Ms. Fernandez

Hospitality Law

The Labor Pains of Hotel Closings

By Marta Fernandez, Senior Member Global Hospitality Group, Partner Labor & Employment Group, JMBM LLP

Hotel closings are hitting record levels, but for all the right reasons! Unlike closings caused by the "great real estate depression" of the early 1990s, hotels are closing today in record numbers for major rehab and construction projects, conversions to condo hotel or residential condos, and expansion. The robust recovery in the hotel industry has brought plenty of business and leisure travelers willing to pay for a better hotel experience, or wanting to get in on the condo hotel boom. Hotel developers and owners increasingly find that construction is so extensive that it is advisable to close the hotel while the work is being performed.

The First Steps in Closing

If there is even a remote possibility that you may need to close your hotel for renovation or construction, you cannot make the decision without first considering the labor and employment implications. A few of the key items we help our clients to focus on early in a possible hotel closing scenario are: facilitating construction, avoiding costly missteps, and ensuring that they take full advantage of valuable opportunities.

At least three months before closing for renovations you and your labor counsel need to analyze the following issues applicable to your situation and consider the most optimal strategies.

Workforce Termination Issues

The first issue to consider is whether you will engage in a partial or full closure of the property. Aside from the operational and customer relations issues, you will need to consider the impact on your labor force. While there may be some advantages to keeping the hotel partially open during construction, the downside from the labor perspective may be great. If you are a union hotel you will have to follow the seniority provisions of the labor contracts when reducing hours or engaging in partial lay-offs -- this might not leave you with the most optimal workforce. In the non-union scenario, you will have to develop an objective criteria for reduction decisions in order to avoid discrimination or disparate treatment claims. Health and safety issues will need consideration as well. The cost of ensuring a workplace environment that complies with OSHA requirements for those employees that remain during construction might not be worth the investment. Finally, you may miss an opportunity to start with a "clean slate" of employees upon reopening.

Bargaining with the Union

Whether you are a union or non-union hotel, the biggest challenge you face is how to go about terminating your existing workforce and what to do about rehiring existing personnel when you open. If you are a union hotel, you face unique challenges. By law, you are obligated to notify the union or unions who represent your employees of your plans and engage in bargaining with each union over the effects of the closure before the closure occurs. This "effects bargaining" obligation can be an opportunity if approached with a plan. While the terms of the collective bargaining agreement will likely govern some of the conditions of lay-off and recall of employees - such as severance, vacation pay-outs, continuation of medical benefits during lay-off, pension plan contributions during closure and recall notification and timing issues -- all these issues are subject to bargaining.

The union's biggest concern will be the rehire of its members, which will be your best leverage with the economic issues that are on the table. An effective, creative negotiator who considers all the issues and understands the union's motivation may significantly decrease your out-of-pocket labor costs at closure and during the non-operating period. On the other hand, failure to deal with the union appropriately may result in huge unforeseen obstacles. The union may try to sabotage your construction by setting up picket lines that your union contractors might decide not to cross. Depending where you are geographically, the union may wield its influence with the city to deny or delay necessary building permits and easements. On the other hand, soliciting the union 's support as part of a well strategized negotiation process may go along way in achieving the goals desired with City Hall.

Rehiring Decisions

The decision to rehire or not to rehire the existing labor force is one that needs to be made in advance of closing. In a unionized environment, the employer may not have a choice but to rehire the same workforce if the same entity will continue to employ the employees. However, if a new entity will employ the employees after reopening there may be an opportunity to choose a new workforce and avoid the union. The legal analysis in this case is a delicate one at best, involving complex federal labor law implications. Ultimately, the question turns on whether the new employing entity will be deemed a "successor." A new employing entity will be a successor either because the law imposes such an obligation or because an the existing labor contract imposes the obligation.

If an employer is deemed a successor, it may have no choice but to reopen the hotel as a unionized property and deal with the union in the rehiring process. However, if there is no legal successorship obligation, a new employer has the right to hire its own union-free workforce upon reopening, even if it was a union property prior to the closure. The factors that will be relevant to this determination are : who the employing entities are prior to closure and at the time of reopening; length of closure; how the rehire decisions are made ( the law prohibits an employer from refusing to hire applicants based on their union affiliations.) ; the nature of the operations after reopening -- i.e. are you essentially the same type of hotel operation or are you doing something totally different, such as in the condo conversion scenario; and how far are you willing to go to fight the union that will inevitably lay a claim to your operation after reopening by raising legal as well as political challenges.

Whatever, the decision is with respect to rehiring, it should be considered and planned prior to closure. An unwitting employer may give up an opportunity to avoid a "successorship" obligation or at the very least erode support for the union based on it approach to rehiring. In either case you do not want to miss a valuable opportunity by failing to plan.

WARN ACT Issues

An employer may need to examine WARN Act implications if they employ more than 100 full-time employees and are anticipating a full or partial hotel shut down where more than 50 employees will be terminated or laid off for more that 6 months. In some states, such as California, you may be covered by a state WARN Act that covers employers with an even smaller number of employees. Under the federal law, if you are shutting down or laying off at least 50 employees, you must provide employees with at least 60-days notice or face penalties including payment of 60-days wages, benefits and fines. If applicable, the notices are also to be provided to the unions representing the employees and to certain state agencies. How you go about the notification process with employees is as or more important than the notification itself.

How the closure and reopening plans are communicated to employees and their participation in the process is crucial to laying the groundwork for workforce retention and loyalty during the pre and post closing period. The formal WARN Act notice that needs to be mailed to each employee should not be the first time the employee learns of the closure. Remember, your employees are your best public relations resource, but unless they feel they are part of the process you will lose that opportunity.

Wage and Hour, Benefits and Rehire Issues

Once employees are notified of a closure, their first concern is what will happen to their benefits during closure and how will they be able to get their jobs back. At the time of closure, you will, of course, have to pay out all wages owing to employees and in most case all accrued and unused vacation or paid time off. Depending on length of closure and your plans to rehire the existing workforce, there may be ways of structuring vacations plans to avoid cashing out all employees, such as by setting up a voluntary trust fund that saves the accrued vacation for the returning employees. During lengthy closures, medical benefits may cease or might only continue for a short timeframe following closure. The employer will need to be prepared to answer questions about medical insurance continuation and COBRA coverage. Employees will also want to know how to go about applying for state unemployment benefits. The employer may want to have information and forms available to employees in order to assist with this process. If retaining your workforce is a goal, this type of assistance can go a long way toward maintaining employee loyalty.

Likewise, if you want your workforce back after reopening, you may want to set up and announce the rehire notification process in advance of closure so that employees know what to expect and are more likely to return. You will also be saving yourself valuable time at the time you need to start to rehire in advance of opening. In a unionized setting, the exact recall procedure will be negotiated with the union through effects bargaining. However, in a non-union setting, planning what departments in your workforce will be given priority for job openings and how and when they will be informed, including how much time they will have to accept a position and whether new probationary periods and/or training periods will be required upon rehire are all decisions that should be made in advance and even communicated to employees .

Closings can be great opportunities for hotels, but any misstep with regards to employees can turn a terrific opportunity into a terrific headache.

Marta Fernandez is a senior member of Jeffer, Mangels, Butler & Marmaro LLP. Marta specializes in hospitality industry clients covering all aspects of labor and employment, including labor-management relations, union prevention, collective bargaining, neutrality agreements, and defense of unfair labor practice charges before the NLRB. She also works on implementation of preventative management, such as executive training, arbitration enforcement, and policies and procedures. She also covers administrative and litigation claims, such as sexual harassment and discrimination. Ms. Fernandez can be contacted at 310-201-3534 or mfernandez@jmbm.com Extended Bio...

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