How New Immigration Policies are Impacting Hotels

The Perfect Storm

By Leon Fresco Partner, Holland & Knight LLP | November 26, 2017

The book and the movie, The Perfect Storm, was based on real events involving crewmen on a ship faced with trying to traverse the Atlantic Ocean during the middle of a storm where a nor’easter had absorbed a hurricane and formed its own unique meteorological phenomenon that was more menacing than either storm would have been individually.

In the hospitality industry, a very similar confluence of storms is occurring, but in this case, it involves several different immigration policies of the new Administration that are all operating together to threaten the profitability of the hospitality industry by reducing revenue and increasing labor costs. These changes are forming a perfect storm of their own that all hospitality industry professionals must learn to recognize and address if they are to successfully navigate this tumultuous period. This article briefly explores the labor and demand challenges separately, and then provides suggestions that individuals in the hospitality industry can potentially take to best position themselves in this difficult environment.

Challenges Facing the Hospitality Industry Regarding Labor Costs

Labor cost challenges have been a well-known phenomenon to the hospitality industry. As a significant segment of the hospitality industry has traditionally been seasonal, it has always been challenging to find competent workers at reasonable wages who are willing and able to move from one location to another location based on the seasonal demands of the hospitality industry. For this reason, the hospitality industry has traditionally relied upon supplemental labor provided by foreign nationals.

Over the past few years, two categories of foreign nationals in the United States, those on the Deferred Action for Childhood Arrivals (DACA) program and those with Temporary Protected Status (TPS), have provided over 150, 000 workers to the hospitality industry. These workers have provided a much needed source of flexible labor supply as the leisure and hospitality sectors have added over 700, 000 workers in the past five years according to the Bureau of Labor Statistics.

As of the date of publishing of this article, the existence of both of these programs is in serious doubt. The new Administration has already rescinded the DACA program , and unless Congress can pass a law to allow the nearly 700, 000 DACA recipients to maintain some form of legal status, nearly 1, 000 people will lost their status each day beginning on March 6, 2018. Similarly, the new Administration has announced that protection is no longer necessary for the nearly 300, 000 individuals from Haiti and Central America who currently benefit from Temporary Protected Status. Accordingly, even if TPS status is extended for another short period, it is clear that the program is eventually headed toward discontinuation. If both of these programs are eliminated, the hospitality sector will immediately have to replace more than 150, 000 jobs that will immediately become open due to the fact that current workers have lost their legal immigration status.

In addition to the reductions in the labor force that will occur from the rescission of DACA and TPS, the Administration has also been closely scrutinizing the J-1 summer work visa program, which allows foreign students to spend up to four months living and working temporary jobs in the U.S. in the hospitality industry during peak months. Under the exchange visa, employers do not have to pay Social Security and Medicare tax, they do not have to pay for the worker’s health insurance, and the employer is not bound by the prevailing wage requirements. About 100, 000 individuals work in the United States per year under this program, many in seasonal hospitality locations such as Ocean City, Martha’s Vineyard, and Nantucket. Proposals are currently being considered by the Trump Administration to reduce the number of visas permitted under this program and to make employers have to increase the wages and benefits provided to the students using this program. In addition, for the upcoming fiscal year, there will need to be another effort made to increase numbers of visas awarded by the H-2B seasonal worker program, as demand for visas has far exceeded the 66, 000 annual supply in recent years, and the Department of Homeland Security has not indicated that it will be pushing Congress to issue more of these visas to assist the hospitality industry to meet its labor needs (even though 15, 000 additional visas were authorized last year to businesses facing compelling labor needs).

Finally, on the higher-skilled employment end, many hospitality companies often hire skilled recent college graduates for information technology, accounting, management, and other positions by using what is known as the Optional Practical Training (OPT) program, which allows foreign students who graduate from U.S. universities to work in a job related to their field of study after graduation for between 12-35 months depending upon the type of job at issue. The new Administration has indicated that both this program—and a similar program that allows spouses of individuals in the U.S. on high-skilled visas to work—are likely going to be rescinded or significantly scaled back in the near future.

All in all, the combined sum total of these changes will mean that even as the overall economy continues to grow, labor costs are likely to increase in the hospitality industry as worker shortages become significantly more pronounced and current workers in the hospitality industry are likely to no longer be available due to the discontinuation of the various immigration programs described above.

Adding to the complexity here is that at the same time the hospitality industry is expected to face a dramatically decreased supply of legal labor, the Director of Immigration and Customs Enforcement has also announced that worksite raids of companies such as hotels and restaurants will be expected to increase by over 400%. Whenever any of these raids uncovers hospitality employees in illegal status, the fines and penalties against hotels and restaurants are likely to be significant. This means that using undocumented labor will be completely out of the question for businesses seeking a temporary solution, lest owners and managers face significant fines and penalties. And even if a business is successful in accessing the existing legal immigration programs to obtain labor, the Department of Justice has also indicated that it will be seeking to impose sanctions on any employers who it determines are favoring the employment of temporary foreign workers over available, qualified U.S. workers. Any hospitality employer that uses foreign labor through an immigration visa program is potentially subject to these sanctions.

Challenges Facing the Hospitality Industry Regarding Reductions in Foreign Demand

On the demand side, the hospitality industry is facing a headwind caused by new immigration policies that are reducing demand from foreign nationals for U.S. hospitality industry resources. It is well documented that foreign nationals constitute a significant source of revenue for the hospitality industry. In 2016, foreign travelers spent more than $293 billion on traveler accommodations. Foreign travel supports more than 1.4 million U.S. jobs. In addition, foreign travelers spent nearly $174 billion on food services and drinking places in 2016, supporting nearly 1.9 million U.S. jobs. Maintaining and promoting foreign travel to the United States is thus a major area of importance for the hospitality sector.

In contrast to past efforts emphasizing the importance of implementing immigration policies that promote foreign tourism, policies imposed by the new administration appear to be having the opposite effect, and travel and tourism to the United States is being adversely affected. The most recent Department of Commerce statistics indicate that total overseas travel to the United States is down by 3% in 2017 from what it was in 2016, and that travel from countries other than Canada and Mexico has decreased by over 5%. The policies that are seen to be most contributing to these decreases include: a) vetting policies by the State Department at our embassies and consulates that are increasing the time and expense necessary to obtain tourism, student, and business visas ; b) vetting policies at our airports that are causing more foreign visitors to experience significant searches of their technology and their person, are causing more travelers to be placed in secondary inspection and detention, and more travelers to be placed into expedited removal; and c) reductions in the number of State Department personnel able to perform visa interviews while at the same time requiring more visa applicants to receive interviews than in prior years.

There has also been a significant reduction for the first time in the demand for student visas to come study in the United States. Student visas provide a significant source of revenue for the travel and tourism industry, as students and their parents often stay at short term accommodations while moving to the United States to go to school. According to a recent report by the Institute of International Education, the number of new international students–those who were enrolled at a U.S. institution for the first time in the fall of 2016–fell for the first time in 12 years. This reduction is mainly due to two factors: a) enhanced denials of student visas by the State Department; and b) decreased demand for study in the United States due to the belief that the United States will be less welcoming to foreign students generally and less likely to employ these students after graduation due to crackdowns in work visa programs.

What Can the Hospitality Industry do about these Changes?

As is self-evident by now, a significant number of changes relating to immigration have been made by the new Administration that have the potential to adversely impact the profitability of the American hospitality industry. The difficulty presented by these changes is that every one of these changes will either have the effect of reducing demand for hotel rooms and restaurant meals or increasing the cost of labor for hospitality workers.

The hospitality industry should consider taking three actions to try to maneuver through this perfect storm. First, it is critical for owners/managers to hire expert legal counsel to be able to represent their hotels and restaurants during worksite inspections from Immigration and Customs Enforcement and to ensure than any paperwork filed with immigration agencies to obtain foreign workers is done absolutely perfectly, as applications are being denied and delayed based on even the slightest identifiable justification. Moreover, companies do not want to hire foreign labor in a way that gives rise to discrimination claims from American workers.

Second, the hospitality industry should consider efforts it can be taking now to help its foreign customers try to feel more welcome in the United States and better navigate America’s new vetting programs. Hiring counsel to develop strategies to best provide information and guidance to foreign nationals can give hospitality companies a competitive edge over their rivals if guests feel like the resorts they are staying at are providing helpful pre-trip guidance.

Third, it is critical for the hospitality industry to make its voice heard among both Congress and in the Administration. It is not enough to rely on national organizations to get the word out, individual proprietors and even hospitality employees themselves need to seek out their elecetd representatives and prevail upon them how important foreign travel and tourism is to that member’s state or district. It is only through these 1-on-1 contacts that members will get the sense of the gravity of the issue and will prevail upon the new Administration to take immigration related actions with a better sense of reducing the adverse impact on the travel industry.

Even though the perfect storm may be coming, there are things the hospitality industry should be doing to stay clear of the eye. Being informed of what is happening is the first step, getting skilled advice about what to do next is the second step, and getting active and involved is the third step.

Leon Fresco is a partner at Holland & Knight's Washington, D.C., office where he focuses his practice on providing global immigration representation to businesses and individuals. He also represents clients in the hospitality and restaurant industry in administrative law and government relations matters and has extensive appellate, commercial litigation and legislation experience. Mr. Fresco was the primary drafter of S.744, the U.S. Senate's comprehensive immigration reform bill of 2013 as the staff director for the Senate Judiciary Subcommittee on Immigration, handling matters involving immigration, refugees and border security and serving as the principal advisor to Sen. Chuck Schumer (D-N.Y.), former chairman of the subcommittee, on all aspects of immigration law and policy. can be contacted at 202-469-5129 or leon.fresco@hklaw.com Please visit https://www.hklaw.com for more information. Extended Bio...

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