Mr. Schmidt

Hospitality Law

The Joint Employment Dilemma for Hotel Employers - Part III of III

By Michael C. Schmidt, Partner, Cozen O'Connor

In the first two installments of this “Employment Classification Trilogy,” the focus was on hotel employers who improperly (and, generally, inadvertently) classify workers as exempt employees for purposes of federal and state wage and hour laws, or classify workers as independent contractors rather than employees. However, there is a third classification to be considered, only this time a hotel employer will not be affirmatively classifying anyone itself. Instead, employers need to consider whether unintended liability may arise under particular circumstances when a court deems the company to be a “joint employer” .

The essential premise of joint employment is the recognition that an employee may be employed simultaneously by more than one employer. The problem is that a company may have been acting under the assumption that the particular worker who has been injured or has raised a dispute is not that company’s “employee.” For example, a hotel owner may enter into a management agreement with an outside management company and assume that it (the hotel owner) is not responsible for the injuries or complaints of those employed by the management company. Or, a hotel may outsource certain functions to outside contractors under the belief (and even with the intention) that those outside contractors bear all responsibility for its own workers.

Courts and legislatures have not been shy about interpreting the term “employer” broadly and liberally to comport with the expressed purpose of the law at issue. While courts in different jurisdictions will apply varying tests to determine whether a joint employment relationship exists, the primary focus is on the economic realities of the relationship and whether there is some measure of control retained by the entity claimed to be a joint employer. Indeed, a determination that an entity is a joint employer together with another entity in relation to a particular employee or group of employees can have significant consequences, as virtually all obligations under such laws as the Fair Labor Standards Act, the Family and Medical Leave Act, Title VII of the Civil Rights Act, and the WARN Act, arise only when an employment relationship is found.

Many regulations interpreting these statutes specifically address the joint employment situation. For example, section 791.2 of the Fair Labor Standards Act regulations provides that “where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek,” a joint employment relationship will be deemed to exist if there is an arrangement between the two employers to share or interchange employees, if one employer acts in the interest of the other employer in relation to the employee, or if the entities share “control” over the employee. Similarly, section 825.106 of the regulations interpreting the Family and Medical Leave Act expressly addresses the joint employment situation

• (a) Where two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under FMLA. Joint employers may be separate and distinct entities with separate owners, managers and facilities. Where the employee performs work which simultaneously benefits two or more employers, or works for two or more employers at different times during the workweek, a joint employment relationship generally will be considered to exist in situations such as:

  1. Where there is an arrangement between employers to share an employee’s services or to interchange employees;
  2. Where one employer acts directly or indirectly in the interest of the other employer in relation to the employee; or,
  3. Where the employers are not completely disassociated with respect to the employee’s employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under common control with the other employer.

It is subdivision (a)(3) of that regulation that lends itself to the grey areas. Section 825.106 goes further in noting how a determination should be made for purposes of the obligations under the FMLA, and provides a practical example:

• (b) A determination of whether or not a joint employment relationship exists is not determined by the application of any single criterion, but rather the entire relationship is to be viewed in its totality. For example, joint employment will ordinarily be found to exist when a temporary or leasing agency supplies employees to a second employer.

As suggested above, hotel employers are not immune from the joint employment dilemma. For example, in one federal case, a court held that a partnership that owned a hotel had retained sufficient control over the employees of another company that managed the hotel, such that the partnership and the company were joint employers for purposes of liability for discrimination under Title VII. There, the management agreement between the two employers provided, among other things, that the partnership retained the right to pay all operation costs including employee compensation, and had primary authority over any and all labor negotiations at the hotel. And in another federal case, a security guard employed by an agency that placed the guard at one hotel was permitted to seek unpaid minimum wage and overtime compensation against the hotel under a joint employment theory.

There are certain best practices that a hotel employer should consider when attempting to avoid a joint employment situation:

• First, a hotel employer should understand the general principles embodying the joint employment dilemma, and conduct an audit of its policies and practices to ensure that it is not exercising day-to-day control over the employees of another company even where an agreement or written job description or classification does not on its face imply a joint employment situation.
• Second, a hotel employer should review its current management agreements for provisions that it may not deem to be necessary to its ongoing operations, but that may provide sufficient “control” over employees performing services at or for the hotel to deem the hotel a joint employer.

Finally, when considering an outsourcing relationship, a hotel employer should ensure that the relationship is structured in a way that allows for as little direct involvement with the outside contractor’s employees as possible. The outside contractor should provide on-site management to supervise the work of its own employees at the hotel, and should be the entity solely involved with employment-related decisions and issues pertaining to compensation of its employees.

Michael C. Schmidt is a member of Cozen O'Connor in the Labor & Employment Practice Group. A portion of his practice is devoted to advising large and small businesses how to avoid litigation and minimize exposure to claims. He has represented clients in the hospitality and restaurant industry in matters involving wage and hour, discrimination and employment contract disputes. Mr. Schmidt is an Adjunct Professor of Law at Touro Law School in Central Islip, N.Y., he teaches employment law. He lectures and conducts seminars for human resources professionals, corporate executives, and lawyers. Mr. Schmidt can be contacted at 212-453-3937 or mschmidt@cozen.com Extended Bio...

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