REPORT FROM THE U.S.—The U.S. Department of Labor soon might be visiting a hotel near you.
Armed with increases in funding and staffing, the federal organization has begun targeting the hotel industry for audits to weed out violations of overtime rules, minimum wage and classification of exempt and nonexempt positions.
The challenge for hoteliers is to both review current practices and stay abreast of the evolving complexities of wage and hour law.
“These are very difficult laws and regulations with which to comply. They’re complex and they’re evolving,” said Michael Gray, partner with law firm Jones Day.
“Now’s not a good time to have your head in the sand,” he added.
That practice, surprisingly, had worked historically, said David Sherwyn, associate professor of law and academic director for The Center for Hospitality Research at Cornell University’s School of Hotel Administration.
In the past, a hotelier could claim ignorance of various components of wage and hour law. If they were found to be in violation, they were simply required to pay the money they would have for, say, overtime.
The DOL is coming down harder on these violations, however, Sherwyn said. Actions can be viewed as “willful” even if a hotelier was ignorant to the violation.
For example, if a hotelier does not pay an employee overtime because he honestly thought that employee was exempt, the DOL would still rule that a “willful” violation subject to back pay and additional penalties.
The crackdown
While no data exists to measure the exact increase in U.S. DOL audits, anecdotal evidence—and the stated intention of the administration—supports at least some rise in audits.
“In the recent six months to a year, I’ve seen a more significant uptick in the DOL audits of the restaurants industry and only a slight uptick on the hotel side of hospitality industry,” Gray said, acknowledging it’s hard to make any definitive conclusions from his personal observations.
Sherwyn said the crackdown is an attempt by the administration to play catch up with private-practice attorneys who found wage and hour law to be a profitable endeavor. The “misclassification issue” is a lot easier to prove than other types of litigation, such as sexism and racism, he said.
“The government has followed what the private practice lawyers did,” he said.
Marlene Colucci, who serves as executive VP of public policy for the American Hotel & Lodging Association, cited several reasons for the intensified scrutiny. For one, the hotel industry is an easier target because it can’t outsource its labor. For another, a political bias has emerged that views “business” as inherently bad.
In an oft-cited report to the wage and hour division of the DOL, Boston University professor David Weil offered another explanation:
“The employment relationship in many sectors with high concentrations of vulnerable workers has become complicated as major companies have shifted the direct employment of workers to other business entities that often operate under extremely competitive conditions. This ‘fissuring’ or splintering of employment increases the incentives for employers at lower levels of industry structures to violate workplace policies, including the (Fair Labor Standards Act). Fissuring means that enforcement policies must act on higher levels of industry structures in order to change behavior at lower levels, where violations are most likely to occur.”
For the hotel industry, that “fissuring” occurs in an ownership structure that comprises franchisees, management companies, asset managers, franchisors and the actual owners themselves.
Proactive measures
Despite an increase in audits, hoteliers can enact certain measures to ensure they’re in compliance with wage and hour law.
The most important of these is seeking the guidance of outside counsel who boast wage and hour law as their particular area of expertise.
“You need to hire counsel and do what we refer to as a ‘lawdit,’” Sherwyn said. “Have someone come in and go through all of your classifications and what you’re doing. … You really have to hire counsel and you have to have them go through everybody and see where they fit.”
Colucci shared a similar sentiment: “Our recommendation to our membership is the best defense is a good offense—do a self audit. … It’s highly technical. It does require getting someone who is an expert in labor law to do this.”
Many hotel companies already are engaged in the exercise. Carlson Hotels, for example, asks each of its hotels to do an annual self-audit, said Julie Anderson, senior director of HR for the company’s Americas division.
“The self-audit is intended to ensure that overtime is calculated correctly, 7i (overtime) exemptions are paid correctly, minimum wage and equal pay tests are performed and any minors working at the hotel are reviewed to ensure they are paid in alignment with legal requirements,” she said. “Carlson’s corporate audit department will also review wage and hour compliance when they conduct their on-site audits.”
At InterContinental Hotels Group, the company has brought in outside counsel to help lead the charge.
“We’ve engaged outside legal counsel to review our pay policies and practices and conducted seminars for hotel managers and owners on compliance with FLSA,” said Bruce Hamilton, VP of employee and labor relations and compliance, the Americas.
The evolution of wage and hour law requires constant updates and communication, Gray said. While the focus previously was on exempt versus nonexempt status, today there is a much more nuanced approach about hours worked, payment, the structure and manner of payment, etc.
“These new things that we’ve seen in 2009 and 2010 are much more difficult and complicated with which to comply,” he said. “HR executives, their in-house counsel and their outside counsel have to be staying abreast of these developments.”
Carlson encourages its owners and operators to stay current on compliance through networking, legal briefs/updates and participation in associations.
The AH&LA, for one, offers its members webinars and reports in an attempt to track important changes.
The source of the problem
Proactive measures still don’t address wage and hour law itself, with which Sherwyn said is inherently difficult to comply.
Hospitality is a team-based industry, he said. If the food in the restaurant is up and every server is busy, a manager will typically step in and serve the table. Similarly, cross training across various departments is seen as a way to increase efficiency among a staff. The lines between managers and non-managers, exempt and nonexempt, are often blurred as a result.
He advocated lobbying efforts to enact changes to the law itself.
Colucci was of a similar mindset: “(Hoteliers) should definitely mention this to their members of Congress,” Colucci said.
The AH&LA is also in active talks with various politicians to increase the oversight of the DOL.
“We’re actively pushing back on what we think is an unreasonable number of audits from the government,” she said. “In the meantime, we really want to see members protect themselves. For them to go through and self audit is, we think, the best protection.”