To Employ or Not to Employ?

By Nelson Migdal Shareholder & Co-Chair Hospitality Practice, Greenberg Traurig LLP | May 19, 2010

One of the big issues for hotel owners is which party is the employer - the owner or the manager? There are pros and cons to each scenario, and the terms and conditions of the hotel management agreement with respect to employees and employment matters must be well thought out and leave no room for error.

Surprisingly, economics do not play into this issue as much as one would think. Typically, the owner is responsible for the costs of employment as an operating expense of the hotel regardless of which party is the employer. Similarly, the issues of imputation of liability for the conduct of certain employees are often the same regardless of which party is the employer. What tips the scale will vary based upon many factors, and the applicable law of the jurisdiction in which the hotel is located. It is not unusual for the manager to be the party best equipped to deal with the legal aspects of employment issues, including collective bargaining agreements. That being said, the owner can still be the "employer" yet transfer the majority of the employment related duties to the manager through the provisions of the hotel management agreement. The hotel management agreement is the primary document governing the relationship between the hotel owner and the hotel operator or manager and which party is the employer of the hotel employees. Because the hotel management agreement is the vehicle for so much of what governs the parties, the agreement itself becomes important in considering the legal issues governing the allocation of responsibilities for the hotel employees.

Is Owner or Operator Responsible for the 'Bad Acts' of the Employees?

The treatment and management of hotel employees is ever changing. The current trend, other than for some of the largest nationally recognized chains, is to mandate that the owner be the "employer". Because so many owners these days are REITS, private funds, insurance companies, and other institutional owners, the entire employee and employer relationship must be closely examined.

It is not just the idea that the employer might need to be a wholly owned subsidiary or affiliate of the hotel owner to better manage the risks, relating to compensation, benefits, and collective bargaining, but also the need within the four corners of the hotel management agreement to describe the limits of imputed liability from the employee to the employer, no matter which party is the employer. For example, most hotel management agreements use the gross negligence or willful misconduct formula. But is the gross negligence or willful misconduct of every employee - from the bellhop to the general manager - imputed to the employer? Currently, it is not. But exactly where do you draw the line? What we see with greater frequency is that the parties negotiate a pool of "executive staff" or "senior management" and only the conduct of that limited pool of personnel is imputed to the manager. For the conduct of any other employee to be the responsibility of the manager, the executive staff must have demonstrated gross negligence or willful misconduct on the hiring or supervision of the employee. This can be a bit tricky, because often the terms of the hotel management agreement allows the owner the right to approve the selection and appointment of the executive staff. Therefore, it is important that owners take one step further and explicitly state that owner's approval of the selection or termination of any of the members of the executive staff shall not impute to owner any responsibility or liability arising out of the selection or termination of any of the members executive staff, or the actions or omissions of any of the members executive staff.

Union Labor - Employee Free Choice Act

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.