, below is a list of 10 important things employers need to know about the final rule. Look out for our article coming soon in EHS Today Magazine for a more detailed review of these 10 issues.

1.       Hazard Classification: The new HazCom Standard has specific criteria for classifying health and physical hazards into a hazard class and hazard category. The hazard class indicates the nature of hazard (e.g. flammability) and the hazard category is the degree of severity within each hazard class (e.g. four levels of flammability).

2.       Mixtures: Evaluating health hazards of mixtures is based on data for the mixture as a whole. If data on the mixture as a whole is not available, importers and manufacturers may extrapolate from data on ingredients and similar mixtures. 

3.       New Label Requirements: For each hazard class and category, chemical manufacturers and importers are required to provide common signal words, pictograms with red borders, hazard statements and precautionary statements. Product identifiers and supplier information are also required.  

4.       Safety Data Sheets: SDS’s replace MSDS’s, and the new Standard requires a standardized 16-section format for all SDSs to provide a consistent sequence for organizing the information.          

5.       Non-Mandatory Threshold Limit Values in SDSs: Employers are required to include in SDS’s the non-mandatory threshold limit values (TLV’s) developed by the American Conference of Governmental Industrial Hygienists, in addition to OSHA’s mandatory permissible exposure limits (“PEL’s”).

6.        Information and Training: Employers are required to train employees on the new label elements (e.g. signal words, pictograms, and hazard statements) and SDS format by December 1, 2013. 

7.       Other Effective Dates:  The table below shows the rolling effective dates of the new Standard:

Effective Date

Requirement(s)

Who

December 1, 2013

Train employees on the new label elements and SDS format.

Employers

June 1, 2015

December 1, 2015

Compliance with all modified provisions of the final rule, except:

The Distributor shall not ship containers labeled by the chemical manufacturer or importer unless it is a GHS label.

Chemical manufacturers, importers, distributors, and employers

June 1, 2016

Update alternative workplace labeling and hazard communication program as necessary, and provide additional employee training for newly identified physical or health hazards.

Employers

Transition Period to the Effective Dates Noted Above

Comply with the current HazCom Standard, the amended HazCom Standard, or both.

Chemical manufacturers, importers, distributors, and employers

 

8.       Hazards Not Otherwise Classified: Hazards covered under the old HazCom Standard but not addressed by GHS are covered under a separate category called “Hazards Not Otherwise Classified” (“HNOC”). HNOC’s need only be disclosed on the SDS and not on labels.Notably, pyrophoric gases, simple asphyxiants, and combustible dust are not classified under the HNOC category. Rather, these chemicals are addressed individually in the new Standard. 

9.       No Preemption of State Tort Laws: The new HazCom Standard does not preempt state tort laws, which means that it will not limit personal injury lawsuits regarding chemical exposures, inadequate warnings on labels, and/or failure to warn. 

10.    Combustible Dust:  The final rule added combustible dust to the definition of “hazardous chemicals,” and thus, combustible dust hazards must be addressed on labels and SDSs. Although the new HazCom Standard expressly states that combustible dust is covered, OSHA failed to define combustible dust, which will likely create substantial confusion and uncertainty for employers.

 

Are Employer Social Networking Accounts Protectable Trade Secrets?

By: Kara M. Maciel and Matthew Sorensen

Social media has become an increasingly important tool for businesses to market their products and services. As the use of social media in business continues to grow, companies will face new challenges with respect to the protection of their confidential information and business goodwill, as several recent federal district court decisions demonstrate.  

Christou v. Beatport, LLC (D. Colo. 2012), Ardis Health, LLC v. Nankivell (S.D. N.Y. 2011), and PhoneDog v. Kravitz (N.D. Cal. 2011) each involved former employees who took the login credentials for their employers’ business social media accounts when they left their employment. In each case, the companies alleged that the removal of the login credentials for their social media accounts by their former employees had significant negative consequences on their ability to effectively compete and market their products and services.

Earlier this year, the U.S. District Court for the District of Colorado addressed whether a nightclub owner’s MySpace page and its connections could constitute a protectable trade secret. In Christou v. Beatport, LLC, Bradley Roulier, a former partner in a business that ran two Denver nightclubs kept the login credentials for the clubs’ MySpace pages when he left the partnership to start his own competing nightclub. According to the complaint, the nightclubs’ MySpace pages each had over 10,000 “friends.” After leaving to start his own competing club, Mr. Roulier used the login credentials that he had taken to post updates to his former partner’s MySpace pages promoting his new night club. His former partner then sued him for misappropriation of its trade secrets – namely the login credentials for its MySpace pages and the “friend” connections for those pages. On Mr. Roulier’s motion to dismiss, the court found that the MySpace login credentials and the “friend” connections could constitute protectable trade secrets. The court concluded that the MySpace pages were password protected, that the “friend” connections for the clubs’ MySpace pages were more than just lists of potential customers, they also provided personal information about the “friends” and their preferences, and the clubs’ lists of “friends” could not be duplicated without a substantial amount of effort and expense.

In a similar case, Ardis Health, a former employee effectively froze her former employer out of its business social media websites by taking the login credentials for the accounts and refusing to return them to the former employer. The employee had formerly been responsible for creating and updating the company’s social media websites and was in sole possession of the login credentials for those websites at the time her employment was terminated.  Accordingly, when she refused to return the login credentials after her termination, the employer could no longer access or update its websites. The employer was ultimately able to obtain a preliminary injunction requiring the former employee to return the login credentials for its social media websites based on the theory that the former employee’s unauthorized retention of that information constituted conversion. In finding that the company owned the rights to the login credentials for its social media sites, the court noted that the former employee had entered an agreement in which she had agreed that any work she created or developed during her employment would be the property of the company.

Finally, in PhoneDog, a former employee who had been responsible for establishing and operating a Twitter account for his employer that was designed to increase traffic to his employer’s website kept the login credentials for the account after he terminated his employment with the company, renamed the account, and kept its Twitter following. PhoneDog alleged its Twitter following was the equivalent of a proprietary customer list. PhoneDog also alleged that, by taking the account, the employee effectively decreased the number of visitors to the company’s website and thereby reduced the number of advertisers who were willing to purchase space on its website. On the former employee’s motion to dismiss, the U.S. District Court for the Northern District of California held that the Twitter account, its login credentials, and its followers could potentially constitute protectable trade secrets and that the unauthorized taking of the account and its login credentials constituted misappropriation. 

It should be noted that the courts in both PhoneDog and Christou did not find that the plaintiffs had established that their social media accounts were trade secrets. Rather, the courts simply held that they had alleged sufficient facts to state a claim that those accounts were trade secrets. The question of whether the employers will be able to prove the facts necessary to prevail on their claims was left open and both plaintiffs may very well encounter difficulties in proving the facts necessary to prevail on their trade secrets claims later in their respective cases.

These cases demonstrate the importance of careful planning to protect a company’s social media presence and its business connections. Employers should ensure that they maintain a log of their social media account login credentials and that the log is appropriately updated. Further, companies are well advised to require employees who establish and maintain such accounts on behalf of the company to enter agreements that provide that the accounts and their login credentials are the sole property of the company. Departing employees should also be interviewed in connection with their exit to ensure that all company social media login credentials to which they had access have been returned. Finally, in the event that an employee takes the login credentials for the employer’s social media accounts when he or she leaves the company, it is essential for the employer to take prompt action to recover the information. Delay can result in the loss of legal protections for the accounts and any connections that they hold.

Doing It Right: New Considerations for International Hospitality Groups

By: Jay P. Krupin and Dana Livne

Historically, the United States has continuously attracted international commerce and investment. In recent years, in spite of a challenging economic situation, international hospitality groups continue to seek opportunities in the US for financial growth, promotion, and strategic reasons. When they do so, they must comply with unfamiliar and complex labor and employment laws which are constantly changing. In the US especially, the increasingly litigious environment can affect every step of the enterprise – right from the start. Particularly, in a presidential election year, international hospitality groups that are planning to hire and employ a workforce in the US are advised keep apprised of legal shifts in these three important areas:

Health Care Reform

The Patient Protection and Affordable Care Act, also known as “Health Care Reform,” was enacted into law to extend and amend health insurance coverage to employees in the United States. Earlier this month, the U.S. Supreme Court heard oral arguments on the law’s validity, and a decision is expected in June 2012. Hospitality groups, in particular, will need to plan ahead in light of the decision and prepare to manage significantly increasing costs of coverage.

Management-Labor Relations

In the United States, trade unions have reemerged as a power base to ostensibly represent employees’ interests. The current state of the US economy, concerns about job security, the critical status of pension funds, and recent health care reforms will continue to collectively strengthen the unions’ hands in 2012 and 2013. Unsurprisingly, there have been recent waves of pressure from the National Labor Relations Board (“NLRB”) on employers.

A number of updates in this area will have major implications for hospitality providers in the US, including:

  • New notice posting requirements obliging employers to display posters informing workers of their right to unionize.
  • The appropriate standard to be applied in determining the scope of a bargaining unit is undergoing radical changes.
  • The NLRB amending its rules to make it easier for unions to organize employees through changing its election process.

Social Media

No business sector is immune to the profound impact social media is having on the workplace. Hospitality employers seeking to hire may be tempted to base employment assessments on data attained through social media. However, there is a very thin line that must be carefully navigated when basing employment decisions on information gathered through the use of social media. Any social media policies an employer may wish to enforce on its workforce in the US will also need to be crafted creatively and be cognizant of content which is legally protected “concerted activity.” Such a policy will ensure that seemingly disproportionate social media policies do not result in charges of discrimination on the basis of union membership, while effectively protecting the valid business interests of the employer.

It is no surprise that international hospitality groups can become the target of government scrutiny, especially in the run-up to the Presidential Elections. When setting up operations in a new country, hiring and employing a new workforce is a crucial process. Early planning and preparation will put the employer in a much stronger position to steer these upcoming waves of change and ensure the success of the operation in the US. Doing it right – from the start – will have positive consequences for business productivity and, ultimately, the bottom line.

Employer Recordkeeping Requirements Extended to GINA

by Amy J. Traub, Anna A. Cohen, and Jennifer A. Goldman

Effective April 3, 2012, the Equal Employment Opportunity Commission ("EEOC") extended its existing recordkeeping requirements under Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act to employers covered by Title II of the Genetic Information Nondiscrimination Act of 2008 ("GINA"). The burden on employers to comply with the recordkeeping requirements under GINA will likely be minimal, as employers should already have recordkeeping policies in effect for personnel and other employment records pursuant to these and other employment laws with the same or more stringent requirements. This Act Now Advisory should serve as a reminder of those recordkeeping requirements, which now apply under GINA as well.

Read the full advisory online

Are Your Employees' Tips Subject To Garnishment?

By Matthew Sorensen

 

Wage garnishment can pose a number of potential problems for hospitality businesses. This is particularly true where the employee whose pay is subject to garnishment receives tips. 

Garnishment is a legal procedure in which an employee’s earnings must be withheld by an employer for the payment of a debt under a court order. When faced with a garnishment order involving a tipped employee, the employer must determine whether all or part of the employee’s tips must be included in the amounts withheld under the garnishment order. This question turns on whether or not the employee’s tips may be characterized as “earnings” under the applicable garnishment statute. A mistake by the employer could lead to significant liability. Many state and federal laws concerning garnishment contain provisions that allow for direct employer liability for failing to timely respond to or follow a garnishment order. On the other hand, federal and state wage and hour rules can create liability for wrongfully withholding an employee’s tips. A recent Tennessee Appellate court ruling provides some additional guidance in this area that will likely have broader application to hospitality businesses around the country. 

In Erlanger Medical Center v. Strong, the Tennessee Court of Appeals relied on guidance found in the U.S. Department of Labor’s Field Operations Manual and a Wage and Hour Opinion Letter to hold that tips are not “earnings” that may be garnished. Specifically, the Court noted that “garnishment is inherently a procedural device designed to reach and sequester earnings held by the garnishee (usually the employer).” The Court went on to note that tips paid to an employee by a customer (including those paid by means of a credit card) are not “earnings” that may be garnished because they do not pass to the employer (the garnishee). Rather, tips are direct payments from customers to employees and are the property of the tipped employee. 

This ruling is consistent with a recent decision by the Appellate Division of the New Jersey Superior Court which held that tips are not “earnings” subject to garnishment under New Jersey law. It is also bolstered by the U.S. Department of Labor’s 2011 amendments to its rules defining the general characteristics of “tips.” In those revised rules, the Department of Labor has stated that the Fair Labor Standards Act prohibits employers from using an employee’s tips for any reasons other than as a credit against the minimum wage or as part of a valid tip pool.

Although each state’s garnishment laws are different, many states have defined “earnings” that may be subject to garnishment in a manner that is similar to the Tennessee statute at issue in Erlanger Medical Center v. Strong. As such, the Tennessee Court of Appeals’ decision and the U.S. Department of Labor guidance documents on which it relied may serve as strong persuasive authority in other jurisdictions. Nevertheless, hospitality employers should remain mindful that some states, including Colorado, expressly include tips in their definitions of “earnings” subject to garnishment. 

When served with a garnishment order, hospitality employers should act promptly to determine their obligations under both state and federal law, particularly where the order involves a tipped employee. Garnishment orders often set out specific timelines for the employer to respond and comply. Failure to appropriately or timely respond to the order can put the employer on the hook for its employee’s debt. To avoid such undesirable consequences and ensure that no improper deductions or withholdings are made from an employee’s tips under applicable wage and hour laws, it is best practice to consult with an attorney immediately upon receipt of a garnishment order.

Special Immigration Alert: New H-1B Nonimmigrant Visa Season Starts April 2, 2012

Remember that all new H-1B petitions must be filed on March 30, 2012, to ensure that they are counted toward the 2013 H-1B cap.

The annual H-1B season has arrived! The federal government is authorized by statute to approve only 65,000 new H-1B visas each fiscal year, plus an additional 20,000 H-1B visas set aside for applicants who have master's degrees from accredited American universities. The federal government's fiscal year begins on October 1, but the governing regulations permit employers to apply for new H-1B non-immigrant visas up to six months in advance. Hence, the filing date is March 30, 2012.

For the past three years, the H-1B cap has not been met on the first day. Prior to that, the government received substantially more H-1B petitions than the quota allowed and conducted a "lottery" to determine the cases selected. The format for this lottery has varied and has not been announced for this year. Generally, the U.S. Citizenship and Immigration Service ("USCIS") logs new H-1B petitions according to the date on which they arrive. When the projected volume exceeds the quota, USCIS conducts a random lottery for all H-1B petitions properly filed on the date the quota was reached.

To avoid H-1B cap problems, employers are encouraged to review their current employee rosters and potential new hires to identify possible H-1B candidates. Potential H-1B cap cases include F-1 students working on grants of Optional Practical Training ("OPT"), L-1B transferees in the green card process or who need the additional year here that the H-1B classification provides, or potential hires from cap-exempt organizations who will need new H-1B visas to work for "cap-subject" employers.

We cannot "guestimate" what the volume of H-1B petitions will be this year. We can say that the only way to ensure that your petitions are counted toward the 2013 H-1B cap is to file them on March 30, 2012, so they arrive at USCIS on April 2, 2012, and are included in a possible random lottery.

For more information, or if you have questions regarding how this might affect you, your employees, or your organization, please contact one of the following members of the Immigration Law Group at Epstein Becker Green: 

New York
Robert S. Groban, Jr.
212/351-4689
 rgroban@ebglaw.com

New York
Pierre Georges Bonnefil
212/351-4687
pgbonnefil@ebglaw.com 

Newark
Patrick G. Brady
973/639-8261
pbrady@ebglaw.com

San Francisco
Jang Im
415/398-3500
jim@ebglaw.com 

Houston
Greta Ravitsky
713/300-3215
gravitsky@ebglaw.com 

5 Ways to Avoid a $55,000 Fine from the DOJ

By:  Kara M. Maciel

Today, March 15, marks the effective date of the 2010 ADA Standards for hotels, restaurants, retailers, spas, golf clubs and other places of public accomodation.  As we have written about previously, there are several new requirements and obligations that the hospitality industry must implement in order to ensure their properties are compliant with the new regulations.  Below are five steps every hospitality owner and operator should consider to avoid costly fines and lawsuits:

1.  Implement new reservation policies for blocking off rooms and ensuring staff communicates effectively with guests as to the accessible elements within the Hotel.

2.  Know what you can and cannot say to individuals with a service animal.

3.  Got a pool, hot tub, sauna, or fitness room?  Understand your new obligations for modifying those areas which are not covered by the 2010 ADA Standards' safe harbor.

4.  Train staff members (including reservations agents, concierge, front desk, restaurant staff) on accessible elements within your property and how to communicate and interact with guests with disabilities. 

5.  Conduct an walk-through inspection of your property with legal counsel to review compliance efforts and recommendations for improving compliance.

In light of increased penalties from the DOJ ($55,000 for the first violation and $110,000 for each subsequent violation) and the tidal wave of recent professional plaintiff lawsuits, we expect enforcement efforts within the hospitality industry to significantly rise.  As the old adage goes, an ounce of prevention is worth a pound of cure.  Reviewing policies and procedures, training staff members, and conducting an inspection protected by the attorney-client privilege will go a long way to ensure your property and facility does not face costly compliance issues. 

 

 

For Private Clubs, a Little "Discrimination" (in Membership) Can Go a Long Way!

By:      Mark M. Trapp

In these challenging economic times, many private clubs are finding it increasingly difficult to attract new members, or to retain existing members.  Over the last few years many clubs have lost members, and many more are facing substantial drops in revenues due to a decline in money spent by members on activities such as golfing or dining out.  Many golf, country and social clubs are finding it difficult to sustain their amenities and level of service. 

Because the economic situation is decreasing the potential membership pool, many clubs are offering incentives to join, such as reducing initiation fees, while some are even exploring other more drastic options to generate revenue, such as opening their doors to the general public, moving toward a semi-private status or creating public/private hybrid clubs.

Economically, such decisions may or may not make sense. But allowing virtually anyone into an ostensibly “private” club can have other than strictly economic ramifications. In addition to making the club’s members wonder just how exclusive the club really is (which could itself lead to loss in membership and decreased revenues), a decision to accept virtually anyone as a member could actually open up a private club to potential legal liability for discrimination from which it would otherwise be exempt.

This seemingly paradoxical result stems from the fact that under both Title VII of the Civil Rights Act of 1964, as amended (which prohibits discrimination based upon race, color, religion, sex and national origin) and Title I of the ADA (Americans with Disabilities Act), private membership clubs enjoy an exemption from liability.  Both the ADA and Title VII expressly state that the definition of “employer” found in each statute “does not include” a bona fide private membership club which is exempt from taxation under section 501(c) of the Internal Revenue Code.

In order to qualify for this statutory exemption, a club must be tax exempt and it must be “a bona fide private membership club.” Because tax exempt status is relatively straightforward, the court battles over this exemption usually hinge on whether or not the club meets the criteria of being a bona fide private membership club. 

Generally, courts have defined a private membership club as “an association of persons for social and recreational purposes or for the promotion of some common object (as literature, science, political activity) usually jointly supported and meeting periodically, membership in social clubs usually being conferred by ballot and carrying the privilege of use of the club property.” Quijano v. University Federal Credit Union, 617 F.2d 129, 131 (5th Cir. 1980). While country clubs, fraternal lodges, swim clubs and the like usually fit comfortably within this definition, the decision to open the use of the club’s facilities and/or membership to anyone from the general public could lead to the loss of the otherwise-available statutory exception.  In deciding whether a club is private, the EEOC and courts consider how selective it is in choosing its members. See EEOC Compliance Manual § 2-11(B)(4)(a)(ii) (among the three factors considered is whether there “are meaningful conditions of limited membership.”); and Quijano, 617 F.2d at 131 (noting that “in order to be exempt” a private club “must require some meaningful conditions of limited membership.”). 

In construing whether a club meets the requirement of “meaningful conditions of limited membership,” courts have commonly focused on factors such as:

  • whether the club allows members of the public full access,
  • whether the club limits its total membership and how restrictive or stringent its requirements are for membership, and
  • whether applicants for membership must be personally recommended, sponsored or voted on by other members. 

See e.g. EEOC v. University Club of Chicago, 763 F.Supp. 985 (N.D. Ill. 1991)(concluding that a club was not private because it gave both members and guests essentially the same privileges); and Bommarito v. Grosse Pointe Yacht Club, 2007 U.S. Dist. LEXIS 21064 at *30-31 (E.D. Mich. 2007)(finding requirements of a written application, sponsorship of three current members, posting of the candidacy at the clubhouse, consideration by the board of directors, and a secret ballot to constitute “meaningful limitations on membership.”).  As stated by one leading opinion, “selective membership practices are the essence of private clubs.”  EEOC v. The Chicago Club, 86 F.3d 1423, 1436 (7th Cir. 1996).

Based on the foregoing, it should hardly come as a surprise that a “private” club which opens itself up to the public, or which accepts virtually every applicant meeting minimal criteria or without recommendation or some form of personal screening may be placing its statutorily-afforded exemption in jeopardy.  Because a carefully structured and properly run private club should be able to meet the requirements for exemption from the ADA and Title VII, clubs should be careful that in their push for additional revenues and/or members, they do not open themselves up to potential forms of liability.  It should be noted that depending upon the jurisdiction, there may be applicable state, local or municipal discrimination laws which provide similar protections, and which may be construed as covering private clubs.

Simply stated, in the private club industry, a little “discrimination” can go a long way in avoiding potential lawsuits based on discrimination! 

Hotel Operators and Managers Remain Vulnerable to Wage and Hour Class Actions

By:  Casey Cosentino

A hotel management company was recently hit with a putative class action in federal court for allegedly failing to compensate hotel employees overtime pay at one and one-half times their regular rate of pay for all hours worked over 40 hours in a workweek. As the chief engineer, the lead plaintiff was classified as an executive employee and, thus, was exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”). The lead plaintiff asserts, however, that he was misclassified under the Executive exemption because he “regularly and routinely performed non-exempt tasks . . . including but not limited to, upkeep of the hotel and its grounds, and building and property maintenance; and supervised no more than one other employee.” As such, the complaint contends, among other things, that he and other similarly situated employees unlawfully worked between 50 and 60 hours per week without receiving overtime pay. 

As evidenced by this case, a constant issue challenging the hospitality industry is the proper classification of employees as exempt under the Executive exemption when those employees regularly and routinely perform non-exempt duties. By way of background, the FLSA requires employers to pay employees at one and one-half times their regular rate of pay for hours worked in excess of 40 hours; however, there are exemptions from overtime pay for an employee employed as bona fide executive, professional, administrative, outside Sales, and computer professional. Specifically, to qualify for the Executive exemption, employees must meet all of the following requirements:

1.              The employee must be compensated on a salary basis at a rate not less than $455 per week;

2.              The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

3.              The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

4.              The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

A “primary duty” under the Executive exemption is the “principal, main, major or most important duty that the employee performs.” 29 C.F.R. § 541.700(a). Notably, an executive employee is not precluded from exempt status for performing non-exempt work when his/her primary duty is to perform managerial duties such as interviewing, directing work, appraising work performance, and delegating assignments. Determination of an employee’s primary duty is based on all the facts in a particular case, and not solely on the amount of time spent on a particular aspect of the employee’s job. Indeed, “[e]mployees spending less than fifty percent of their time on managerial aspects can nonetheless satisfy the primary duty requirement under other relevant facts of the case,” including:   

·         Importance of exempt duties as compared with other types of duties;

·         Amount of time spent performing exempt work;

·         Employee’s relative freedom from direct supervision; and

·         Relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.

29 C.F.R. § 541.700(b).

Most industries have experienced the tidal wave of wage and hour class action suits with respect to misclassifying exempt employees, and the hospitality industry is no exception. Because it is common for exempt employees in the hospitality industry to perform non-exempt duties, hotels classifying or planning to classify employees under the Executive exemption should ensure that their primary duty is managerial functions. Moreover, as a best practice, prudent hotel operators should regularly review their wage and hour practices to ensure compliance with federal and state laws. In doing so, hotel operators should: (1) review and update employee classifications and job descriptions; (2) audit their payroll practices with an emphasis on overtime calculation, meal and rest break periods, and salary deductions; and (3) determine whether “preliminary” and “postliminary” job tasks are compensable work time. Identifying and correcting wage and hour mistakes before plaintiffs collectively march to the courthouse is vital to defending class action wage and hour suits and reducing legal liability.

Mandatory Employee Arbitration Agreements: The NLRB Throws a Wrench into Their Enforceability

By:  Forrest G. Read, IV

Arbitration agreements can be an effective way for employers in the hospitality industry to streamline and isolate an employee’s potential claims on an individual basis and protect themselves from a proliferation of lawsuits with many plaintiffs or claimants. But the National Labor Relations Board’s (“Board”) January 6, 2012 decision in D.R. Horton, Inc. and Michael Cuda, notably finalized by two Board Members on departing Member Craig Becker’s final day, has caused significant confusion as to how employers can enforce such arbitration agreements with their employees over employment claims, including wage and hour disputes. 

In D.R. Horton, the Board concluded that an employer commits an unfair labor practice under the National Labor Relations Act (“NLRA”) when it requires, as a condition of employment, its employees to sign an arbitration agreement that precludes them from filing, in any forum, any class or collective claims addressing their wages, hours or other working conditions against the employer. However, the Board’s decision in D.R. Horton appears to be inconsistent with, if not directly contradicts, a recent U.S. Supreme Court decision upholding the validity of class action waiver provisions in consumer arbitration agreements under the Federal Arbitration Act, which many employers and members of the labor and employment bar interpreted as extending to waiver provisions in employment-related agreements.

Notwithstanding the Supreme Court’s unmistakable and consistent pro-arbitration stance, the Board in D.R. Horton directly concluded that Supreme Court precedent regarding arbitration agreements did not apply to the employment context.  The Board’s decision is controversial because it was issued by two Members leaving employers left to question its validity and confused as to which precedent to follow.  In addition, it represents another example of the Board’s willingness to insert itself into matters outside the traditional unionized workplace and find NLRA violations outside the labor-management realm.

D.R. Horton is also controversial because it places courts at an intersection of whether to follow and apply Board or Supreme Court precedent.  Indeed, since the Board’s ruling in D.R. Horton, at least one court in New York weighed in on the issue and, in following Supreme Court precedent, tentatively ruled that D.R. Horton does not apply in the wage-hour context where the employee had voluntarily entered into an arbitration agreement not as a condition of employment. But the court noted that D.R. Horton may have applied and led to a different conclusion if the argument had been made that the arbitration agreement had been presented to the employee in a confusing fashion or had operated through compulsion by the employer (even if presented voluntarily).

In short, the question of whether employment-related arbitration agreements are enforceable will remain a murky one until D.R. Horton, currently a hindrance to hospitality employers that seek to compel individual arbitration of wage and hour claims with their employees, is appealed and decided upon by an appellate court. In the meantime, employers should be cautious about the application of such agreements. Any current arbitration agreements (particularly those that include class action waivers) should be reviewed for enforceability, and perhaps suspended depending on how the waiver provisions were worded and the circumstances under which they were agreed to. In addition, hospitality employers should carefully consider whether and how to present new arbitration agreements to employees and scrutinize the agreement’s waiver provisions before they are executed.

NLRB Increases Scrutiny of Employer Restrictions on Employee Social Media Usage

By:      Ana S. Salper

No governmental body has been more active in addressing social media’s impact on the workplace than the National Labor Relations Board (“Board”). For both unionized and non-unionized employers, the Board has been aggressively scrutinizing the contours of employer discipline of employees for their activities on social media sites, and has regulated and constricted the scope and breadth of employer social media policies. Following his first report in August 2011, National Labor Relations Board Acting General Counsel Lafe Solomon has now released a second report describing social media cases reviewed by his office.

Solomon’s report covers 14 cases, half of which address issues regarding employer social media policies, the other half of which involve discharges of employees after they posted comments to Facebook. The report underscores two main points:   

1)      Employer social media policies must be narrowly tailored enough so as not to prohibit protected concerted activity under the National Labor Relations Act (the “Act”), such as the discussion of wages or working conditions among employees, and

2)      Mere “gripes” made by an employee on a social media site are generally not protected if they are not made in relation to group activity among employees.  

One of the cases highlighted by the report is of particular relevance to hospitality industry employers.  The employer, a restaurant chain operator, had a section in its employee handbook entitled “Team Member Conduct & Work Rules.” The rules provide that “insubordination or other disrespectful conduct” and “inappropriate conversation” are subject to disciplinary action. The Charging Party was a bartender at one of the employer’s restaurants. The employer hired a new General Manager for the restaurant, who in turn hired a personal friend as a bartender.   The Charging Party and other bartenders immediately began having various problems with the new bartender. One such problem involved the new bartender receiving preferential shifts over the Charging Party, who was the most senior bartender and until then had been able to secure the more profitable weekend shifts based on her seniority. 

A few months after the new bartender began working at the restaurant, the Charging Party learned that the new bartender was serving customers drinks made from a pre-made mix while charging them for drinks made from scratch with more expensive premium liquor. The new bartender was spoken to about this and a note was made in his personnel file. Following this incident, the Charging Party posted various updates on her Facebook page indicating that a coworker was a “cheater” who was “screwing over” the customers, and that dishonest employees and management that “looks the other way” will be the “death of business.” The Charging Party was Facebook “friends” with coworkers, former coworkers, and customers. 

In the days that followed, several coworkers complained to the General Manager about the Charging Party’s Facebook posts, worried that customers would see them. The Employer then discharged the Charging Party for violation of the work rules, specifically for communicating unprofessionally to fellow employees on Facebook. 

In reviewing the case, the Board concluded that the employer’s work rules were unlawfully overbroad because the prohibitions on “disrespectful conduct” and “inappropriate conversations” would reasonably be construed by employees to preclude protected activity under Section 7 of the Act. “Protected concerted activity” is generally found when an employee is engaged in discussions about his or her wages, hours, and terms and conditions of employment with, or on the authority of, other employees, and when such activity is the logical outgrowth of concerns expressed by the employees collectively. The Board upheld the Charging Party’s discharge, however, because it found that her posts on Facebook regarding her fellow bartender’s job performance had only an attenuated connection with terms and conditions of employment.

The case accentuates the line the Board has drawn between: 

1)                          employee protests over quality of service provided by an employer, which are unprotected where such concerns only have a tangential relationship to employee terms and conditions of employment, and

2)                          employee protests addressing the job performance of their coworkers or supervisors that adversely impacts their working conditions, which are protected under the Act.  

If, for example, in this case, the Charging Party had made the posts because she had a reasonable fear that her failure to publicize her coworker’s dishonesty could lead to her own termination, her activity would have been protected. Instead, the Board found that she made the posts because she was upset that he was passing off low-grade drinks as premium drinks and management condoned the action. 

Thus, hospitality employers should be on notice: if you have not done so already, it is time to carefully craft and review your social media policies and any other handbook policy that is broad enough to encompass social media site usage. In addition, be mindful of your disciplinary and discharge decisions based on employee conversations that you may deem inappropriate or unprofessional – for the Board may view them otherwise. 

NLRB Recess Appointments Challenged -- Could Further Postpone Notice Posting

By:  Evan Rosen

As Hospitalty Labor and Employment Law Blog readers are aware, on August 30, 2011, the National Labor Relations Board (the “Board”) issued a rule requiring employers to post notices informing employees of their right to join or form a union.  We blogged about the impact of the notice and its requirements on hospitality employers here.  The rule was originally supposed to go into effect in November, but was subsequently pushed back to January 31, 2012 as a result of mounting criticism against the rule.  Indeed, several lawsuits have been filed by business groups alleging that the Board overstepped its discretion in imposing the rule on employers.  A federal judge in one of the cases recently asked the Board to further postpone the posting requirement so that the legal challenges could be heard, and the Board agreed, this time postponing the rule’s implementation to April 30, 2012

The rule's implementation could be further complicated by President Obama's recent recess appointments to the Board.  On January 5, 2011, three new members were appointed to the NLRB bringing it up to its full compliment of 5 members.  Because the recess appointments were appointed while the Senate conducted pro forma sessions -- and thus was not technically in recess -- several business groups and Congressional leaders have criticized the appointments.  In the lawsuit filed by the National Federation of Independent Business challenging the NLRB's posting requirement, the NFIB, last week, filed an amended complaint asserting new claims that the recess appointments were unconstitutional and illegal.  If the claims are successful, the Board could lose its three recess appointments, leaving it down to only 2 members which would fall below quorum and prevent the Board from issuing any rules or decisions. 

Whether the recess appointments stand and the notice posting is implemented remains to be seen but it brings a lot of uncertainly to hospitaity employers with respect to NLRB compliance.  This is particularly true where unions have been aggressively seeking new hospitality employers to organize.  Stay tuned! 

ADA Update: New Swimming Pool Regulations Take Effect Soon!

By: Kara M. Maciel

As hoteliers and hospitality employers know, the upcoming March 15, 2012 deadline for the 2010 ADA Standards will have significant impact on hotel operations. Some of the regulations involve new features that previously had not been regulated by the ADA, including swimming pools, spas, exercise facilities, golf and sauna and steam rooms.  All newly constructed recreational facilities built after March 15, 2012 must comply with the new standards; whereas, existing facilities must meet the new standards as soon as readily achievable.  For hoteliers, some of the most common elements that will affect operations immediately will be pools & spas.   

Pools & Spas Compliance Standards

The new standards require access which mandates either adding a pool lift or renovating the swimming pool and spa entirely depending on the size of the pool:

·         For pools less than 300 feet, there must be at least one means of access with either a sloped entry or a lift.

·         For pools 300 feet or longer, there must be two means of access with the primary means of access either a sloped entry or a lift. 

·         A wading pool must have a sloped entry. 

If the hotel opts for a pool lift, that also must meet specific requirements under the ADA 2010 Standards on elements such as seat height and width, foot and arm rests, controls, lifting capacity and submerged depth. 

For spas, the regulations are similar and the spa equally must be accessible with at least one required means of access through either a sloped entry or a lift. If the resort has more than one spa, then at least 5 percent of the total number should be accessible.     

Questions for Compliance

The cost of compliance could be expensive for hotel owners, especially in a difficult economy. For those hoteliers that already have pools & spas, the owners must remove the access barriers only to the extent they are readily achievable. Readily achievable means easily accomplishable and able to be carried out without much difficulty or expense. Thus, if your property has the resources to make the necessary modifications, such as purchasing a pool lift, then such modifications should be accomplished by the March 15 deadline. 

If the cost of compliance is not readily achievable, hoteliers would be prudent to budget and plan for updating its access barriers as soon as possible. Of course, that does not relieve the entity from exploring other ways to provide access to guests with disabilities, such as providing staff assistance. 

Risks of Non - Compliance

Failing to comply can be costly for the hotel owner and operator. Not only is there an increased threat of lawsuits and complaints from the overzealous plaintiffs’ bar, but the Department of Justice has raised the stakes for violations, in the amount of $55,000 for the first violation and $110,000 for any subsequent violation. 

Stay tuned for additional articles on compliance questions under the ADA. 

Top Legal Issues for the Hospitality Industry to Watch in 2012

by:  Matthew Sorensen

 1.      Deadline For Compliance With New ADA Accessibility Rules Approaching:

 On March 15, 2012, hospitality establishments will be required to be in compliance with the standards for accessibility set by the Department of Justice’s final regulations under Title III of the ADA (2010 ADA Standards). The regulations made significant changes to the requirements for accessible facilities, and will require additional training of staff on updated policies and procedures in response to inquiries from guests with disabilities. Among the most significant changes for hospitality businesses are:           

·         New structural and communication-related requirements for automatic teller machines (“ATMs”);

·         Accessible means of entry for pools and spas – for pools, a sloped entry or a pool lift is required for the primary method of entry, and for spas, the means of entry may be a pool lift, transfer wall, or transfer system;

·         At least 60% of public entrances must be accessible as compared with 50% under the former standards;

·         A new requirement to modify hotel policies to ensure that individuals with disabilities can make reservations for accessible guest rooms during the same hours and in the same manner as individuals who do not need accessible rooms;

·         Golf facilities must have either an accessible route or golf cart passages with a minimum width of 48 inches connecting accessible spaces of the golf course.

2.      Tip Credit and Tip Pooling Lawsuits Remain The Lawsuit Du Jour:

 In recent years, the number of individual and collective action lawsuits involving allegations of tip credit and tip-pooling violations by hospitality businesses has significantly increased. Given the ever changing web of state, federal and local laws regarding tip credit and tip pooling arrangements, it is important that hospitality employers with tipped employees periodically audit their pay practices to ensure compliance with all applicable rules. To minimize the risk of tip credit and tip pooling violations employers should ensure that:

·         They inform tipped employees of any tip credit claimed against their wages;

·         Employees report their tips and that proper records of tips are maintained; and

·         Management and other categories of workers who are precluded from participating in tip pools by federal, state or local law do not participate in such pools.

3.      Increase In Organizing Efforts By UNITE HERE:

The NLRB’s new rule amending the procedures for union election cases introduces a number of union-friendly changes to the election process, including the elimination of the right to seek NLRB review of regional directors’ pre-election rulings. These changes increase the risk that unions will seek approval of smaller units for elections that are based on the extent to which employees in such units support union representation. 

In addition, the NLRB has also announced that its new rule requiring employers to post a notice describing employee rights under the NLRA will go into effect on April 30, 2012. The notice has the potential of generating more discussion of unionization among employees as well as more employee and union-initiated representation campaigns. 

It is anticipated that groups like UNITE HERE will likely attempt to capitalize on these recent changes to increase unionization in the hospitality sector.

4.      Social Media Remains A Hot Topic With The NLRB:

As the use of social media has steadily grown among restaurants and hoteliers, so too has the NLRB’s interest in cases involving social media policies and social media-related discipline. While employees do not receive protection under the NLRA merely by posting a work-related complaint on a social media website, under some circumstances employee complaints made using social media may be found to constitute protected concerted activity. 

As such, hospitality employers need to remain cautious when crafting social media policies and any time they contemplate taking adverse action against an employee for social media activity. 

5.      U.S. Supreme Court to Address The Patient Protection and Affordable Care Act (PPACA):

The U.S. Supreme Court is scheduled to address the challenges to the constitutionality of PPACA in 2012 and it is possible that the Court will issue an opinion on the matter before its June break. If the statute, or at least the portion of the statute that applies to employers and insurance companies, is found to be constitutional, hospitality employers with more than 50 employees will be required to provide certain mandated levels of healthcare coverage to all employees who regularly work more than 30 hours per week by 2014, or face penalties. 

Lessons Learned: 

In light of these issues, it is important that hospitality employers take action to evaluate their policies and practices, including those related to pay, social media, employee handbooks, and health insurance to ensure that they are compliant with applicable legal requirements. It is equally important that they plan proactively to address the potential business challenges posed by the NLRB’s new union-friendly election and notice rules and PPACA.

Employees Working Dual Jobs: Better Watch Out for the Tricky Wage & Hour Issues

By:   Jordan Schwartz

The holiday season is often the busiest time of the year for hospitality employers. At the same time, employees may appreciate the opportunity to earn more during these busy months. Consequently, there may be occasions when an employer places an employee in a dual capacity role. For example, from November through January, a hotel may permit (or require) a housekeeping attendant to also function as a front desk reservation assistant. While assigning (or permitting) an employee to work at another post with a different rate of pay is generally permissible and may be preferable to hiring additional employees for the holiday rush, there are complex “wage & hour” factors to consider prior to doing so. 

The payment of wages is governed by the federal Fair Labor Standards Act (“FLSA”) and applicable state law. Under the FLSA, non-exempt employees must properly be compensated for all work performed, including overtime at a rate of one and one-half times their regular rate of pay for all hours worked in excess of 40 in a workweek.

Since overtime must be based on the employee’s “regular rate of pay,” calculating the overtime amount can be tricky when an employee works two or more jobs for which the employee is paid different rates of pay. Let us assume, first, that the housekeeping attendant position and the front desk reservation assistant position are both “non-exempt” positions. A common assumption in such a scenario is that the employee would receive overtime pay based on the rate of pay of the job at which he is working when he passes the 40-hour threshold. Absent a prior agreement between the employer and the employee, however, this assumption is false. Rather, according to the FLSA regulations, the employee’s regular rate of pay when he works two jobs is calculated as the weighted average of the different rates. Consequently, to determine the employee’s “regular rate of pay” in this scenario, his weekly earnings from his job as housekeeping attendant and his weekly earnings from his job as front desk reservation assistant are added together, and the total is then divided by the total number of hours worked at both jobs.  The employee would then be entitled to 1.5 times this rate of pay for all hours worked over 40 in a workweek.

To complicate matters further, let us assume that the housekeeping position is exempt, while the front desk reservation assistant position is non-exempt. In this scenario, the key issue that must be addressed is how this employee should be classified, since an employee may have only one FLSA designation and cannot simultaneously be classified as both exempt and non-exempt. 

According to the U.S. Department of Labor (“DOL”), to determine exempt status in such a scenario, the employee’s “primary duty” must be analyzed. The term “primary duty” means the principal, main, major or most important duty that the employee performs, with the major emphasis on the character of the employee’s job as a whole. Once this analysis is performed, the employer can appropriately determine whether the employee is exempt or non-exempt. If the combined duties would qualify the employee to remain in exempt status, there would be no requirement to pay the employee any additional salary above his normal weekly salary, although the employer could compensate the employee further for the additional work performed without compromising his exempt status.

If however, after analyzing the employee’s primary duty it was concluded that he was non-exempt, the employee would be eligible to receive overtime pay for all hours worked over 40 in a workweek. Once again, if overtime pay is required, absent a prior agreement otherwise, no attention should be paid as to which particular job the employee is performing when he crosses the 40-hour threshold. Rather, the employer will need to calculate the employee’s regular rate of pay as the weighted average of the different rates, and employee would then be entitled to 1.5 times this rate of pay for all hours worked over 40 in a workweek

As explained above, employers are not prohibited from—or required to—permit employees to work for more than one job for them, although in certain circumstances during the busy holiday season, doing do may be a prudent option for hospitality employers. It is crucial, however, to be cognizant of the “dual employment” wage and hour requirements of both the FLSA and applicable state law. Failure to abide by these requirements could remove all the cheer from the holiday season. 

NLRB Approves Resolution to Make It Significantly Easier for Unions to Organize the Hospitality Industry

By:  Evan Rosen

Yesterday, the National Labor Relations Board (the “Board”) voted, 2-1, to approve its Resolution to drastically amend the rules governing union elections.  While the Board’s stated reason for the amendment is to reduce unnecessary litigation, it is apparent that this purpose is a sham, and that the real reason is to make it significantly easier for unions to organize employees, especially those in the highly targeted hospitality industry. 

The Board did not vote on the entire proposal detailed in their June 22, 2011Notice of Proposed Rulemaking, but rather on a narrower version focused on representational hearings, appeals, and evidentiary issues. Importantly, however, the Resolution eliminates language restricting a Regional Director from scheduling an election until at least 25 days after the direction of an election. Finally, the other proposed amendments to shorten election times, which are identified in the June 22, 2011 Notice of Proposed Rulemaking, are not off the table; rather, the Board will continue to deliberate on them. The Board will now draft a final rule based on the Resolution and will vote again for the final rule to be issued.  

The Resolution will result in a shorter campaign period for elections and will make it significantly more difficult for employers to appeal unlawful election results. Under current procedures, 95% of elections are held within 55 days of a union filing of a petition for representation. The average length of time is about 38-42 days.   Under the Resolution, this period of time is likely to be reduced considerably because there will be less pre-election litigation, and the Board will no longer be required to wait 25 days to direct an election. Consequently, the Resolution shall restrict an employer’s ability to assess the appropriate unit and effectively litigate the issues. It will also impair an employer’s ability to seek Board review of a Regional Director’s election rulings by making such review “discretionary.” 

The reduction in the election time frame is particularly worrisome because union organizing often occurs “under the radar.” Frequently, union organizers have campaigned for several months leading up to the union’s filing of a petition, and have done so without the employer’s knowledge. Indeed, most unions will not even call for an election until at least 65-70 percent of the targeted workforce has signed “authorization cards” turning over to the union the employee’s right to negotiate his or her wages, benefits, and terms of conditions. 

The new rules are detrimental to employees who will not have the benefit of understanding all of the facts before they are required to vote. The current campaign period of 38-42 days generally provides sufficient time for employers to combat the union’s propaganda and to share their own views of unions with their employees. In contrast, under the Resolution, unprepared employers may lack sufficient time to share the facts with employees and rebut the union’s propaganda and promises. The lack of a clear appeals process may also incentivize unions to unlawfully coerce employees to vote for the union. This will almost certainly result in more election victories for unions.

All hospitality employers should prepare ahead of time to ensure that their workforces do not become susceptible to union organizing. Among other things, we suggest the following action items:

·         Train managers in effective labor relations so they know what to do if a union organizing drive occurs, and what they can and cannot say without committing an unfair labor practice

·         Review and update no solicitation policies and ensure they are uniformly applied

·         Conduct an internal review to determine if there are any issues that may be the impetus for a union organizing drive

·         Conduct a wage/benefit comparison to ensure your practices are competitive with competitors who have unionized workforces

·         Determine if there are additional perks and other benefits that can be given to employees to enhance loyalty for management

·         Prepare campaign materials in advance to thwart a union campaign

Is the ATM in Your Hotel Lobby Ready to Comply with the new ADA 2010 Standards?

By:      Forrest Read

The new Americans with Disabilities Act (“ADA”) standards (the “2010 Standards”), set to take effect on March 15, 2012, create new compliance obligations and contain technical specifications impacting what have become fixtures in most hotel lobbies or common areas: automatic teller machines (“ATMs”).  As is customary when new standards are set to take effect and become enforceable, hotels with existing ATMs want to know whether and how their ATMs will be impacted by the 2010 Standards and whether they will be afforded any safe harbor protections for compliance with currently effective requirements.  The answer, not surprisingly, is not a hard-and-fast rule, and any safe harbor protection will apply on an element-by-element basis.

It is helpful to view the 2010 Standards as separating the new requirements impacting ATMs into two categories – structural elements that impact the physical accessibility of ATMs and communication-related elements that relate to the customer’s interactive or communicative experience at ATMs. The Department of Justice (“DOJ”) has stated, specifically relating to ATMs, that structural elements are distinct from communication-related elements, and thus safe harbor protection would likely apply to those structural elements. This means that new requirements addressing height and reach, or accessible path and floor space, would be entitled to the safe harbor protection, and thus compliance with the currently applicable ADA 1991 Standards (the “1991 Standards”) is sufficient. Hotels should be aware, though, that any new alterations made to existing ATMs on or after March 15, 2012 means that they lose the safe harbor protection with respect to structural elements and must ensure that they comply with the 2010 Standards.

However, the DOJ takes a different approach with respect to communication-related elements of ATMs, which it defines as “auxiliary aids and services.”  While the DOJ has not provided a specific list of which new requirements would be considered “communication-related,” it is safe to assume that they would include requirements regarding voice guidance, speech output (including audible tones for security purposes and devices capable of providing audible balance inquiry information), and Braille instructions for initiating speech mode and features. The safe harbor will not apply to these communication-related elements, and only if hotels can meet the demanding threshold of showing that compliance with the new communication-related elements would impose an undue burden on them can they avoid making modifications. Accordingly, existing ATMs that comport only with the 1991 Standards must be modified or retrofitted to comply with the communication-related requirements contained in 2010 Standards by March 15, 2012.

The absence of an enumerated list providing which new requirements in the 2010 Standards are considered to be “communication-related” creates some confusion for hotels operating ATMs. While some elements are clearly communication-related, other components defy easy categorization, and, in turn, may create confusion for hotels as to their obligations. Because the DOJ and disability rights groups will likely initiate efforts to monitor compliance with and enforce the 2010 Standards, and in light of potential civil liability and hefty fines and penalties, hotels should assess their existing ATMs and take steps to comply. If, after a thorough assessment, there is any question or confusion about which ATM features are communication-related, hotels should consider them as such and should modify them to comply with the applicable 2010 Standards by March 15, 2012. 

National Restaurant Chain Seeks Guidance from U.S. Supreme Court on Tip Credit

By:  Ana S. Salper

With the recent surge in class action wage and hour lawsuits, hospitality employers have developed a heightened sensitivity to tip pooling arrangements, distributions of service charges to employees, and application of the “tip credit.” A case before the U.S. Supreme Court this month, Applebee’s International Inc. v. Gerald A. Fast et al., is likely to add further fuel to the fiery “tip credit” world,  as the high court will have to decide whether tipped employees should be paid minimum wage for nontipped tasks employees perform.

Under the Fair Labor Standards Act (“FLSA”), tipped employees can be paid below minimum wage – as low as $2.13 per hour – so long as employees earn enough tips to reach the minimum wage (which is $7.25 under federal law, although state minimum wages may be higher).  In the case pending before the high court, Applebee’s is asking the Court to decide whether employers can use the tip credit to pay tipped employees -- namely, waiters and bartenders -- below minimum wage even if they spend more than 20 percent of their time performing nontipped tasks. Applebee’s is challenging a U.S. Department of Labor (“DOL”) rule that requires an employer to pay a tipped employee the regular minimum wage if they spend more than 20% of their work time in a given week performing non-tipped duties. 

In April 2011, siding with the DOL’s 20% rule, the United States Court of Appeals for the Eighth Circuit affirmed a lower court ruling that Applebee’s had violated the FLSA by paying its service staff below minimum wage even when the waiters and bartenders had spent more than 20% of their time on setup, maintenance, and general preparation -- tasks for which they could not be tipped. The case originated from a class action initiated by approximately 43,000 current and former Applebee’s servers and bartenders. Notably, the Eighth Circuit’s decision is a sharp departure from the decisions of two other federal appeals courts, the Sixth and Eleventh Circuits, which have already rejected the DOL’s 20% requirement.

Applebee’s is arguing that it is entitled to take a tip credit for all the work the waiters and bartenders are performing, even if some of it involves nontipped duties. The argument suggests that the question of whether the tip credit can be applied should depend not on how much of the employees’ time is spent on nontipped tasks, but rather on whether the employees are considered tipped employees under the FLSA.

For hospitality employers, the tip credit is a useful cost-saving tool, allowing employers to pay a lower cash wage to employees who rely upon tips received from customers and guests to bring their total hourly compensation up to the minimum wage. If the Supreme Court decides to depart from the DOL’s 20% rule, the decision will have a significant impact on employers’ tip credit arrangements, and could ultimately change the entire landscape of work allocation, assignment of duties, and distribution of pay for tipped employees in the hospitality industry. 

NLRB Extends Employer Notice Posting Deadline to 2012

By:  Kara M. Maciel

On August 25, 2011, the National Labor Relations Board (“NLRB”) adopted a final rule to require all employers to post a notice of employee rights under the National Labor Relations Act (“NLRA”). The required posting provides information to employees about the right to organize a union, bargain collectively, and engage in protected concerted activity – as well as the right to refrain from such activity. Significantly, this posting requirement is required for all hospitality employers – large and small -- regardless of whether your operations are unionized or not.  

Now, the NLRB has postponed the deadline to post the notice from November 14, 2011 to January 31, 2012.  The NLRB stated the extension was “in order to allow for enhanced education and outreach to employers, particularly those who operate small and medium sized businesses.”   A copy of the notice is now available on the NLRB’s website .    

Failing to post the required notice after January 31, 2012 could lead to an unfair labor practice. The NLRB may extend the 6-month statute of limitations for filing a charge involving other unfair labor practice allegations against the employer as a result of the failure to post the notice. A willful failure to post the notice may also be considered evidence of unlawful motive in an unfair labor practice case involving other alleged violations of the NLRA. 

Hospitality employers should communicate now with all their managers and supervisors about the do’s and don’ts of union organizing and what they can and cannot say to employees who have questions in light of the NLRB’s poster.  Many clients have asked whether they should post their own "notice" next to the NLRB's poster.  For several reasons, such a posting could cause more harm than good.  First, it could draw unncessary attention to the NLRB posting and raise more questions from employees.  But more importantly, the NLRB is increasingly aggressive in ferreting out potential unfair labor practices, espcially those that indicate union animus, regardless of the unionized status of the workplace.  The NLRB could use the employer's poster as evidence of union animus, similar to its practice of using an employer's handbook policies as evidence of union animus, against employers.  Rather than posting a competing notice, a training and communication message to employees is essential.  Through strategic verbal communication strategies, employers can effectively defend against union interference and business interruption.

Aftershocks from D.C.'s "Labor Law Earthquake" Likely to be Felt Throughout the U.S. Hospitality Industry

By:  Kara M. Maciel and Mark M. Trapp

On August 23, 2011 the Washington D.C. area experienced a 5.9 magnitude earthquake. A week later, a “labor law earthquake” of far greater magnitude had its epicenter in a federal agency in D.C. In the coming weeks and months, its aftershocks will be felt by unprepared employers, particularly those operating hotels, restaurants, spas and clubs in the hospitality industry.

In an opinion that America’s largest private sector labor union called a“monumental victor[y] … for unions,” the National Labor Relations Board (“NLRB” or “Board”) upended decades of precedent and placed virtually all employers at risk of organizing by so-called “micro unions.” The decision, Specialty Healthcare and Rehabilitation Center, 357 NLRB No. 83 (Aug. 26, 2011), was made public on August 30, 2011.

At issue in the case was the appropriate standard to be applied in determining the scope of a bargaining unit which the United Steelworkers sought to represent. The union had petitioned the NLRB to represent a unit consisting solely of 53 certified nursing assistants (“CNAs”) employed by a skilled nursing facility. The employer, on the other hand, asserted that the unit should include not only the CNAs, but all other nonprofessional service and maintenance employees at its skilled nursing facility.

For the past 20 years the Board consistently approved facility-wide “service and maintenance units” consisting of nonprofessional service and maintenance employees. Nevertheless, casting aside its own 20 year-old precedent, in Specialty Healthcare the Board majority laid out a radical new standard which will allow unions to organize employees in groups as little as two individuals, even when those individuals share a community of interest with other (excluded) employees. Obviously, this will make it much easier for unions to organize employees, as they can selectively choose which groups, and perhaps even which employees, they wish to represent.

Under the new standard, organized employees need only be “readily identifiable as a group (based on job classifications, departments, functions, work locations, skills, or similar factors)” and share a community of interest. Previously, a union bore the burden of showing that the unit it sought to represent had interests sufficiently distinct from other employees to exclude those other employees from the unit. Under the new standard, an employer bears the burden of showing that the excluded employees share an “overwhelming community of interest” with the employees in the petitioned-for unit – a burden which Member Hayes described as “virtually impossible.”

It is a truism that a union normally does not petition to represent those employees it has been unsuccessful in organizing, but instead will “propose the unit it has organized.” Laidlaw Waste Systems, Inc. v. NLRB, 934 F.2d 898, 900 (7th Cir. 1991). In direct contrast to the command of the National Labor Relations Act that “the extent to which employees have organized shall not be controlling” in determining whether a unit is appropriate, Specialty Healthcare allows a union to pick and choose the employees it chooses to represent (i.e., those it can persuade) and to organize them in small groups based only on negligible differences with other employees. 

Plainly, as the dissent recognized, this case had nothing to do with employees’ free choice, and everything to do with “reversing the decades-old decline in union density in the private American work force.” Combined with the NLRB’s recent mandate that employers post a notice informing their employees of the right to organize, and its proposed rule shortening the timeframe in which employers may respond to union organizing, the intended result is clear. As Member Hayes noted, “the majority seeks to make it virtually impossible for an employer to oppose the organizing effort either by campaign persuasion or through Board litigation.”

Clearly, as a result of the Specialty Healthcare decision, hospitality employers face greater risk that unions will target small groups of employees, as noted by the dissent, under the announced standard, the NLRB’s regional directors “will have little option but to find almost any petitioned-for unit appropriate.” Once a union successfully gets its foot in the door, it will next seek to organize further small groups of sympathetic employees, while ignoring those employees who disagree with its message. For example, while the housekeeping department may be cross-trained with the front desk staff to provide guest service and truly share a "community of interest", unions could now focus on on department, or employees within a department to organize, rather than an entire group of employees at a hotel.  Similarly, a union could organize the front of the house resturant staff, and then work its way to the back of the house employees.  In light of the recent aggressive organizing tactics by UNITE HERE, hospitality employers would be well served to carefully analyze their operations and take immediate steps to address any potential vulnerabilities.

Immigration Update

By:  Robert S. Groban, Jr.

Many of our hospitality clients are revisiting immigration requirements to see if there are any advantages that they have overlooked. One overlooked advantage is the USCIS’s E-Verify system. Employers know that the IRCA requires them to satisfy the Form I-9 requirements.  Many have found this difficult to implement and have been the targets of worksite enforcement operations by U.S. Immigration and Customs Enforcement (“ICE”) that are costly to defend and often result in significant fines. Traditionally, many hospitality employers have looked at the E-Verify system as something to be avoided due to the time required to learn how to use it and the number of potential employees that the system would prevent them from hiring. 

With the expansion in the number of state laws requiring the use of E-Verify and the increasing risks to hospitality and other employers from expensive worksite enforcement actions, many hospitality organizations are revisiting whether it makes sense to use this system before being required by state or federal law to do so. At the same time, the Social Security Administration has resumed sending out “no match” letters when the name and Social Security number of an employee do not match. It can be time consuming to resolve these no-match situations.  Moreover, as we have reported in other Immigration Alerts, ICE views employers that fail to resolve no-match letters as candidates for enforcement actions.  Employers who use E-Verify generally do not receive no-match letters because the E-Verify system will kick out the no-matches at the outset, so the employee will not be hired. All these factors combine to suggest that hospitality employers may want to revisit their traditional aversion to E-Verify and re-evaluate whether it makes sense in the current regulatory environment to use it.

The government’s proposal to streamline the EB-5 program also may make that program attractive to those seeking to develop hotels or other hospitality facilities, for several reasons. First, the primary target of the EB-5 program may now be Chinese investors due to the severe backlogs in the immigration quotas for that country. From an immigration perspective, this makes the EB-5 program more attractive to potential wealthy Chinese investors. Second, hospitality facilities tend to be labor intensive as is the development process.  This makes them more attractive for satisfying the EB-5 employment requirements. Finally, the development of regional centers (“RCs”) makes the EB-5 program a more convenient vehicle than it has been in the past. These RCs are entities formed to attract and pool investments that qualify for EB-5 consideration. Utilization of an appropriate RC for a hotel development project may facilitate the financing necessary for the project.

Wage & Hour Division Continues Enforcement Actions against Virginia Hotels

By:  Kara M. Maciel

The Department of Labor’s Wage and Hour Division in Norfolk, Virginia has announced that it will be stepping up its compliance audits and enforcement efforts against area hotels. In the past few years, the DOL stated it found violations at about 60% of local hotels. According to the DOL, the agency recently made spot checks at 10 area hotels since April. This is just one part of the agency’s nationwide enforcement program and its “Plan/Prevent/Protect” initiative against the hospitality industry. Common violations assessed by the DOL include:

·         Payment of overtime. Under the FLSA, employees are entitled to overtime for any hours worked over 40 per week. For employers who have multiple hotels or facilities, when employees work at different locations in a work week, it is imperative that the employer coordinate its payroll systems to aggregate the employee’s time worked at both jobs in order to ensure that proper overtime is being paid. The DOL is finding that when an employee works at one hotel 20 hours per week, and 25 hours at another hotel, the employee is not paid overtime.   

·         Unlawful deductions. Many hospitality employers require employees to reimburse the hotel for a uniform through payroll deductions. However, an employer may not lawfully deduct from an employee’s wages for the cost of a uniform if it reduces the employee’s hourly wage below the minimum wage. Thus, for employees who are paid the minimum wage or tipped employees for whom the employer takes the tip credit, the hotel cannot deduct for a uniform if it drops the employee below the minimum wage.     

·         Working through meal breaks. Another common violation in the hospitality industry relates to workplaces in which the employer voluntarily provides a meal break. Under the FLSA, if an employer allows an employee to take at least a 30 minute meal break, the employee must be completely relieved of duty and the break must be uninterrupted. If an employee clocks out for lunch, and then is asked to clock back in to perform some work, the employee must be paid for the entire meal break, and not just for the time back on the clock. For many employers who automatically deduct for meal breaks or who fail to pay for the full meal period when it is interrupted, this could represent a significant liability. 

Now, more than ever, employers in the hospitality industry should be vigilant in their wage and hour compliance with federal and state law. Especially in light of the DOL’s recent roll-out of its Smartphone “app,” which allows workers to track their hours and evaluate the amount of overtime earned, workers are being armed with ample resources to bring claims of unpaid wage against the employers. 

As part of our Hospitality Employment and Labor Law Outreach (HELLO), we are familiar with these recent enforcement efforts against the hospitality industry and have been working with our hotel and restaurant clients to minimize costly exposure raised by these claims. Through regular self-audits of payroll practices and procedures, conducted under the attorney-client privilege, a hotel can significantly limit exposure from a DOL investigation or private class action. 

The Newest Trend in California Wage-Hour Class Actions: Claims for Inadequate Seating

By:  Michael Kun

Employers who do business in California are already well aware of the wage-hour class actions that have besieged employers in virtually every industry.   Class claims for misclassification of employees as exempt employees or independent contractors first began to be filed more than a decade ago, and continue to be filed on a daily basis.  Claims for alleged work off-the-clock and missed meal and rest periods by non-exempt employees generally began later, but continue to be filed at an alarming rate. 

Now we can add to those cases a new wave of California class actions, alleging that employees have been denied “suitable seating,” as required by various Industrial Welfare Commission Wage Orders.  News of two recent Court of Appeal decisions permitting such claims has spread among the plaintiffs’ bar, which is now filing such claims against retailers throughout the state.  Other industries where employees frequently are on their feet, particularly the hospitality industry, are soon to follow.

Making matters worse, the Wage Orders with which employers are expected to comply only provide generally that “all working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.”  Nowhere in the Wage Orders or elsewhere are the phrases “suitable seats,” “nature of the work” or “reasonably permits” defined. 

Much like the law regarding meal and rest periods (which continues to be uncertain as the California Supreme Court delays in issuing its long-awaited decision whether such breaks must be “ensured” or need only be “made available”), it seems inevitable that the law regarding suitable seating is going to play out in the courts, and just as inevitable that class action after class action will be filed as the law remains vague and confusing.

And those class actions will not be small ones.  Under California’s Private Attorneys General Act, each employee could recover up to $100 for the initial pay period in which there is a violation, and up to $200 for each subsequent pay period. 

Employers would be wise to get ahead of the proverbial curve on this issue, reviewing the working conditions of their employees and making seats available where possible. 

EpsteinBeckerGreen Wins Dismissal of Servers' Wage and Tip Claims Against Restaurant

On January 14, 2011, EpsteinBeckerGreen helped one of its restaurant clients, the Brasserie Ruhlmann, obtain summary judgment “in its entirety” in a lawsuit brought by former waiters, bussers, and runners (“Plaintiffs”).  Similar to many such wage and hour cases currently being litigated in the hospitality industry, Plaintiffs sought to invalidate the restaurant’s tip pool with assertions that captains and the banquet coordinator performed managerial functions and, thus, were not “tip eligible.”  If Plaintiffs had succeeded, they would have also invalidated the restaurant’s “tip credit” system of compensating service employees, potentially resulting in significant minimum wage and overtime liability.  Plaintiffs made further claims for tips during their initial training period, alleged “spread of hours” violations, and alleged uniform maintenance violations. 

In a sweeping 17-page Memorandum Opinion and Order, Judge Swain of the U.S. District Court, Southern District of New York, found, among other things, that “captains and banquet coordinators had regular interactions with customers in connection with core restaurant functions.” Accordingly, the Court held that the restaurant had properly treated the plaintiffs as tip eligible.  After careful scrutiny, the restaurant’s wage and hour practices were completely vindicated by the Court. Garcia v. La Revise Assocs. LLC, 08 cv 9356 (SDNY 2011).

EpsteinBeckerGreen developed a strategy to elicit admissions from the Plaintiffs in discovery that, together with declarations and selected documents, provided the basis for Judge Swain’s decision. This case resulted in a total victory for the restaurant and is the first reported decision to hold that the position of banquet coordinator was tip eligible.

This win was achieved by EpsteinBeckerGreen’s Labor and Employment Hospitality and Wage and Hour practice groups and, particularly, attorneys Douglas Weiner and Dean L. Silverberg.

Union Solicitation - Strategies for the Hospitality Industry

By:  Kara M. Maciel and Evan Rosen 

In recent weeks the Obama Administration’s National Labor Relations Board (the “Board”) has been very active in soliciting public comments and amicus briefs on a wide range of decisions and proposed regulations that could drastically change the labor relations landscape. One of these topics are the rules surrounding the scope of union solicitation on a non-unionized employer’s private property. 

We have received many inquiries from our clients about the Board's review of whether to change the solicitation rules. In light of the renewed focus on union solicitation, we want to remind you what the current rules state and what action steps the hospitality industry can take to prevent and respond to a union solicitation.

Under federal labor law, solicitation rules differ for employees and non-employees. As a general rule, employers may prohibit non-employees from engaging in solicitations or handbilling on private property. There are, however, two exceptions to this general rule. First, non-employees may have a right to access an employer’s private property if there are no other available channels of communication for which it can communicate with employees. Thus, if your employees live on company premises, this could be an issue to look into. The second exception is where the employer discriminates against the union by allowing other groups to solicit on its premises. Accordingly, if your company allows other groups – even charitable or civic organizations – to solicit on company property, you are opening the door to the union as well. 

The stated purpose of the National Labor Relations Act is to protect employee rights, and in particular, their right to engaged in protected concerted activity. Thus, employees are given greater freedom to solicit on company property than non-employees. The current rule is that an employer may restrict an employee from soliciting other employees except during working time and working locations. Thus, an employee may only solicit other non-working employees if he or she is off the clock and in a break room or non-working space. 

There are some important steps that hospitality employers should take to prevent and respond to a union solicitation effort:

1)         Draft and implement a legally enforceable no-solicitation policy.

  • Insert the policy in your employee handbook.
  • Place no-solicitation signs next to every entranceway.
  • Consult labor counsel to ensure the policy is not overly broad, and thus illegal.

2)         Enforce the no-solicitation policy consistently and uniformly.

  • Your company may not permit charitable, civic, or religious organizations to solicit on its premises if it also wishes to restrict union solicitation.
  • Enforce the policy evenhandedly to all groups wishing to solicit.

3)         Provide labor relations training to all managers.

  • Managers must know how to recognize union organizing.
  • Managers must know what to do if they see signs of union organizing.

4)         If non-employee union solicitation occurs, politely ask the solicitor to leave the premises. 

  • If the solicitor refuses to leave, call security.
  • Consider whether to communicate with your employees to counteract the union’s message.
  • Contact labor counsel immediately to develop a comprehensive strategy to thwart the union organizing effort.

Knowing the rules of the game and these proactive steps that you can take to protect your and your employee's privacy rights can be beneficial to effectively responding to a union organizing and solicitation attempt. 

Food Safety and Whistleblowing - New Federal Law May Deliver a Full Basket of Claims

In a recent article “Food Safety and Whistleblowing – New Federal Law May Deliver a Full Basket of Claims,” EBG partners Allen Roberts and John Houston Pope discuss the FDA Food Safety Modernization Act (“FSMA”), which was signed into law on January 4, 2011. 

This new federal law could have a significant impact on restaurateurs, clubs, and other hospitality employers who manufacture, distribute, transport, receive, hold or import food.  FSMA opens wide a new door to whistleblower activity and protection, necessitating employer attention to related compliance obligations and human resources considerations. 

Federal Court Denies Certification Of Wage-Hour Class Action Against Joe's Crab Shack Restaurants

By:  Kara M. Maciel

The United States District Court for the Northern District of California has denied certification of a class action against Joe's Crab Shack restaurants on claims that employees worked off-the-clock, were denied meal and rest breaks, and were required to purchase t-shirts to wear at work.  Because the case was handled by our EpsteinBeckerGreen colleagues Michael Kun and Aaron Olsen, we do not believe it is appropriate to comment on the decision or its implications.  If you would like to read the decision, a copy may be found here.

Now is the Time to Review Your No-Solicitation Rules: The NLRB Is Considering Expanding Union Rights to Organize on Employer Premises

By:     Michael Casey, Peter Panken, and Steven Swirsky

The new Obama National Labor Relations Board (“NLRB” or the “Board”) has signaled that it will likely be granting union organizers the right to enter employers’ premises to conduct union organizing activity. This would reverse a trend in the last few years of preserving an employer's property rights, and of confining union organizers to areas outside of an employer's private premises, including those areas open to the public, in hotels, restaurants, clubs and other hospitality venues where non-employees are allowed access.

It has long been the law that an employer is generally permitted to limit access to its private property, so long as the employer does not discriminate against outside union organizers. However, it has been widely recognized that the exception of allowing charitable and sometimes civic organizations to solicit on company premises has not opened the floodgates to union organizers.

But the newly constituted NLRB, composed of a majority of attorneys who had in their law practices represented unions, has now issued an invitation "for all interested parties to file briefs regarding the question of what legal standard the Board should apply in determining whether an employer has discriminated against nonemployee union agents seeking property access."

Given the current composition of the NLRB, which has supported union positions over those of management in virtually every case decided by it since the new members were seated this past spring, we fully expect a decision that greatly expands the rights of non-employee union organizers to enter an employer's premises to engage in union activity. The Board would not have issued its "invitation" if it planned to reaffirm existing interpretations of law.

Epstein Becker Green intends to file an Amicus Brief with the NLRB in support of the greatest possible protection of Employer rights to bar outsiders from their premises.

WHAT HOSPITALITY INDUSTRY EMPLOYERS SHOULD DO NOW

Employers are well advised to consider the following actions to preserve, as best possible, intended restriction and to ready their businesses for a likely change in Board law:

1. Review all existing rules and policies prohibiting non-employees from soliciting on company premises, as well as those restricting solicitations by employees to be sure that the rules themselves do not create undue risks.

2. Revise those rules and policies that are most likely to be subject to adverse scrutiny by the NLRB.

3. Review the manner in which such rules and policies are applied and administered to ensure that lawful non-solicitation rules are consistently enforced and appropriate documentation is maintained.

4. Establish protocols to monitor the enforcement of the rules and to maintain written records of communications regarding such rules and policies and their application.

5. Consult with counsel promptly when any non-employees, including union organizers, seek permission or attempt to enter company premises, to assess vulnerability to unfair labor practice charges, discover what actions may be taken lawfully, and assess the precedential value of decisions made and actions taken.

6. Assess the risk associated with allowing charitable solicitations on company premises (although many employers allow United Way solicitations and similar solicitations, these employers may be well advised to have such solicitations conducted by off-duty employees rather than outsiders).

U.S. Department of Labor to Refer Employees to Plaintiffs' Lawyers

by Michael Kun and Doug Weiner

It is no secret that employers have been beseiged by wage-hour litigation, including wage-hour class actions and collective actions.   These lawsuits have hit the hospitality industry as hard as any other industry, perhaps harder.

It is also no secret that the persons who benefit most from these actions are often plaintiffs' counsel, who frequently receive one-third or more of any recovery.  

Now, as a result of an unprecedented new program initiated by the the Department of Labor's Wage and Hour Division ("WHD"), the WHD will be practically delivering potential plaintiffs to the doors of plaintiffs' counsel -- and the WHD has invited plaintiffs' counsel to let it know if it wants a piece of the action. 

Despite the fact that the WHD has an increased enforcement budget and has hired 350 new investigators over the last two years, the WHD has said that it is unable to handle all of the claims it receives.  Rather than seek more funding or implement new procedures to handle the claims, the WHD has made a stunning announcement that can only lead to an increase in wage-hour litigation across the country.  It has announced that it will begin referring employees directly to attorneys to assist them with their claims under the Fair Labor Standards Act ("FLSA") and the Family and Medical Leave Act ("FMLA").   The WHD's new program, which is referred to as the "Bridge to Justice," is part of collaboration with the American Bar Association. 

The Department of Labor's guidance on the "Bridge to Justice" program may be found here.  Under the new initiative, employees will be given a toll-free number to obtain referrals to attorneys in their area.  And attorneys who wish to be included on the referral list are invited to submit their names. 

For employers  -- and hospitality employers in particular --  the "Bridge to Justice" is likely to be seen as little more than the latest effort by the WHD to encourage employees to sue their employers, rather than to raise any concerns with their employers and try to resolve them amicably.  

For plaintiffs' counsel, the "Bridge to Justice" is likely to be seen as an early holiday gift from the WHD, one that they will reap the benefits of for years to come

Hospitality Employers: Let's Meet on 1/26/11 in Washington, DC at Our Midterm Briefing

Please join me, Jay P. Krupin, Michael S. Kun and other attorneys from our firm, Epstein Becker Green, as we present a full-day program covering labor and employment law topics that have increasingly impacted hospitality employers over the past two years. In addition, we will offer an outlook of what we should expect in the coming two years.

Our keynote speaker is Darrel Thompson, Senior Advisor to Senate Majority Harry Reid, who will offer comments concerning the agenda of the 112th Congress. We are particularly pleased that Norah O'Donnell, MSNBC Chief Washington Correspondent, is attending the event as our guest luncheon speaker.

For more details and registration information, please visit the Epstein Becker Green website.

We hope to meet you and other readers of this blog.

Hospitality Immigration Alert

By:  Robert S. Groban, Jr.

Missouri Man Convicted in Scheme to Place Undocumented Workers in Hotels

On October 28, 2010, a Missouri man was convicted by the U.S. District Court in Missouri for his role in a racketeering scheme that involved placing undocumented workers at hotels in 14 states, including several hotels in the Kansas City, Missouri, area. United States v. Dougherty, No. 4:09-CR-00143 (W.D. Mo. Oct. 10, 2010). Beth Phillips, the U.S. Attorney for the Western District of Missouri, indicated that “Mr. Kristin Dougherty was found guilty of racketeering, participating in a Racketeering Influenced and Corrupt Organizations Act (‘RICO’) conspiracy and wire fraud.  He faces a possible sentence of up to 60 years in federal prison without parole, plus a fine up to $75,000.”

Ms. Phillips added that this was not an isolated criminal enterprise. The federal RICO indictment alleged . . .

an extensive and profitable criminal enterprise in which hundreds of illegal aliens were employed at hotels and other businesses across the country.  Participants in the scheme used false information to acquire fraudulent work visas for the illegal workers, many of whom were recruited with false promises related to the terms, conditions and nature of employment.  Once workers entered the United States, participants in the scheme kept control of the workers through threats of deportation and other adverse immigration consequences.

We have previously noted our concerns about hospitality employers that use the H-2B program to supplement seasonal staffing shortages. The Dougherty prosecution is another reminder of the serious consequences that can arise from fraudulent schemes or other unlawful activities in this area.

Fourth Circuit Court Approves Probation Term Barring Participant in H-2B Visa Scheme from HR Work

The recent decision by the U.S. Court of Appeals for the Fourth Circuit in United States v. Starkes, No. 09-5051 (4th Cir. Nov. 3, 2010)(unpublished), underscores the dangers inherent in the H-2B program. In Starkes, the Fourth Circuit upheld a special condition of probation for an HR manager, who was convicted as part of an H-2Bvisa fraud scheme, that barred her from working in any position that involved access to labor contracts.

The Starkes decision involved the former HR manager at a major hotel in Williamsburg, Virginia. In 2007, Ms. Starkes encountered a member of a criminal organization who asked her to submit fraudulent documentation for H-2B visas that overstated the number of temporary workers the hotel required. In exchange, Ms. Starkes received a $200 gift card and was promised 10 - 15 cents per man-hour for each H-2B employee who worked at the hotel. The government discovered the scheme before Ms. Starkes could profit from the illegal arrangement. Ms. Starkes pled guilty to one count of mail fraud for her participation, and was sentenced to three years' probation, with the special condition that she was prohibited from engaging in any aspect of the HR business or any similar occupation where she would have access to labor contracts.

The Starkes prosecution is part of a growing trend to ferret out fraud committed by management of hospitality employers involved in the H-2B worker program. Every hospitality employer that participates in the H-2B program would be well advised to review its policies and procedures for these employees to ensure that both the organization and its management are satisfying all legal requirements.

Hotel Housekeepers File OSHA Complaints Nationwide

By: Jay P. Krupin and Kara M. Maciel

Last week, on November 9, 2010, housekeepers employed by Hyatt Hotels filed complaints with OSHA alleging injuries sustained on the job. The complaints were filed in eight cities across the country, including Chicago, Los Angeles, San Francisco, Long Beach, San Antonio, Honolulu and Indianapolis.  Similar OSHA actions may occur in Boston, NYC, DC, Atlanta, Las Vegas, Miami, and Orlando with higher concentrations of hotel properties. This is the first time that employees of a single private employer have filed multi-city OSHA complaints, and it appears to be a coordinated effort with organized labor, UNITE HERE.

The housekeepers allege injuries arising from their daily room quotas and argue that cleaning rooms and lifting heavy mattresses lead to accidents and workplace injuries. The complaints allege that workers are discouraged from reporting injuries due to fear of retaliation and that monetary rewards for having a safe workplace discourages complaints. The housekeepers recommend several solutions, including changes to fitted sheets, mops and other equipment used to clean a room, as well as a cap on their daily room quota.

Hospitality employers must be on alert of similar OSHA complaints at its properties. OSHA has begun an aggressive enforcement campaign against employers when it unveiled its “Severe Violator Enforcement Program” (“SVEP”) earlier this year. Under SVEP, OSHA will target those employers who disregard their obligations through willful, repeated, or multiple violations. This will lead to a significant increase in OSHA inspections at workplaces that not only have a history of health and safety violations, but also allows for nationwide inspections of related workplaces. Thus, if OSHA believes that the violation at a particular hotel is indicative of a pattern of non-compliance, then it will launch investigations into other hotels owned or operated by the same company. This company “profiling” should put all hotels on high alert.

In light of the significant penalties and the new focus on enforcement from the government and labor unions, it is important for hotels to take worker safety issues seriously and to have a plan in place should OSHA launch an investigation into their respective properties. Additionally, because OSHA investigators are more likely to approach local managers at each property, it is important that these managers receive proper training on OSHA regulations and how to comply with an OSHA investigation.

Accordingly, hotels should take the necessary steps now to ensure compliance with applicable federal and state requirements through attorney-client self-audits.

GAO Report on H-2B Program Portends Added Scrutiny for Hospitality Employers

By:      Robert S. Groban, Jr.

 

On November 2, 2010, the Government Accountability Office (GAO) released a Report on the H-2B nonimmigrant program (Report).   This Report examines fraud and abuse by examining 10 criminal prosecutions of recruiters and employers participating in the H-2B program. This program allows employers in the hospitality and other industries with a onetime occurrence, peak load, seasonal or intermittent employment needs to supplement their domestic workforce with foreign workers whenever U.S. workers cannot be located for the positions.

The Report found significant fraud and abuse of the H-2B program by both employers and recruiters in the prosecutions that were examined.   These illegal activities included: (a) failing to pay the legally required wage; (b) charging the foreign workers excessive fees; (c) facilitating the submission of fraudulent documentation to the government to fraudulently secure H-2B visa approvals; and (d) abusing the H-2B workers by confiscating their passports, failing to pay overtime, charging excessive amounts for rent and threatening to turn them into the authorities if they complained.

Several of the cases the GAO examined involved employers in the hospitality industry and the publication of this Report strongly suggests that this industry will remain in the investigative cross-hairs of Immigration Customs Enforcement (ICE), the agency within the Department of Homeland Security that is responsible for worksite enforcement. Already, ICE investigators are looking closely at employers and recruiters in the hospitality industry who deliberately misuse the H-2B program for a competitive advantage. At the same time, the Report notes that employers in the hospitality industry have provided false or misleading information to recruiters to assist in the procurement of new employees under the H-2B program.

This conclusion promises to add fuel to the investigative fire that threatens to consume the H-2B program. Organized labor objects to the H-2B program because they claim that it takes jobs from Americans and gives them to foreign workers. In this regard, Labor argues that hospitality employers inflate their needs for foreign labor and misrepresent their inability to locate qualified Americans to assist recruiters in securing H-2B workers. While we have not seen deliberate misconduct, we have observed lower level hospitality employees who do not understand the H-2B program and unwittingly provide inaccurate information at the behest of less than scrupulous recruiters.

The Report was issued immediately before the November election and thus was not available sufficiently prior to the change of control in Congress. Now that the Republicans control Congress, however, this Report could provide added impetus for ICE to more vigorously investigate the hospitality industry as the new Congress seeks to show the electorate that it is tough on immigration. So far, criminal prosecutions have been directed at the recruiters and hospitality employers to deliberately violated the law. We are concerned now that the Report will lead to more in depth investigations that will focus on the hospitality employees who either participated or who unwittingly supplied false or misleading information that supported the H-2B nonimmigrant applications. 

In the current anti-immigration environment, hospitality employers should take additional steps to manage the risks associated with continued use of the H-2Bp program. This might include developing and implementing more strenuous immigration policies, training staff about the H-2B program and advising staff about Form I-9 compliance and the various government agencies that are active in workforce compliance.

 

Newly Proposed Wage Order Merges Restaurant and Hotel Industry Wage and Hour Requirements

By: Amy J. Traub

The New York State Department of Labor recently issued a proposed rule which would combine the current wage orders for the restaurant and hotel industries to form a single Minimum Wage Order for the Hospitality Industry.  If adopted, the Wage Order would affect requirements related to the minimum wage, tip credits and pooling, customer service charges, allowances, overtime calculations, and other common issues within the restaurant and hotel industries.  Additionally, the Wage Order would provide helpful guidance for traditionally ambiguous wage issues such as the handling of service charges and the definition of an employee uniform for purposes of a laundry allowance.  Highlights of the Wage Order include:

·         Minimum Wage (Effective January 1, 2011) 

o       Food service workers would need to receive at least $5.00 per hour and no more than $2.25 per hour in tip credits; however, the total of tips they receive plus their hourly wages would need to amount to $7.25 per hour

o       Service employees (at non-resort hotels) would need to receive at least $5.65 per hour and no more than $1.60 per hour in tip credits; however, the total of tips they receive plus their hourly wages would need to amount to $7.25 per hour

o       Service employees (resort hotel employees) would need to receive at least $4.90 per hour and no more than $2.35 per hour in tip credits; however their weekly average for tips would need to be at least $4.10 per hour 

·         Notifications to Employees and Customers 

o       Prior to beginning employment, employers now would need to notify employees that they are taking a tip credit from their wages

o       Employers would need to notify employees of any changes to their hourly rate of pay

o       Employers would need to notify customers of any charge that is neither for food/beverage nor a gratuity to a service employee; for example, a banquet or special function charge 

·         No More Set-Off of Wages Paid in Excess of Minimum Wage 

o       Employers would need to pay an additional hour at the rate of minimum wage for each hour the employee works beyond 10 hours per day, regardless of whether the rate of pay for the first 10 hours is above the minimum wage 

·         No More Salary for Non-Exempt Employees 

o       Currently, a non-exempt employee can still be paid a salary so long as he/she is paid one and one-half times the regular rate of pay for hours worked beyond 40 hours during the week

o       If adopted, the Wage Order would require that all non-exempt workers (except commissioned salespersons) are paid on an hourly basis 

·         Tip Pooling 

o       Employers could require food service workers to join a tip pool

o       This would not apply to employees who do not provide direct food service to customers (however, a host/hostess who seats guests would be considered a direct food service employee and therefore eligible to participate in a tip pool) 

·         Increased Guidance 

o       Employers would be able to retain service charges if, and only if, they clearly explain to customers that such charges are not distributed to service employees

o       The Wage Order would exclude from the definition of “uniform” any clothing that may be worn as part of an employee’s wardrobe outside of work

o       Employers would not need to reimburse employees for the laundry expenses of any uniform clothing that can be washed with the employee’s non-uniform clothing; for example, a uniform that does not require dry cleaning

The new Wage Order signifies the New York State Department of Labor’s attempt to simplify the wage and hour rules for the restaurant and hotel industries while stepping up its enforcement of overtime and deduction violations, particularly with respect to non-exempt employees who are currently paid a salary as opposed to an hourly wage.   Of course, these highlighted changes are only a portion of the changes that would come into effect in the event the Wage Order is adopted in its entirety.

Hospitality Immigration Update

By:  Robert S. Groban, Jr.

U.S. Department of Labor Issues Proposed Rule on H-2B Wage Rates

 

On October 4, 2010, the Employment and Training Administration, U.S. Department of

Labor (“DOL”), issued a proposed rule that would require employers to pay H-2B and

American workers recruited in connection with an H-2B job application a “wage that meets

or exceeds the highest of: the prevailing wage, the federal minimum wage, the state minimum

wage or the local minimum wage.” The proposed rule was published on October 5, 2010, in

the Federal Register. Interested parties have 30 days to comment.

 

The H-2B program allows for the admission of 66,000 skilled or unskilled temporary guest

workers annually when qualified American workers are not available and the employment of

foreign workers will not adversely affect the wages and working conditions of similarly

employed Americans. The proposed rule was promulgated in response to the federal district

court decision in Comite de Apoyo a los Trabajadores Agricolas v. Solis, Civil Action No.

09-240 (E.D. Pa. Aug. 31, 2010), which held that the 2008 H-2B wage regulations issued by

the DOL violated the Administrative Procedure Act.

 

In its preamble to this proposed regulation, the DOL indicated that it has grown increasingly

concerned that the current method for calculating permissible H-2B wages does not

adequately reflect the wages necessary to ensure that American workers are not adversely

affected by the employment of H-2B workers. Under the DOL’s proposed rule, the prevailing

wage for H-2B workers would be based on the highest of three measures:

 

         1) Wages established under a collective bargaining agreement;

         2) A wage rate established under the Davis-Bacon Act or the Service Contract

Act for the occupation in the area of intended employment; or

         3) The mean wage rate established by the Occupational Employment Statistics

wage survey for that occupation in the area of intended employment.

 

The DOL added that the inclusion of Davis-Bacon Act or Service Contract Act wages would

protect U.S. worker wages by ensuring the prevailing wage determinations reflect the

“highest wage from the most accurate and diverse pool of government wage data available

with respect to a job classification and the area of intended employment.” Additionally, the

DOL indicated that the proposed rule would eliminate the current four-tier wage structure and

the use of private wage surveys, which the DOL feels often are “not relevant to the unskilled

positions generally involved in the H-2B program.”

 

Fifth Circuit Rules that Hotel Workers on H-2B Visas Are Not Entitled to

Recoup Visa Expenses Under FLSA

 

On October 1, 2010, the U.S. Court of Appeals for the Fifth Circuit decided Castellanos-

Contreras v. Decatur Hotels LLC, No. 07-30942 (5th Cir. Oct. 1, 2010)(en banc). In an 8-6

decision, the Fifth Circuit held that foreigners working as temporary guestworkers at New

Orleans hotels under the H-2B program are covered by the Fair Labor Standards Act

(“FLSA”), but that the FLSA does not require these employers to reimburse the workers for

recruitment, visa, and travel expenses in determining whether the employee is receiving the

FLSA-mandated minimum wage.

 

In reaching this conclusion, the Fifth Circuit declined to enforce retroactively a 2009 DOL

interpretive bulletin that indicated that the FLSA covers visa and travel expenses. The Fifth

Circuit noted that the DOL bulletin was issued in 2009, long after the events in question

occurred in 2005-2006, and found that it had to follow the general rule not to apply changes

in the law retroactively. In the Fifth Circuit’s decision, Judge Catharina Hayes wrote,

“Whatever deference may be due to the [DOL]'s informally promulgated bulletin in the

future, it does not itself in any way purport to apply retroactively. Accordingly, we decline to

apply it to the situation here.”

 

The Castellanos-Contreras case arose from an FLSA collective action filed by H-2B workers

hired by Decatur Hotels in New Orleans in 2005 after Hurricane Katrina. The H-2B workers'

hourly pay rates exceeded the federal minimum wage. The workers argued, however, that the

money they paid to obtain employment in the United States, including visa, transportation,

and recruitment costs, must be reduced from their pay when calculating whether Decatur was

actually paying them the minimum wage required by the FLSA. If this were not done, the

workers argued, it would have the effect of cutting their wages to less than the FLSAmandated

minimum wage for the relevant pay periods.

 

The DOL’s proposed rule on calculating wages for the H-2B guest worker program, coupled

with the Fifth Circuit’s decision in Castellanos-Contreras, should serve to remind employers

in industries that use temporary or seasonal H-2B guest workers, such as the recreational,

construction, and hospitality industries, that they must be careful about the wages they pay to

avoid what are clearly renewed efforts by the DOL to regulate wages and working conditions

in this area.

EBG Workshop for Hospitality Employers in NY on Oct. 28

EBG is holding its annual NY briefing for clients and friends on Oct. 28. This full-day program will feature a special, two-hour workshop just for employers in the hospitality and retail industries, updating the many recent and significant labor and employment law developments affecting the industry. We will provide real-world guidance on how to manage the risks your company faces from increasingly aggressive plaintiffs' lawyers and government investigators who have openly and unabashedly targeted the industry.

Topics on the workshop agenda include:
 

  • Wage and hour class actions and government investigations: The prime targets are the misclassification of employees, the failure to provide or pay for meal and rest periods, tip pooling, and the failure to reimburse for business expenses, including uniforms. These pitfalls are eminently avoidable - learn how.
  • Union organizing: UNITE HERE, SEIU, and other unions are continuing to aggressively target employees in the hospitality industry and they are newly emboldened by an increasingly union-friendly legal and political environment. Understanding why employees reach out for, or are receptive to, a union is the key to remaining union-free.
  • Leave laws and other hot-button issues: ADA and FMLA requests – and, often, legal action – tend to increase during tough economic times, as do discrimination and retaliation charges.  We will address the most common issues faced by hospitality employers in these and a host of other areas, including OSHA and immigration.
     

Come for the workshop; stay for the day! The workshop for hospitality employers is part of a day-long briefing covering a wide range of labor and employment challenges all employers are facing these days. We invite you to view the full agenda and join us for the entire program.  
 

New Chipotle Decision Holds That California Employers Need Only Make Meal And Rest Breaks Available

 
Employers with operations in California continue to await a ruling from the California Supreme Court on the question of whether employers must "ensure" that meal and rest breaks are taken, or merely make them "available." 
 
The issue has long been before the Court in the similarly-named Brinker and Brinkley cases, and will turn largely on a single question: what does the word "provide" mean.
 
This, of course, is much more than a minor semantic issue.  The ultimate decision about what "provide" means will have a dramatic impact upon the wave of wage-hour class actions that have plagued California employers for more than a decade.  A pro-employee decision -- that "provide" means "ensure" -- will surely lead to a new, massive wave of meal and rest break class actions.  A pro-employer decision -- that "provide" means to make "available," and no more than that -- could slow the filing of meal and rest break class actions and reduce their value.  Until some legislators in Sacramento push for new legislation that expressly states that the breaks must be "ensured," that is.
 
From White v. Starbucks to Brown v. FedEx, the federal courts in California have uniformly issued pro-employer decisions on this issue, holding that employers need only make these breaks "available," and need not "ensure" that employees actually take the breaks.  If employees choose not to take the breaks, or take late or short breaks, there is no liability for the employer. 
 
The uniform rulings by the federal courts have made it preferable for employers to be in federal court.  While the California state courts reached the same conclusion in Brinker and Brinkley, neither case may be cited. Both cases have been depublished while the Supreme Court considers them. 
 
The only other state court decision addressing this issue has been Cicairos v. Summit Logistics, Inc., which concluded that meal breaks in fact must be ensured.  But the Court reached that conclusion in reliance upon an opinion offered by a California state agency -- an opinion that the agency has abandoned.
 
Without a case to cite in state court, and with many state court judges reluctant to rule on the issue while Brinker and Brinkley are pending, employers in meal and rest break class actions have been largely stymied. 
 
Until now perhaps.  On September 30, 2010, the California Court of Appeal issued an unpublished decision in Hernandez v. Chipotle Mexican Grill, Inc., B216004.  Agreeing with the federal courts and distinguishing Cicaios, the court concluded that breaks need only be made "available," affirming the denial of class certification as a result.
 
The decision may ultimately prove to be an unimportant one.  It is unpublished, which means that it can only be cited under limited circumtances.  That may change as employers and management-side employment lawyers are likely to petition for its publication.  Whether it is published or not, it should not surprise anyone if the plaintiffs seek certiorari and ask that the case be considered with Brinker and Brinkley, or take other procedural steps to effectively stay the decision until Brinker and Brinkley are finally decided.  And, ultimately, the Supreme Court is going to have the final say. 
 
That said, the decision does signal that the Superior Courts and the Courts of Appeal are not going to sit on their hands indefinitely, waiting for the rulings in Brinker and Brinkley before they issue their own opinions on this important question.  And, in the short term at least, employers may have a decision they can cite to in state court proceedings to attack the certification or merits of break claims.
   

California Supreme Court Announces Major Victory for Hospitality Employers: No Private Right of Action for Tip-Pooling Claims Under Labor Code Section 351

By Michael Kun

The California Supreme Court has announced what can only be considered a major victory for hospitality employers in California.

California Labor Code section 351 probibits employers from taking any tip that customers may leave for employees.  Many hospitality employers have long used tip-sharing policies, whereby tips left by customers are divided among those involved in service.  In recent years, those tip-pooling practices have been challenged under section 351 as part of the wave of wage-hour class actions brought against California hospitality employers.   While these class actions have proceeded, a threshold issue had not been addressed by the courts -- whether section 351 even provides a private right of action by employees. 

In a case that has been followed closely by employers in the hospitality industry, on August 9, 2010 the California Supreme Court ruled in Lu v. Hawaiian Gardens Casino, Inc. that employees do not have a private right of action to bring claims regarding their tips under California Labor Code section 351. 
 
Noting that section 351 does not itself provide for a private right of action, the court reviewed the statute's legislative history and concluded that the legislature had not intended to provide a new statutory mean to recover allegedly misappropriated tips. 
 
While the decision should bring to a end to the tip-pooling class actions filed under section 351, it will not prevent employees from bringing tip-related claims under other legal theories.  In fact, the Supreme Court itself opined that such claims might be appropriate under other theories, such as a conversion theory.

 

Here's a Tip: Follow the Rules for Reporting Tip Income

By: Betsy Johnson

In light of the IRS’ increased efforts to root out and capture unreported income, one of our hospitality clients recently asked us to provide some clarification regarding: 1) the obligations of employees to report tip income; 2) the obligations of employers to report tip income; and 3) the risks of underreporting of the tip income of its employees.

Employee Obligations:  Pursuant to the Internal Revenue Code and regulations, employees are required to report as income all tips they retain. Nevertheless, the actual amount that employees report to the IRS is an individual matter between the employee and the IRS.  While the employer may have an policy that mandates that employees report all cash tips and provide employees with reports of tips that distributed through credit cards, the employer should not report tips to the IRS on behalf of employees and should not advise employees regarding how much tip income they should report.

Section 6053(a) of the Code requires employees to furnish written statements to their employers reporting all tips received (credit card and cash) in each calendar month.  However, employees should be required to report their tips for every pay period so that the total wages and proper FICA withholding can be taken in each pay period.  The employees are responsible for reporting their tips to be reported to the IRS back to the employer on a form created by the employer or on the IRS Form 4070

The IRS publishes a pamphlet for employees which explains how tips should be recorded and reported. It is called the “Guide to Tip Income Reporting."

Employer Obligations:  On an annual basis, employers must report tip income reported by employees on IRS Form 8027.  The IRS Form 8027 requires that employers report the gross amount of charge tips (tips paid by credit card) for all employees, tips reported by employees, total credit card receipts, and gross sales. The IRS publishes a pamphlet for employers which explains how tips should be tracked and reported called the “Guide to Tip Income Reporting.”

To promote tip reporting compliance, the IRS has established the Tip Reporting Alternative Commitment (TRAC) program.  Employers can voluntarily sign an agreement with the IRS to participate in the TRAC program. The TRAC program is part of the Tip Rate Determination/Education Program that the Internal Revenue Service implemented in 1993 to promote tip reporting compliance.   

The TRAC program allows employers to avoid liability for FICA contributions where employees underreport tip income. Pursuant to a TRAC agreement, employers agree to:

  • Educate the employees about tip reporting
  • Establish tip reporting procedures
  • Stay current with all employer tax payments and filing obligations

In return for these commitments, the IRS agrees that it will not access FICA taxes due as a result of tip under reporting unless the IRS first examines all of the employees who have under reported tips. The IRS will not initiate any tip audits of employers while the TRAC agreement is in place, but the IRS may continue to conduct individualized tip income examinations of current or former employees.

To satisfy the educational commitment, it is recommended that employers establish a written policy for tipped employees that explains their tip reporting obligations. In addition, employees should receive information regarding tip reporting during their orientation. 

The commitment to establish a procedure to encourage employees to report 100% of their tips can be met by providing employees with the IRS Form 4070 and a written or electronic tip statement on a regular or monthly basis which contains all tips attributable to each employee. The statement must include:

  • Employee’s name, address and SS number
  • Employer’s Name
  • Period Covered and Date Reported
  • Total Amount of Tips Received by the Employee
  • The Employee’s Signature

The procedure should allow employees to verify or correct the report provided by the employer. However, employers should not provide the IRS with a copy of the statement or report the tips recorded on these statements to the IRS on behalf of the employee.

In order to satisfy the commitment to stay current with tax obligations, employers should implement an internal audit and review process to ensure that employees are complying with the tip reporting policy and procedures. The reality is that employees will not report all of their tips and, as a practical matter, employers cannot force employees to do so. Nevertheless, employers should exercise their best efforts to “encourage” (i.e., nudge, nag and/or discipline) employees to comply with the tip reporting policy and rules.

 

Conclusion: The inaccurate reporting of tips by employees and employers can result in significant liability for unpaid taxes, interest and penalties for employers. In spite of these potential liabilities, employers should not implement a practice of reporting tips to the IRS on behalf of each employees. To do so, may be detrimental to employee morale and retention. In addition, employers who usurp employee control over how much tip income is reported run the risk of having employees seek advice and/or protection from outside sources, such as a union or an attorney. As such, employers must take care in developing and implementing tip reporting policies and practices.

 

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