Top 6 legal trends facing hoteliers in 2017
Top 6 legal trends facing hoteliers in 2017
20 JANUARY 2017 8:51 AM

Although the Trump administration is likely to ease federal regulations affecting the hotel industry, there remain a number of legal issues significantly impacting hoteliers in 2017.

It is safe to say that President Donald Trump has more knowledge of the hotel business and a greater stake in the hospitality industry than any president in United States history. This first-hand hotel experience, coupled with his pro-business rhetoric, anti-regulatory cabinet, a Republican Congress and a slew of upcoming appointments, likely means that 2017 will bring a substantial easing of the regulatory burden presently affecting hoteliers at the federal level.

But this comes with a big caveat. Activist state and local governments will likely want to fill in any perceived regulatory or enforcement vacuum with their own rules and create an increasingly patchwork set of regulations with which hoteliers must contend.

1. Joint employment
The National Labor Relations Board recently caused a big shakeup in the franchise world when it ruled that McDonald’s could be held jointly liable for its franchisees’ actions with regard to wages and working conditions. Given the extensive number of hotels operating under franchise agreements, the industry has been keeping a close eye on this case.

The dispute originated in 2012 when workers in New York City challenged McDonald’s with a strike, seeking better wages and improved working conditions. The board in 2014 found some merit in the allegations that McDonald’s, and its franchisees, violated employee rights and asserted that it would name both parties as joint employers if they do not reach settlement with employees. The ruling’s impact is already being felt by Amazon, the recent target of a class-action lawsuit involving two former employees of a third-party trucking company, over allegations of unpaid overtime.

However, two of the board’s five seats are now vacant and a third seat will open next year. Trump will be responsible for appointing the three new members. It is likely that the stringent joint employer doctrine will be completely gutted under the new administration. At the very least, we predict that there will be little enforcement of such rules by the board.

2. Overtime rule
The new rule raising the salary threshold for overtime eligibility was to go into effect in December 2016. However, U.S. District Judge Amos Mazzant issued a preliminary injunction preventing the Labor Department from implementing any changes when 21 states claimed the revisions exceeded the department’s authority.

While the injunction is preliminary, the word on the legal street is that the new threshold is dead in the water. Trump has nominated Andrew Puzder, CEO of Hardees and Carl’s Jr. and an outspoken critic of the worker protections enacted by President Obama, to be Labor Secretary. Puzder has argued that expanding overtime pay diminishes opportunities for workers, and that significant minimum wage increases hurt small businesses and are job losers. He has also criticized paid sick leave policies, and supports repealing the Affordable Care Act. In other words, the writing is on the wall.

3. Persuader rule
The Obama administration’s “persuader rule” would have had a major impact on a heavily unionized industry such as the hotel business. The rule would have required law firms to publicly disclose any work they do for employers surrounding union organization efforts. This would effectively quash attorney-client privilege and hamper hoteliers’ ability to challenge unions on a level playing field.

A federal court in Texas recently ruled the Labor Department’s new persuader rule unconstitutional. That ruling now will likely go unchallenged by the Trump administration. U.S. District Judge Patrick Schiltz, in a related case involving the same proposed rule, noted that the new administration was likely to either withdraw the rule completely or decline to defend it.

4. Mandatory arbitration provisions
In September 2016, the National Labor Relations Board filed a writ in its case, NLRB v. Murphy Oil, asking the U.S. Supreme Court to decide whether individual employment contracts requiring arbitration are invalid. If the court agrees, we will see a rise in class actions replacing individual employee arbitration.

In the hotel business, where there are many employees performing the same duties, the potential legal liability would be multiplied if arbitration provisions were ruled invalid. Moreover, in would step an entire industry of class action attorneys ready to file suit. Trump’s likely conservative pick to replace Justice Antonin Scalia could tip the Supreme Court’s balance, and increase the likelihood of the court upholding arbitration agreements with class action waivers.

5. Cybersecurity
In response to high-profile data breaches against businesses, the Federal Trade Commission under President Barack Obama has been pushing for increased investigatory powers and regulations related to cybersecurity oversight. Hoteliers face significant pressure in this arena given the large volume of customer financial transactions they handle daily.

Wyndham Hotels and Resorts faced the FTC’s wrath after a trio of data breaches exposed information from more than 600,000 customers. In 2015, Wyndham settled with the agency and agreed to establish a comprehensive data security program subject to regular audits after a federal court ruled the FTC held power to regulate corporate cybersecurity.

Consistent with Trump’s broad push toward industry deregulation, the FTC will likely be much more reluctant to get involved in such cases. Hoteliers, however, should still heed best cybersecurity practices as they will face threats from private parties, and risk class actions and damage to their public image when it comes to data breaches.

6. Local activism and complexity
As regulation and enforcement eases at the federal level, many states and municipalities, especially in blue regions, may try to make up for any perceived gap in enforcement. Hotel employee unions will also redouble efforts to lobby local policymakers and publicize their grievances if they feel their interests are no longer being addressed by the federal government.

The hotel industry is already significantly impacted by a number of state and local laws. This anticipated new push could increase complexity on the compliance side for hotel franchises trying to operate at the national level. Everything from minimum wage to overtime pay to collective bargaining rights will need to be evaluated on a state and municipal level.

Other areas of federal and local divergence will also have an impact on hiring decisions—from marijuana legalization to “ban the box” measures—effecting hotel drug screening and criminal background check procedures. One bright spot for hoteliers at the local level is the heightened regulation of short-term housing rentals in major cities.

Hoteliers in 2017 may gain from a new administration that is run by an industry insider familiar with the challenges unique to their business. However, as the regulatory burden increases at the state and local level, hotel general counsel will be wise to consult with local attorneys familiar with both the key stakeholders, and relevant hotel laws in the regions they do business.

Lara Shortz is an experienced litigation attorney at the law firm of Michelman & Robinson, LLP, who represents clients in the hospitality, and restaurant, food and beverage industry. Ms. Shortz advises management on state and federal employment acts (such as EEOC, FEHA, ADA, ADEA, WARN, etc.), hiring, firing and wage and hour compliance in the areas of employment law for management. She also handles executive employment contract disputes and conducts workplace training, investigations and compliance.

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