As the U.S. hotel industry starts to rebound from COVID-19, labor costs continue to be a source of uncertainty – even in the face of built up travel demand and an expected travel bonanza. Some businesses are experimenting with new business models that allow them to cut labor costs on a go-forward basis – implementing measures such as self-check-ins; in-room cleaning only being conducted every other day or between stays; eliminating turn-down services; and offering limited room service hours, etc.
Contributed by Colin Barnacle and Christopher Eby, partners, Nelson Mullins, Denver, Colorado
Where a ramp-up in hiring is necessary, hospitality businesses are grappling with ideas to reduce the actual cost of the additional labor needs. There are competing methodologies here, however. One school of thought encourages the rehiring of former employees as industry analysis shows that it is less expensive to rehire former or furloughed employees than recruit and train new employees (one estimate found the average cost of recruitment to be US$4,129 per new hire). On the other hand, many industry experts expect hoteliers to focus on driving profits by hiring fewer and newer, less expensive and less senior or seasoned employees. However, as leisure and hospitality employers tackle the question of whether to re-hire former or furloughed employees, or start anew with potentially less costly new employees, there are a handful of legal considerations to keep in mind.
Avoiding claims of discrimination
Whether bringing back furloughed or terminated employees, or hiring new employees, employers always must keep in mind the risks associated with claims of discrimination based on hiring decisions. For example, irregularities surrounding the rehiring of employees can lead to discrimination-related claims.
In most cases, the employer will not be able to rehire all employees who were furloughed or laid off. One safe practice is to rehire based on the same factors that were considered when the downturn began – for example, based on years of service or performance reviews. Being able to point to legitimate, objective, business-related factors in the rehiring decisions will be important for the defense of any claims of discrimination. Employers should take care to evaluate and document the factors for rehiring in advance of contacting former employees, as this procedural step helps show that the rehiring decision was not based on other reasons or pretext.
These same rules should apply in the event the employer hires new employees, instead of bringing back furloughed or former employees. While there generally aren’t any laws requiring employers to bring back furloughed or laid-off employees (see the caveats to this in the section directly below), where employers elect to hire new employees, they could create a perception of an original furlough or termination based on wrongful or potentially discriminatory motives. As such, it is critically important for the employer to document the factors for the hiring decisions in advance, including cost savings, and then follow such factors when making the hiring decisions.
Right-to-return ordinances, collective bargaining agreements
The potential caveat discussed above comes in the form of a new trend in several jurisdictions around the country – ordinances commonly referred to as “return to work” or “right to recall” laws being passed in response to the COVID-19 pandemic. These laws typically require that employees who were laid off due to the pandemic be given priority to be offered their former jobs before external candidates are considered.
Most notably, Nevada – a state whose economy relies heavily on the hospitality and leisure industry – recently signed into law Senate Bill 386, or a “right to recall” law, to combat the unemployment effects of the lingering pandemic. The law requires employees who were laid off due to the pandemic to be given priority by their former employer as jobs become available, rather than offered to an external candidate. The law does not apply to all industries, but very clearly includes hotels with at least 200 guest rooms.
In California, Governor Gavin Newsom recently signed a Senate Bill 93 requiring hotel, event-center, airport hospitality and janitorial employers to prioritize workers laid off during the pandemic as jobs become available, and by seniority. Additionally, in Chicago, union leaders working in the hospitality industry forged a compromise on a “Right to Return to Work” ordinance requiring Chicago hotels to rehire employees laid off during the pandemic.
Aside from these new laws and ordinances, employers should also review the terms and conditions of any applicable collective bargaining agreements to understand if there are any “right to recall” provisions that could take precedence over hiring new workers.
Conclusion
Overall, employers in the hospitality and leisure industry are generally free to plan and manage their labor strategy as they deem fit. That being said, the COVID-19 pandemic brought about unprecedented revenue and job losses, thereby necessitating similarly unprecedented legislative efforts to protect furloughed and laid-off workers. Hoteliers should be mindful of these efforts, as well as collective bargaining agreements, when determining a go-forward labor strategy.