Hoteliers prepare for NLRB ruling fallout
04 SEPTEMBER 2015 7:30 AM
The NLRB’s decision in the Browning-Ferris Industries case could create myriad issues in the hotel industry, including strife between franchisors and franchisees and increased liability when working with contractors.
REPORT FROM THE U.S.—Mark Carrier feels like his business is under assault.
When the National Labor Relations Board issued a ruling drastically broadening the definition of “joint employers” last week, potentially rewriting how franchised business must operate, many hoteliers felt like their way of doing business was being attacked.
“My gut tells me this is a battle, and it’s going to go on for a while,” Carrier, the president of B.F. Saul Company Hospitality Group, said. “I’ve got to believe there will be casualties in the form of business disruption and rancor.”
One week after the NLRB decision, hotel owners, franchisors and lawyers are figuring out how this might—or might not—affect their business moving forward and what they can do to prepare.
The new definition of “joint employer” set out in the decision for the Browning-Ferris Industries case is expected to extend potential collective bargaining and legal liability from the company that directly controls employees to those who indirectly control them, including franchisors or companies that work with contractors.
Dana Kravetz, an attorney with Michelman & Robinson in Los Angeles whose specialties include labor relations and hospitality, said franchisors might be inclined to exert more control over their franchisees because the NLRB’s decision opens the door to greater legal liability if something goes wrong.
“There’s going to be a lot more focus on making sure franchisees are running their businesses in one particular way,” Kravetz said. “You could see more emphasis on training, increasing brand standards and a ramped-up certification process that assures franchisors are minimizing their risk.”
Kravetz doesn’t expect that scenario to play itself out right away, but it could become more prevalent once one of the larger companies in the industry faces a lawsuit for things such as payroll violations at individual hotels.
“It’s going to take the plaintiffs’ bar bringing action on a grand scale against a major player, perhaps a class-action lawsuit,” Kravetz said. “That’s when we’ll start to see this play out, and it might be a wholesale shift. This could be a new cottage industry for plaintiff’s lawyers, and companies are going to see an increase in the expenses associated with defending themselves.”
Both Kravetz and Brian Crawford, VP of government and political affairs for the American Hotel & Lodging Association, brought up concerns over the NLRB ruling having a chilling effect on small businesses in franchising. Kravetz said small business owners might be more apt to forego the franchise model if franchisors seize more control in an attempt to mitigate their liability in personnel issues. At the same time, franchisors might opt not to work with small operators because larger businesses might be more able to ensure they can follow through on the procedures for dealing with employment issues.
Crawford said that push and pull between franchisees and franchisors has the potential to become a real issue.
“You could see a scenario where a franchisor would not want all that added liability of having a franchise model,” he said. “And the franchisee does not want the franchisor looking over their shoulder and being involved.”
But Crawford said as easy as it is to focus on the new franchisor/franchisee issues, there’s another big wrinkle introduced by the NLRB decision.
The decision will “affect any business that outsources any aspect of its business,” Crawford said. “Contractors, suppliers, if you use an outsourcer for cleaning or IT, all of those business relationships can now be subject to review under the new joint-employer standard.”
Almost immediately after the ruling was announced, several groups within the hotel industry decried it as potentially devastating for the decades-old franchise business model. But one of the reasons why there is so much anger and hand-wringing over the NLRB decision is because no one is quite sure yet how far-reaching its effects will really be.
InterContinental Hotels Group and the IHG Owners Association have issued statements condemning the decision and saying it “undermines the franchise business model.”
IHG’s official statement notes the company “will continue the appeals process and work with our industry trade associations to educate our lawmakers about the benefits that the franchise business model brings to the economy, to small business owners and to workers.”
That statement reflects a sentiment shared by many across the industry this week who hope the NLRB decision will soon be dismantled in one way or another.
“I hope that because this is such a traumatic rewriting of decades of relationships that it can’t stand the scrutiny of the courts,” Carrier said. “That said, the regulators have tremendous power, and if you embolden a legal way of attacking something, then it isn’t long before those attacks occur.”
Adding to the overall uncertainty, not all franchisors feel as if their businesses actually fall under the scope of the NLRB ruling.
Jim Amorosia, president and CEO of G6 Hospitality, said because his company doesn’t take part in hiring, training, disciplining or any other function of working with employees for its franchisees they don’t believe they exercise even indirect control over them.
“When we read the decision and interpreted it, we felt pretty comfortable that we’re outside the purview of what they’re trying to achieve,” Amorosia said. “We have nothing to do with wages, discipline, hiring or anything else. Our franchisees are all completely independent business people. We certainly don’t anticipate this will change our business.”
What happens next?
While most sources agree that it will take considerable time for the effects of this decision to be felt or even enforced, hotel franchisees can take action by arming themselves with information.
AH&LA’s Crawford said the organization is planning educational outreach for its members.
In the meantime, he said hoteliers need to wade through this suddenly changing business environment with their eyes open and seek good advice.
“Our members should rely on legal counsel,” Crawford said. “Now there is a legal precedent here, and it’s important that we (seek counsel). The real determining factor will be when we see a series of decisions come down where (Browning-Ferris Industries) is cited as precedent, and we’ll see a seismic shift in joint-employer status.”
Beyond this most recent decision, the complicating factor for all franchise business is that the Browning-Ferris Industries ruling is just the first shoe to drop, with another on the way. Another decision relating to McDonald’s could more directly relate to franchised business and could present even more complications.
“The McDonald’s case sounds like it might be even more impactful,” Carrier said. “This all reinforces how important our collective work together is—it takes our grassroots and organized voice to make a difference when there’s an assault on how we’ve done our business for decades.”