The Gig Economy: What Hoteliers Need to Know

By Dana Kravetz Firm Managing Partner, Michelman & Robinson, LLP | February 10, 2019

Call it what you will – the gig economy, sharing economy, freelance economy, on-demand economy, platform economy, [fill-in-the-blank] economy – the nuts and bolts of how we go about accessing people and services has changed dramatically in recent years. Want a ride? Grab an Uber. Hungry? DoorDash delivers. Need groceries? Instacart to the rescue. With just a couple of taps on a smart device, our every wish can seemingly be granted.

This genie-in-a-bottle approach to commerce extends beyond everyday consumers and into the corporate sphere as well, especially when it comes to staffing. Worldwide, an ever-growing force of independent workers available for short-term engagements is just a few clicks away. No doubt about it, the phenomenon most commonly referred to as the gig economy is shaking up "business as usual" across industries as technology transforms the manner in which companies – hotels and resorts included – fill vacant positions. And while this can certainly be a boon for hoteliers, the shifting employment paradigm is not without potential pitfalls.

The Modern Labor Pool

To best understand the rapid-fire expansion of the gig economy, it is important for hotel and resort management to be mindful of the playing field when it comes to labor. The numbers are compelling – Census Bureau data suggests that millennials will make up 75 percent of the workforce by 2025. Which begs the question: what is that generation looking for in a job? The answer is rather clear – flexibility and work-life balance, this according to a slew of reports, including relatively recent ones from MetLife and PwC.

For better or worse, millennials want choice when it comes to work, like when and where they do it, a conclusion only reinforced by Forbes reporting that reveals the majority of workers in the U.S. will be freelancing by 2027. The good news is that the gig economy enables and facilitates this independent and entrepreneurial trend line, something the hospitality space (restaurants in particular) is now harnessing for its own gain – and for good reason.

Leveraging a Flexible Workforce: The Pros for Hoteliers

Staffing apps have become all the rage, and those like Jobletics, Wonolo and Rota (UK) allow hospitality employers to leverage on-demand help and limit the extent to which they are tethered to permanent employees. The benefits of doing so cannot be understated, especially to hoteliers.

Given the seasonality of hotels and resorts and the dramatic swings in occupancy inherent in the business, the flexibility afforded by short-term staffing apps – in terms of both manpower and the associated investment of time and money – can be a godsend. Labor needs, expected and otherwise, can be filled in a relative instant, with enthusiastic, fully vetted personnel chomping at the bit to get working.

And by engaging staff on an as-need basis, the turnover that plagues the hospitality industry can be held in check. Indeed, the gig economy allows hoteliers to protect against overstaffing and the layoffs that ensue in down times.

The model also serves to keep administrative headaches to a minimum. Presumably, the third-party staffing companies – the same ones that power the apps – handle all human resources and payroll issues, meaning hoteliers spend less time recruiting, reading resumes, interviewing and sorting through timesheets, and more time attending to guests and hotel operations.

With the good, however, comes the potential bad, and hotels and resorts must be wary of various legal and customer-facing risks that come with the gig economy and short-term staffing territory.

Misclassification

Though gig workers may be labeled as independent contractors by the digital providers that place them in hospitality jobs, there remains the possibility that courts or administrative bodies could classify them as employees of the hotels and resorts that hire them, albeit temporarily. And if any given hotelier is considered to be a freelancer's employer, it would be saddled with state and federal wage and hour compliance mandates as well as the obligation to abide by all other applicable labor and employment laws.

To be clear, a hospitality employer's legal exposure for failing to comply with, among other things, the Fair Labor Standards Act, could be quite significant. Which is why hotel and resort management availing itself to short-term staffing solutions should work with legal counsel to assure that gig workers are not just referred to as independent contractors, but, in fact, are treated accordingly.

In many jurisdictions, hoteliers can do so by limiting the supervision, direction and control they exercise over freelancers. But, even these steps may not be enough to avoid liability, at least in California, where the state's Supreme Court recently rewrote the standard by which individuals are classified as either employees or independent contractors.

With its decision in Dynamex Operations West Inc. v. Superior Court, in which a delivery company challenged a decision decertifying a class of delivery drivers in a wage and hour case, the Supreme Court leaned into a presumption that workers are employees. It did so by adopting a so-called "ABC test" that labels a worker as an employee unless a business can show (1) the worker is free from its supervision or control, (2) performs work that is outside the hirer's core business, and (3) customarily engages in "an independently established trade, occupation or business." The Court expressly ruled that "the hiring entity's failure to prove any one of these three prerequisites will be sufficient in itself to establish that the worker is an . . . employee, rather than an . . . independent contractor . . .."

Without question, this approach to employment classification is much more liberal than those taken in other states, but to the extent it could be a bellwether for things to come outside California, hotels and resorts may well bear a hefty burden to establish the independent contractor status of their gig workers. They may also be confronted with union activity seeking to organize these individuals should they – as a group – be classified as employees.

Whatever the case may be, hoteliers participating in the gig economy are encouraged to revisit their workplace practices and take steps to best position themselves to withstand challenges to their contractor relationships, whether by opportunistic plaintiffs' attorneys or governmental agencies.

Joint Employer Liability

Beyond misclassification issues, whenever subcontracting and outsourcing of workers is contemplated – the staple of the gig economy – and multiple parties might arguably dictate the parameters of employment, the specter of joint employer liability must be part of the discussion. This is especially true when gig workers are technically employed by their respective staffing agencies.

Some state legislatures, the National Labor Relations Board and courts have broadened the scope of the employment relationship, allowing workers to recover wages, penalties and damages from entities that do not directly hire them based upon the principle of joint employer liability. In general terms, the legal theory is premised on a party's exercise of control over a worker's wages, hours or working conditions. Of note, the determination of joint employer status differs from jurisdiction to jurisdiction, with certain states (Alabama, Arizona, Arkansas, Georgia, Indiana, Kentucky, Louisiana, Michigan, Oklahoma, South Dakota, Texas and Utah, to name a few) handling the topic rather conservatively, and others, like California, expansively interpreting the applicable standard.

For its part, the NLRB under then-President Barack Obama took the latter approach, though the Board as configured by the current administration is in the process of dialing back joint employer liability under the National Labor Relations Act (which covers most, but not all, employers involved in interstate commerce).

In fact, the Board has proposed a "new" rule (which, as of this writing, is still subject to public comment) that reinstates a stricter standard for companies to be deemed joint employers. Under the proposal, a joint employer must possess and actually exercise substantial direct and immediate control over the essential terms and conditions of employment of another employer's employees in a manner that is not limited and routine. Indirect influence and contractual reservations of authority will no longer be sufficient to establish joint employer liability, nor may direct and immediate control that is too limited in scope.

Assuming this rule becomes final, hoteliers should be able to engage gig workers without too much reservation regarding joint employer liability at the federal level, as the business-friendly NLRB will likely pursue fewer enforcement actions. Yet so long as activist states like California continue to adopt a more liberal stance concerning joint employer status, hotels and resorts are encouraged to keep this issue – and the degree of control they exert over workers – on their radar screens. Likewise, they should have in place suitable indemnity agreements with the staffing services they utilize.

The Brand Experience

A hotel or resort is only as good as its people and brand experience. Which brings to the fore another risk to be found at the intersection of hospitality and the gig economy: a hotelier tarnishing its brand by placing inexperienced freelancers in customer-facing positions.

Despite their many positive attributes, gig workers plugged into unfamiliar roles within the hospitality setting can serve to misrepresent the essence of the brands they serve and cause major reputational damage. Even if thoroughly vetted, independent contractors require time on the job before they can be expected to meet a hotel or resort's exacting standards, which is why hoteliers should earmark gig workers for less demanding, easy-to-learn tasks before throwing them into the customer service arena.

The upshot: while the advantages of the gig economy are definitely compelling, they should not come at the expense of an eroded customer or brand experience. Hoteliers must therefore be both strategic and prudent when it comes to the use of freelance staff.

Closing Argument

It makes perfect sense that many in the hotel and resort space find the flexibility and cost benefits of the gig economy quite enticing, not to mention that adoption of the on-demand staffing model is certainly forward-looking as the workforce trends toward one dominated by independent contractors. Still, hoteliers should not jump into the short-term staffing waters without keeping misclassification, joint employer liability, brand and reputational issues top of mind.

Mr. Kravetz Dana A. Kravetz is the Firm Managing Partner of Michelman & Robinson, LLP (M&R), a national law firm headquartered in Los Angeles, with additional offices in Orange County (California), San Francisco, Chicago and New York City. Also the leader of M&R's Hospitality Industry Group, Mr. Kravetz focuses his practice on the representation of hotel and restaurant management, specializing in a range of employment law matters - discrimination, wrongful termination, whistleblower and class action litigation, sexual harassment prevention, workforce reduction, hiring best practices and wage and hour issues, among them. Dana Kravetz can be contacted at 310-299-5500 or dkravetz@mrllp.com Please visit http://www.mrllp.com/professionals-Dana-Kravetz.html for more information. Extended Biography

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Coming up in March 2019...

Human Resources: An Era of Transition

Traditionally, the human resource department administers five key areas within a hotel operation - compliance, compensation and benefits, organizational dynamics, selection and retention, and training and development. However, HR professionals are also presently involved in culture-building activities, as well as implementing new employee on-boarding practices and engagement initiatives. As a result, HR professionals have been elevated to senior leadership status, creating value and profit within their organization. Still, they continue to face some intractable issues, including a shrinking talent pool and the need to recruit top-notch employees who are empowered to provide outstanding customer service. In order to attract top-tier talent, one option is to take advantage of recruitment opportunities offered through colleges and universities, especially if they have a hospitality major. This pool of prospective employees is likely to be better educated and more enthusiastic than walk-in hires. Also, once hired, there could be additional training and development opportunities that stem from an association with a college or university. Continuing education courses, business conferences, seminars and online instruction - all can be a valuable source of employee development opportunities. In addition to meeting recruitment demands in the present, HR professionals must also be forward-thinking, anticipating the skills that will be needed in the future to meet guest expectations. One such skill that is becoming increasingly valued is “resilience”, the ability to “go with the flow” and not become overwhelmed by the disruptive influences  of change and reinvention. In an era of transition—new technologies, expanding markets, consolidation of brands and businesses, and modifications in people's values and lifestyles - the capacity to remain flexible, nimble and resilient is a valuable skill to possess. The March Hotel Business Review will examine some of the strategies that HR professionals are employing to ensure that their hotel operations continue to thrive.