Hotel Legal Environment: Preparation Prevention, Service
By Robert O'Halloran
In any hotel setting, there is an incredible amount of activity.
Hotels are large business machines with lots of moving parts, so keeping an eye on every aspect is nearly impossible, including physical crimes that can take place onsite.
The operations of hotels can differ based on levels of service, brand, size and more.
Also, when considering the legal aspects of a lodging property, consideration of the type of property is important. STR Global for example, defines all-inclusive, all-suite, bed & breakfast (b&b) inn, boutique, condo, conference center, convention center, destination resort, extended stay, full-service hotel, gaming/casino, golf, hotel/motel, limited service, lifestyle brand, new build, ski: property, soft brand, spa, timeshare, and waterparks. Each type of hotel has a unique set of characteristics that can influence its legal status and potential issues common to hotel properties.
Additionally, assess your hotel comparing branded or independent? In a branded hotel, franchise concepts and policies are key to hotel law. An independent has no franchise entanglements but may be operating with a management company. Additionally, your geographic region, state, county, or town may influence your legal framework dealing with local laws and regulations.
The moving parts of a hotel include check-ins, check-outs, food, and beverage operations if any, guest interactions, housekeeping, staffing, marketing, reservations, and more. Hotel and hospitality law in general can encompass a vast number of scenarios and circumstances. The people-intensive nature of hotels needs to align with both employees and guests, and therefore enhances the care with which the guest and employee experiences are coordinated and managed. It has been noted that a hotel is a place where people sleep, eat, and try to relax, but these a services are provided by the hotel and its staff. This means that the hotel is on the hook for any liabilities that may arise. From food poisoning to slips and falls to hotel theft, their liabilities are everywhere.
Generally, a review of legal issues, public policy parameters, and in some cases, litigation involving hotels can include, ADA compliance, cyber security, human trafficking, real estate, business deals, franchise operations, intellectual property, data privacy, Artificial Intelligence (AI), labor issues, and much more. I view the legal and public policy aspects of hotels and/or other hospitality businesses as business benchmarks for ethical, effective, and efficient operations, which are doing the right things (legal and ethical) and being prepared to serve guests in safe and effective environments. Obviously, I am sharing a non-attorney perspective.
Hotel Legal Current Issues
A review of articles, newsletters, and legal-related websites provides a broad view of some of the current legal issues in the hotel and hospitality industry. These recurring themes are found in multiple content sites online.
For one theme, it is noted that interest rate increases are driving up the cost of capital on both debt and equity until the Fed indicates that it has achieved its terminal interest rate increase. With rate increases and increased return requirements, many hotel deals will only pencil with adjusted asset values, which in turn contributes to market uncertainty. Therefore, the hotel planning and development and real estate markets require continued legal scrutiny.
Another topic, labor, is an increasingly difficult aspect of hotels and hospitality businesses in general. A quick look at the multiple labor actions occurring across business sectors, Hollywood to Motor City for example, reflect much of the state of the U.S. workforce. Specifically, the hospitality and tourism industry's relationship with labor unions throughout the country has differed depending on location. Operators legal standing is influenced by hotel brand and independent status. In a branded hotel, franchise concepts and policies are key to hotel law. An independent hotel has no franchise entanglements but may be managed by a management company. Additionally, a hotel's geographic region, state, county, or city may influence your legal framework dealing with state and local laws and regulations.
Additionally, related to labor, there is concern that hospitality industry workers across the country may be considering more union activity. When thinking about hospitality unions, locations that come to mind include New York, San Franciso, and Las Vegas; obviously, there are many other locations. Companies like Starbucks are seeing workers talking about coordinated union-organizing actions to improve job treatment and working conditions. The United States hospitality union was the Hotel Employees and Restaurant Employees Union (HERE). In 2004, HERE merged with the Union of Needletrades, Industrial, and Textile Employees (UNITE) to form UNITE HERE. Major employers that contracted with this union have included Harrah's, Caesars Palace, Wynn Resorts, Hilton Hotels, Hyatt, and Walt Disney World.
Also labor related are the joint employer issues that will remain at the forefront, as the National Labor Relations Board (NLRB) revises the Joint Employer rule. That is, two or more employers would be considered joint employers if they "share or codetermine those matters governing employees' essential terms and conditions of employment," such as wages, benefits and other compensation, work and scheduling, hiring and discharge. The new rule could expand the scope of joint employer liability. This clearly sounds like franchise operations and the integration of franchise brands, management companies and ownership entities. Finally, human resource law(s) are daily management considerations and are increasingly challenging. Finding staff, training them, and then retaining them is just difficult. I know a regional hotel that has changed its business model to hotel development only and has opted out of operations and has partnered with a management company.
Technology will continue to influence legal considerations, inclusive of the Metaverse and Artificial Intelligence (AI). These areas are already int eh news and are making their impact on the hotel and hospitality industries. Key to navigating these waters will be managing risk while deploying modern technology. The Metaverse is a term used to describe a digital space that allows social interactions, frequently through use of a digital avatar by the user. Built largely using decentralized, blockchain technology instead of centralized servers, the metaverse consists of immersive, three-dimensional experiences, persistent and traceable digital assets, and a strong social component. This sounds very hospitality/tourism like to me.
Artificial Intelligence (AI)is another area of technology that will impact all of us. In the current news, AI is being challenged for use of copyrighted content. Numerous authors and other content generators have complained about the use of their content with permission. Hotel operators should forecast for themselves the use of AI technology and what original content they have that they need to protect. AI, ChatGPT for example, is not perfect, but its performance is also based on the questions asked and quality of the current content. If a user asks the wrong questions, they will get bad responses. Think about the guest service implications. Another technology-related issue is that hotels depend on their online presence to drive reservations and should be sure their websites are compliant – both to accommodate disabled guests and to avoid becoming a target of litigation.
Sustainability, while not a legal issue specifically, will be at the forefront of environmental, social, and governance (ESG) efforts and linked to SEC climate-related disclosure rules for public companies that do business in the United States. The thinking on these subject notes that it will be costly and complicated, and the risks of non-compliance will range from SEC enforcement to private lawsuits alleging "greenwashing" and "climate-washing." Perhaps, a hotel fully engaged in sustainability efforts can claim they are exhibiting reasonable care by developing and implementing a sustainability plan.
Expropriation remains a serious risk for investors in hotel properties located in foreign nations. How can risk be minimized concerning expropriation, that is, including by avoiding or limiting direct capital investments, and considering, instead, the use of management agreements or joint ventures? Legally, the precise drafting of investment documents remains an important way to protect an overseas hotel investment. The framework for this discussion could be risk management, insurance issues, and emphasis on limiting risk and insurance alternatives.
Consumer Class Actions regarding the American Disabilities Act (ADA), for example, and state consumer fraud statutes, data privacy and protection, and similar laws. Companies should review their data management and retention policies, and litigation service process, to ensure they are protected, despite any remote work arrangements in place. Hotels must be familiar with the requirements of the ADA to accommodate the needs of disabled guests on their properties. Unlike building codes or other laws governing public spaces, the ADA is enforced by lawsuits brought by individuals who feel their access to a public business or building is not adequate or equal.
Also, the proliferation of new hotel brands translates to possible new intellectual property challenges, in the U.S. and abroad, including trademark registrations, domain name disputes, and more complicated licensing arrangements. Consider the number of hotel brands that are active across the globe. For example, U.S. and global brands include Marriott International, with thirty brands, Hyatt, twenty-eight brands, Wyndham and Choice with twenty-two brands and Hilton and InterContinental (IHG) with nineteen brands.Â
In recent years, a focus on human trafficking has been in the news. Reports have noted that a disturbing number of lawsuits have been filed against hotels for their alleged involvement in these heinous crimes. Additionally, the Trafficking Victims Protection Act (TVPA), enacted in 2000 and reauthorized several times since, provides the legal framework for prosecuting human trafficking cases in the United States. It also allows victims to sue third parties, including hotels, that knowingly benefit from trafficking. This author has participated in multiple training opportunities to help awareness and recognition of potential human trafficking situations. The American Hotel and Lodging Foundation notes, their support for free online training modules for industry employees through ECPAT-USA.
Daily awareness of legal issues that hotels face on a regular basis throughout the year is important. A focus on hotel operations and hotel hygiene, food safety and recovery era COVID times emphasizes the health of the people staying in hotels as well as the surroundings of the property. Hotels can be sprawling resorts that take- up a lot of land or high-rises that may not spread to city blocks but still come with a lot of square footage. Many housekeeping and cleaning protocols have been and continue to be updated to ensure a safe lodging environment. Rooms, kitchens, and public spaces all need to stay clean and sanitary. The public health inspection of hospitality properties needs to be more of a collaboration for public good than the adversarial relationships in some locations. Additionally, the licensing and training of all employees who serve alcohol is related to local liquor permits.
Additionally, areas like theft prevention can be enhanced through good hiring and guest safety practices and policies. Identity theft is a concern emphasizing concerns for cybersecurity. While hotels are increasingly becoming more tech-friendly, offering guests the option to take care of everything digitally, the potential for more cyber threats is on the horizon. The Securities and Exchange Commission (SEC) announced new rules requiring companies who experience a cybersecurity attack to publicly disclose the impact of the attack within four days. Hotel companies whose securities are registered with the SEC should take note of these regulations and develop a robust incident response plan.
The problem with checking in to a hotel is that it includes dealing with sensitive personal data. This includes credit card information, address, phone number, email, and a guest's ID upon arrival. Most hotels keep all this information stored in digital form, which makes them a major target for sophisticated and hard to find attacks. Additionally, privacy laws are becoming more prevalent. California and Virginia's privacy laws took effect January 1, 2023. These laws focus on making sure guest personal information is secure and hotel companies are securing their guest data. All guests have an expectation that their personal data will be secure in a time when technology and systems are increasingly complex, and more states are likely to follow their version of privacy laws.
Hotel Law and Hotel Management Education
What can a hotel manager be expected to know about the law? Hotel managers are most often not lawyers. Hotel managers typically operate to prevent legal problems by practicing the premise of "reasonable care."Â "Reasonable Care" can be fully defined as the degree of caution and concern for the safety of himself/herself and others an ordinarily prudent and rational person would use in the circumstances. Additionally, keeping current on legal issues and having an attorney to represent the hotel ownership are essential steps.
As noted by many, hotel business programs often include a law course to provide students (soon to be graduates) with an overview of the multitude of issues facing a hotel manager. I can argue that hotel managers are often thrust into situations that are far beyond their college education and training. Areas like project management, sustainability aspects of the hotel industry, and technology are all areas that general managers and other managers are expected to coordinate and control. The law is another of these areas that a leadership team needs to be aware of and know, importantly, when to solicit expert help.
A typical hotel or hospitality law course may address prevention philosophies, government agencies and regulations, hospitality business structures, business contracts, legally managing property, selecting employees, managing employees, and the manager / owner responsibilities as an operator, as well as responsibilities to guests, their property, serving food and beverages, and managing insurance. Given the wide scope of topics, what can we expect students to learn in these courses? Course objectives in our School of Hospitality Leadership law course is framed by Think, Value, Communicate, Lead. Based on that framework, objectives could resemble:
- Identify basic principles of law and their applicability in a hospitality context.
- Demonstrate responsibilities of reasonable care to protect the best interests of their stockholders, employees, the guests and clientele, and the greater community.
- Analyze and assess a situation according to legal theory and develop, implement, and evaluate prevention techniques.
- Recognize ways to manage their business in a legal and ethically and morally responsible manner.
In a shorter timeframe, than a university course, current legal workshops have included, for example the following topics:
- Generative AI: Learn about how retail and hospitality companies are adapting, assessing risk, and asking more of their outside counsel.
- Protecting and Maintaining Good Relationships between the carrier and counsel: Learn how to avoid pitfalls and instead build and maintain strong relationships with your carrier and counsel.
- Tort Reform: Gain a better understanding of the recent developments in Florida tort reform and how they will affect litigation all over the country.
- Enhancing the Customer Experience: Find out the secrets to creating a cultural phenomenon in a retail setting and the legal challenges that come with it.
Going Forward
It is vital for hotel operators to remain current on legal issues. Hotel managers are not lawyers, (they could be, but most are not) but they need to be aware of what the local legal landscape, basic knowledge, and potential exposure issues in law that hotels face. Professional development opportunities like the above are great and can be useful for benchmarking current legal topics.
Our son is a lawyer and represents people in his position for Legal Aide. When he graduated law school I got him a DVD, the Best of Perry Mason, which was his grandmother's favorite. We watched a couple of episodes, and he quickly pointed out to me that the law does not work that way. I share this to note that watching television lawyer series, which one does not matter, does not give you a working knowledge of the law. The question is, how do you stay current?
Subscribing to online newsletter(s) and or blogs can be helpful to be aware of current issues in the law. For example, subscribing to law360.com/hospitality can bring you regular legal updates. Several highlights in multiple recent publications are shared below.
- Concord, G6 Must Face Hotel Sex-Trafficking Suit - A California federal judge on Monday dismissed claims against four hotels and their franchisors in a suit alleging that they participated in the sex trafficking of the plaintiff, allowing only the claims against Concord Inn and Suites LLP and its franchisor G6 Hospitality to go ahead.
- Papa John's $5M No-Poach Deal Rejected, For Now, A Kentucky federal judge refused to preliminarily approve Papa John's $5 million settlement resolving worker claims over "no poach" provisions in its franchise agreements, raising concerns about the nature of a deal complicated by arbitration provisions, different types of employees and the extent of any actual harm.
- 11th Circ. Won't Rethink Chili's Data Breach Ruling - The Eleventh Circuit has refused to rehear a decision that kept alive a class action claiming Chili's restaurants failed to protect customer data in a 2018 breach that revealed millions of credit card records.
- FLSA Coverage Question Prevents Early Win For Eatery Staff - Workers suing a Mexican restaurant can't secure an early win in their suit claiming unpaid wages, a Louisiana federal judge ruled, saying it isn't clear whether the Fair Labor Standards Act applied to either them or the business.
- What Upholding Of Short-Term Rental Law Means For NYC - A New York state judge's dismissal of Airbnb's challenge against the Short-Term Rental Registration Law will benefit the city's hospitality industry and exert downward pressure on apartment rents, and potentially provide a model for other local governments around the U.S. to curb short-term apartment rentals, says Alexander Lycoyannis at Holland & Knight.
- Upcoming High Court ADA Cases May Signal Return To Basics - Recent cases, including Acheson Hotels v. Laufer, which will be heard by the U.S. Supreme Court in October, raise a fundamental question of whether Americans with Disabilities Act litigation has spiraled out of control without any real corresponding benefits to the intended beneficiaries: individuals with true disabilities, says Norman Dupont at Ring Bender.
- Texas Continues Crackdown on Deceptive Hotel Pricing With New Lawsuit, By Katie Hall The suit is against Booking Holdings, which operates Booking.com, Priceline.com and Kayak.com.
- Disability 'testers' sue hotels for failing to note if they are accessible to people with disabilities. The Supreme Court will decide if they can do that even if they don't intend to book a room.
The best advice would be to have resources available to you as a hotel manager for quick reference, even with an attorney on retainer. A source, HotelLawyer provides multiple documents on law content and legal issues related to the hotel industry. These content areas include: acquisition & dispositions, ADA compliance & defense, Chinese Investment Group® & EB-5, hotel finance - loans, joint ventures and other financing, hotel mixed-use, labor & employment, management, branding & franchise agreements, management agreement termination & repositioning, restaurants, vacation ownership, workouts, and bankruptcies, receiverships & foreclosures. Additionally, reference resources handbooks are available at their Resource Center including:
- HMA & Franchise Agreement Handbook (5th edition)
- Hotel Management Agreements & Franchise Agreements for Owners, Developers, Investors & Lenders
- Lenders Handbook for Troubled Hotels
- Alternative Strategies for Troubled Hotel Loans
- How To Buy A Hotel Handbook for Buying and Selling Hotels
- The ADA Compliance and Defense Guide Understanding, preventing and defending ADA claims and enforcement actions
- The Hotel Acquisition Process A Detailed Overview
- National Hotel Finance & Investment Conference
- Hotel Industry Presentations
- The Developer's EB-5 Handbook for construction financing
To wrap up this discussion, hotel owners and managers need to be prepared for legal issues, consider risk to be preventative of legal actions and practicing good risk management (have a plan), and continue to provide great guest service and treat employees legally, ethically, and honestly.
