INDUSTRY UPDATE

The economic news for the industry during the first six months of 2006 has been mixed with some markets on the upswing ( Honolulu ) and some flat or down ( San Francisco ). Development and sales of hotel and resort properties appear to be increasing particularly in Hawaii where the Kahala Mandarin, the Renaissance Ilikai, and the Hualalai Resort have all sold within the past few months.

On the labor front, the turmoil which characterized labor relations in the Hospitality Industry during 2005 continues unabated as negotiations for new contracts ramp up in several major cities. Strike rumors are circulating in San Francisco and Honolulu where bargaining has either just begun ( Honolulu ) or is about to resume ( San Francisco ). Contracts in several other major cities come up for renewal later this year culminating with negotiations in Los Angeles where the industry contract expires at the end of November.

Unite-Here began pursuing the master strategy it announced several years ago when it renegotiated industry contracts in several major cities so that all of them would expire in 2006. Although the big issue this year appears to be the union's demand that the major chains agree to sweeping neutrality deals for all of their non union properties, the union's primary goal may be to negotiate substantial wage increases and retain 100% employer paid health insurance.

INDUSTRY NEWS

WHD Issues Several Opinion Letters Concerning FLSA Exempt Status

The Wage and Hour Division of the U.S. Department of Labor (“WHD”) recently issued several Opinion Letters responding to inquiries about exempt status under the Fair Labor Standards Act (“FLSA”). Generally, to qualify as exempt under the FLSA, an employee must be paid a predetermined amount that is not subject to reduction because of variations in the quality or quantity of work performed and must receive their full salary for any week in which they work. Some of the covered issues were:

• No Deduction for Lost or Damaged Equipment. As none of the limited exceptions under the FLSA contemplates charging employees for damage to or loss of company equipment ( e.g., cell phones or laptops), such deductions would jeopardize the employee's exempt status. WHD Opinion Letter, FLSA2006-7.



• Employer Can Require Minimum Number of Hours for Exempt Employee. Though based in part on the fact that the inquiring employer did not dock the employee's salary if the employee violated the minimum hours requirement (instead imposing a different type of discipline), imposing a minimum hours requirement does not jeopardize the employee's exempt status. Wage and Hour Division Opinion Letter, FLSA2006-6.



• Employer Can Require Exempt Employee to Make Up Lost Time. Again noting that the inquiring employer did not dock salary but imposed different discipline for a violation, an employer may require an exempt employee to make up time due to personal absence of one day or less without losing the exemption. Wage and Hour Division Opinion Letter, FLSA2006-6.



• Stock Purchase Contributions Need Not be Included to Calculate Overtime If an employer makes contributions to a bona fide employee stock purchase plan meeting certain criteria for FLSA exclusions of employer-provided payments and benefits, those contributions are not included in determining the employee's rate of pay for overtime calculations. Wage and Hour Division Opinion Letter, FLSA2006-8.



• Time Employee Spends Voluntarily Studying English Not Compensable In a scenario where a restaurant provided its non-English speaking employees working in jobs that do not require English proficiency with language skill training materials, the employer was not required to compensate the employees for hours spent voluntarily studying the material off work time. Wage and Hour Division Opinion Letter, FLSA2006-5.

California Governor Proposes Unprecedented Tourism Budget

Governor Schwarzenegger has proposed expanding the California Travel and Tourism Commission's 2006-2007 budget by almost 37 percent from $7.3 million to $10 million. The State's fund matching requirements would add another approximately $15 million from the private sector for a total budget of about $25 million to be used for promoting and marketing California tourism. Though at this point merely a proposal, and subject to the lengthy approval process, the attention to the industry is a very positive sign.

IRS Reminds Businesses to Correctly Classify Workers to Avoid Penalties

Following the recent spate of natural disasters, and the corresponding additional hiring of workers, the Internal Revenue Service (“IRS”) issued a reminder that businesses properly classify their workers. Most workers would be either independent contractors or common law employees. The primary differences relate to the withholding of income taxes, the payment of Social Security and Medicare taxes, as well as the worker's entitlement to benefits. The IRS also reminded that an improper classification could subject the business to penalties. Businesses can complete Form SS-8 to have the IRS make a determination. Other publications relating to the issue include Publication 15-A (Employer's Supplemental Tax Guide), Publication 1779 (Independent Contractor or Employee brochure), and Publication 1976 (Independent Contractor or Employee? Section 530 Employment Tax Relief Requirements).

LEGAL UPDATES

U.S. Supreme Court Lowers Retaliation Standard

The Unites States Supreme Court recently adopted an extremely liberal standard relating to the threshold for an employee bringing a retaliation claim under Title VII. The Court held that the retaliation provision is broader than that for discrimination claims. Specifically, unlike discrimination, retaliation claims are not restricted to conduct affecting the terms, conditions and privileges of employment, but instead extend to any “materially adverse” action that would “dissuade a reasonable worker” from complaining. The Court also noted that this standard requires a case-by-case and fact-specific analysis. The ultimate effect of this ruling, including the likelihood of similar changes under state law, will take time to develop. ( Burlington Northern v. White , U.S. Sup. Ct. , 06 C.D.O.S. 5312 ( June 22, 2006 ).)

Ninth Circuit Upholds Workplace Makeup Policy

The Ninth Circuit affirmed the dismissal of a female Harrah's Casino bartender's claim that alleged the Casino's makeup policy, which applied only to female employees, constitutes gender discrimination. After noting that legitimate business reasons can constitute a basis for differential grooming requirements, the court found that the Casino's grooming standards were reasonable and neither created an unequal burden on men or women nor created a stereotype of women. The court clarified, however, that it was not holding that sex-based appearance standards could never rise to the level of actionable gender discrimination. ( Jespersen v. Harrah's Operating Co., 9 th Cir. Case No. 03-15045 ( April 14, 2006 ).)

California Supreme Court Reads FEHA Harassment Amendment Retroactively

In 2003 the Fair Employment and Housing Act (“FEHA”) was amended so that an employer can be liable for sexual harassment by non-employees (such as vendors). The California Supreme Court addressed the existing split in authority as to whether the amendment applied to conduct preceding enactment and held that it does. The Court reasoned that the amendment did not substantively change the law or create new law, but instead merely clarified existing law. ( Carter v. California Dep't of Veteran Affairs , Cal. Sup. Ct. , Case No. S127921 ( June 8, 2006 ).)

Employer Can Be Liable for Accident During Authorized Personal Errand

The California Court of Appeal upheld a jury verdict finding an employer liable for an accident caused by an employee while on a personal errand with the company car. Evidence showed that the employer had expressly and implicitly provided the employee permission to use the car for personal errands during his lunch break. The court specifically referenced the employee handbook which only precluded “unauthorized use” of vehicles, rather than precluding personal use of company vehicles altogether. ( Taylor v. Roseville Toyota, Inc., Cal.App.Ct. (3d Dist.), Case No. SCV12239 ( April 4, 2006 ).)

Employees Covered by CBA Can Sue For Meal Period Violations

The California Court of Appeal was recently presented with the issue of whether a group of employees covered by a collective bargaining agreement (“CBA”) could sue their employer for failing to allow the employees to take a second meal break when working a 12-hour shift. The employer argued that, pursuant to Section 10(E) of the Industrial Welfare Commission (“IWC”) Wage Order 16, meal break requirements do not apply “to any employee covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employees . . .” In reaching its decision in favor of the employees, the court explored the language and intent of Labor Code section 512 which sets forth the requirement of a second meal period. The court concluded that the exclusion contained in Section 10(E) is invalid because the IWC exceeded its authority in enacting the provision, given that Section 10(E) provides for an additional exception to the meal periods requirements which was not provided by the Legislature in Labor Code section 512. ( Bearden v. U.S. Borax, Inc , Cal.App.Ct (2 nd Dist.) Case No. B182625 ( April 7, 2006 ).)

EEOC Issues New Complaince Manual Section

In April 2006, the Equal Employment Opportunity Commission (“EEOC”) issued a new Compliance Manual section which provides specific guidelines on preventing discrimination in employment on the bases of race and color. The EEOC also issued a companion question-and-answer fact sheet. These documents are located on the web at: www.eeoc.gov/policy/docs/race-color.html .

DHS Proposes Electronic I-9 Forms and Clarification for “No Match” Procedures

On June 9, 2006 , the Department of Homeland Security (“DHS”) issued two sets of proposed regulations potentially impacting HR practices. The first permits employers to “digitize” their I-9 employment forms, permitting but not requiring employers to sign (or scan) and store I-9 forms electronically. The primary expected benefits are cost savings and the ability to electronically search through the employer's forms. The rule contains very detailed requirements for electronic retention standards, documentation of the process, methods for obtaining electronic signatures, and security safeguards. This regulation will take effect as an interim regulation pending the formal rule adoption procedures.

The second, which is subject to public comment and final approval by the DHS, sets forth “reasonable steps” for employers when responding to a “no match” letter from the Social Security Administration (“SSA”) or DHS. Such letters are sent to employers when a worker's Social Security Number (“SSN”) does not match names on tax or employment eligibility documents. The regulations provide that a no-match notice by the SSA/DHS could lead to a finding of “constructive knowledge” (inferred knowledge) by the employer that an employee is not authorized to work, supporting a claim for DHS penalties. The proposed regulation allows an employer to avoid these penalties when the employer timely follows the specified “reasonable steps.” In announcing these proposed regulations, the DHS also urged Congress to provide for better information sharing between the SSA and DHS.

New Online Verification of SSNs

Brand Differentiation and Community Connections Help to Attract Customers

Reprinted with permission of Rick Swig, president of RSBA & Associates

Though the Hotel Industry certainly serves a wide array of markets and customers, creating and maintaining connections with the customers in those markets is tremendously valuable industry-wide. Branding is one valuable way to achieve this important goal. However, branding is often under-utilized or self-limited (e.g., restricting the concept to merely a logo or name). The deterioration of brand clarity through sub-branding and frequent ownership changes, as well as potentially confusing differentiations in room-rate value, also reduce branding effectiveness.

As boutique properties have long recognized, defining a property through its connections with a particular community through "lifestyle and local stimuli" helps to connect with that community and its customers. These local connections may be one of the best ways to differentiate your operation from the numerous others in your particular market and establish market penetration.