Los Angeles Hotel Ordinance Update

Last week, Nancy Yaffe and I hosted approximately 30 Human Resources professionals in the hospitality industry in our Century City office for a working group discussion on the challenges of the Los Angeles Citywide Hotel Worker Minimum Wage Ordinance.

The hoteliers and restauranteurs who participated each had their own operational and financial challenges, but there were some common themes we thought we would share.

Operational Challenges:

1. Disciplining for Absences:  Group consensus is to discipline when the absence is not covered by sick time or hotel ordinance covered time; some have found employees quickly exhausting their time before they accrue additional protected time off.  Some hotels have converted separate sick and vacation to a combined PTO.  This is easy to administer, but makes it hard to discipline because there is so much paid and somewhat protected time off.  Other hotels have kept a separate sick bucket (frontloading 48 hours in compliance with LA Ordinance) with a separate vacation/PTO bucket to meet the 96 hour requirement under hotel ordinance.  This allows hotels to discipline employees for not following call-in protocols after first 48 hours used, and to deny some PTO requests that are not illness based.

2. Wage Scale Issues:  Many hotels reported employee relations issues because more tenured employees want higher wages than new employees. One option is to provide certain extra benefits based on seniority (such as paid parking).  But, remember, any non-discretionary wage related benefits are included in the overtime rate.

Cost-Savings:

The Hotel Ordinance requires an hourly wage of $15.37 (and that is likely to go up in July 2017 based on a cost of living increase).  Accordingly, implementing cost savings measures was a hot topic.  Some ideas included:

1. Eliminating certain employee benefits like paid parking, dry cleaning, shift premium.
2. Start charging for meals or eliminate the employee cafeteria.
3. Eliminate paid holidays or include paid holidays in PTO time.
4. Eliminate other paid days off:  Bereavement, jury duty.
5. Stop drug testing all applicants/new hires.
6. Eliminate commissions for sales and catering — instead pay per performance and meeting quota or quarterly goals.
7. Outsource to third parties.  Although this may or may not save costs/lower risks.  Be careful about joint employment liability; negotiate for proper indemnification language in vendor contracts.

Service Charges:

1. Some hotels are eliminating service charges and paying higher wages to banquet servers.
2. If a service charge is in effect, 100% must be shared equally to the employees who performed the tasks (e.g. room service or delivery) or worked an event, so tracking these hours to ensure proper payment has become cumbersome. It’s still okay to pool tips/gratuities (but not service charges).
3. Any service charge or administrative fee must be clear on who it goes to.  Any ambiguity could prompt an unfair business practice claim.
4. Be careful before jointly deciding to implement any new surcharge to offset hotel ordinance fees.  A recent anti-trust class action was just filed against a group of restaurants that got together to institute a 3% surcharge.

Compliance with this type of local ordinance is challenging, so if you would like to part of any future working discussion groups, we would love to have you… just let us know.

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