Joint-employer rule reset a challenge for operators
Joint-employer rule reset a challenge for operators
17 SEPTEMBER 2020 7:35 AM

Hotel operators using staffing agencies to fill positions could be considered joint employers after a federal judge voids several parts of the latest labor rule.

REPORT FROM THE U.S.—A federal judge’s recent decision to strike down parts of the U.S. Department of Labor’s joint-employer rule will require hotel operators to take another look at relationships with staffing agencies.

The ruling by U.S. District Judge Gregory Woods of the Southern District of New York found several parts of the new joint-employer rule conflicted with the federal Fair Labor Standards Act. As a result, he voided several sections of the new rule governing vertical employment relationships. His decision did not address horizontal employment relationships, such as those between hotel brand companies and their franchisees.

The joint-employer standard is a cornerstone of labor law, providing clarity and certainty to franchisors and franchisees alike, said Brian Crawford, EVP of government affairs at the American Hotel & Lodging Association, via email. The AHLA supported the Department of Labor’s rule to revise and clarify regulations governing joint-employer status to better reflect the complexity of today’s modern economy, particularly in heavily franchised industries such as hotels. The recent ruling is a disappointment, he said.

“Our members rely on clear, predictable and stable rules and regulations to structure these common business relationships and support a strong, vibrant economy,” he said. “AHLA will continue to support the Department of Labor’s efforts to provide clarity and certainty to our members on this important workforce issue.”

What the decision means
The Department of Labor announced its rule in January 2020, putting it into effect in March. The rules generally eased joint-employer status for companies, setting up a four-part test. To be considered a joint employer, it considered whether a company could:

  • hire or fire an employee;
  • supervise or control an employee’s schedule or conditions of employment to a substantial degree;
  • determine an employee’s rate and method of payment; and
  • maintain an employee’s employment records.

With this new ruling, employers that work with third-party staffing companies should review their contractual provisions, relationship issues and the standards applied, said Andria Ryan, partner at Fisher Phillips.

“If you relaxed them, you may want to go back to pre-March relationship issues,” she said.

Housekeeping is the most common position that operators use staffing agencies for, she said. Operators might also use agencies for stewarding, golf course maintenance or caddy programs. Currently, many operators are having trouble getting housekeepers to return out of fear of the pandemic, and so are relying more on staffing agencies.

Many hotels have regular relationships with staffing agencies. If the same 10 housekeepers come back month after month, year after year, that’s going to be scrutinized under the previous standards, Ryan said. Questions considered under the rule include:

  • If there are two supervisors, who assigns the responsibilities?
  • What kind of training is provided to the employee?
  • What uniform do they wear?
  • Do they sign a hotel operator’s handbook?
  • Is there a separate timekeeping system?

The judge’s decision makes third-party management companies more likely to be considered a joint employer with staffing agencies, Ryan said. The hotel company brings in the staffing company, but the staffing company is the one that controls factors such as rate of pay and overtime.

“As a management company, you usually don’t get to see behind the curtain,” she said. “You don’t get to see if they’re being paid properly. You don’t see if their immigration status is verified. You don’t see that they’re being paid properly for overtime because you’re just simply paying the bill to the staffing agency.”

The risk is that if hotel operators are found to have too much control, the Department of Labor’s Wage and Hour Division comes in, and operators will be on the hook with the staffing agency over any violations, she said.

Though nothing has been filed yet, it’s likely the decision will be appealed.

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