Hotel Law

132 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry Public Health Department The public health department is generally responsible for the inspection and licensing of facilities that serve food. This department may be self-standing, but it is often associated with or housed in a state department of agriculture. Hospitality operators must comply with a variety of health codes and regulations that govern many aspects of their business. The most common areas of state health regulation include: Standards for the cleanliness of food, and proper procedures for storing, handling, preparing, and serving food. Standards for the storage and handling of food supplies. Mandated health procedures for employees working with food. Standards for the proper care and washing of food equipment, utensils, and glasses. Standards for the proper care and washing of hotel bedding and towels, and specified quantities to be furnished to guests. Standards for the supply and use of water for guest use (faucets, showers, swimming pools) as well as for cleaning and dishwashing. Figure 5.8 (Continued)

Local Regulatory and Administrative Agencies 133 Standards for water and sewage discharge. Display of procedures for helping choking victims. Regulations for smoking in public places. Penalties for violating state health ordinances vary widely. Sometimes it is a fine, but in other cases, an operation could be shut down entirely. In minor cases, if an operator can correct the violation within a specified time frame, no penalty will be imposed. And, at the end of that time period, the inspector will come back to verify that the appropriate corrections have been made. Some state or local health departments occasionally furnish a list of health violators to local newspapers or television stations, which could result in unwanted negative publicity for a hospitality operator. This is an added incentive for managers to make sure they are always in compliance with state and local health ordinances. Department of Transportation The state department of transportation is responsible for a variety of areas that directly impact hospitality managers. Too often, regulators are viewed only as inspectors, rather than allies. This should not be the case. Consider the situation of a restaurant owner who operates a facility on a busy street in a midsized town. The street itself is maintained by the state highway department. During lunchtime, the restaurant’s guests have a hard time turning into the restaurant parking lot from the opposite side of the street, because traffic is so heavy that there are few breaks in the traffic stream. The speed limit on the street is relatively high, so the crossing can be dangerous. This manager should approach the state department of transportation with the problem, in an effort to fashion a solution. It may well be that traffic patterns are so heavy that a reduced speed limit or even a turn lane could be justified. Typically, departments of transportation are also responsible for regulating driveways, exits and approaches, and traffic signage, including billboards on highways. 5.3 LOCAL REGULATORY AND ADMINISTRATIVE AGENCIES Much of the regulatory process you will face as a hospitality manager will take place at the local level. This is a positive situation because local inspectors will come to know both you and your facility personally. Health and Sanitation Often, the health and sanitation department is responsible for the local inspection and licensing of facilities that serve food and beverages. Local inspectors may check for compliance with state health and sanitation codes, as well as municipal ordinances. Additional duties may include the mandatory certification of foodservice workers and managers, issuing and revoking licenses, establishing standards for restroom facilities, and certifying a safe water supply. Building and Zoning Building and zoning departments issue building permits, and inspect the building prior to, during, and after construction. They regulate both new building construction and additions or renovations. Standards for lighting, ventilation, rest-

134 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry rooms, elevators, and public corridors and entryways may be established by state or local agencies. (In addition, your insurance company may have its own requirements for lighting levels and ventilation systems.) Local zoning ordinances may also regulate outside land use, such as parking spaces and permits for sidewalk or patio dining. Local inspectors will make sure that facilities are in compliance with all state and local building codes. In addition, these departments often regulate the type of businesses that can be located in specified areas. Though this process can be contentious, it is generally accepted as necessary for the greater good of communities. Most hospitality professionals would agree, for example, that a bar or nightclub should not be operated in a building adjacent to a school or church. Zoning officials regulate land use in ways that can benefit hospitality managers, for example, by prohibiting negative businesses from locating next to land reserved for restaurants, hotels, and other commercial use. Imagine your concern, for example, if you were to learn that a private landfill operator had just purchased the vacant lot next to your four-star restaurant and was to begin accepting deposits in 30 days! In addition to their role in regulating the placement and construction of businesses, local building and zoning officials are typically responsible for the construction and placement of signs outside a business. The regulations controlling the size, number, and construction materials required for signage can be quite extensive. Figure 5.9 is an example of a local sign ordinance that you might encounter as a hospitality manager. Note, in particular, the specificity of information required by the business prior to the granting of a sign permit. Inspectors randomly visit businesses to ensure compliance with building and safety codes. Violators can be fined, and if guests or employees injure themselves as a result of a violation, it may result in a lawsuit. Courts and Garnishment In most communities, some agency of the court, sometimes called a “friend” of the court, will have the responsibility of assisting creditors in securing payment for legally owed debts. These debts can include a variety of court-ordered payments, such as child-support payments. In cases like these, a hospitality manager may be ordered by the court to garnish an employee’s wages. Historical Preservation In some communities, historical buildings, their use, and renovation may be regulated by an agency charged with historical preservation. If you manage a hospitality facility in a historic building, city zone, or community, you may face regulation from the governmental entity charged with preserving the historical integrity of your facility. This may limit the types of alterations or improvements you may make to your facility, or it may require you to maintain your property in a manner that is consistent with the historical nature of the area. Fire Department The local fire department is a critical part of the safety net that hospitality managers offer their guests. Whether it is for a hotel or restaurant, dependable fire safety departments can assist a manager in limiting potential liability through careful adherence to all local fire codes and procedures. Fire departments will normally conduct routine facility inspections, assist local building departments LEGALESE Garnish: A court-ordered method of debt collection in which a portion of a person’s salary is paid to a creditor.

Local Regulatory and Administrative Agencies 135 in reviewing plans for new or renovated buildings, ensure that emergency lighting and sprinklers are installed and maintained properly, and offer fire safety training for managers and employees. As a hospitality manager, it is important to know your local fire codes, and make sure that your operation always includes the required number of fire extinguishers, smoke detectors, sprinklers, fans and ventilation ducts, emergency lights, and emergency exit signs. This equipment should be tested periodically to make sure that it is in good working order. The National Fire Protection Association has established national standards for ventilation systems and automatic fire protection systems in commercial kitchens. Insurance companies also have regulations that will determine the type and amount of fire protection equipment you will need for your operation. Another important role of the fire department is to regulate the number of individuals who are allowed in a particular space at a given time. For example, it would be the fire department that would determine the maximum number of patrons who could be in a hotel ballroom at one time. The capacity of bars, nightclubs, dining rooms, and sleeping rooms are all examples of areas regulated by the local fire department. You have probably noticed signs that indicate the maximum number of people who can safely be in a public space. Often local laws require these signs to be prominently displayed. Figure 5.9 Sign permit ordinance.

136 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry Law Enforcement While local police do not generally serve a regulatory role for business, some communities do have local laws or codes that are enforced by the police department, in a city, or by the sheriff’s department in a more rural community. As we have seen, liquor laws, for example, are sometimes enforced by the local police. Other areas of interaction may be parking enforcement and the removal of disorderly guests. Tax Assessor/Collector Local municipalities obtain a significant portion of their tax revenues from businesses. These taxes may be levied on the basis of property value, sales revenue, or a combination of both. The tax assessor or collector is responsible for the prompt collection and recording of these taxes. Increasingly, communities are looking to the hospitality industry as a vehicle for raising tax revenue. One such source of tax revenue is the local occupancy, or “bed,” tax. Essentially, the occupancy tax is a tax on the sale of hotel rooms. It typically will range from 1 to 15 percent of gross room revenue. This tax may be assessed at the state level, local level, or both. In any case, there are typically few waivers for the tax, and its collection is aggressively enforced by the taxing entity. 5.4 MANAGING CONFLICTING REGULATIONS Given the large number of legislative bodies daily creating new policies, there are surprisingly few instances where regulations are in direct conflict. As a rule, local legislators and public officials will review state guidelines prior to implementing new regulations, just as state regulators will review federal guidelines. In fact, where there are agencies at each governmental level, the federal agency may create model regulations that will then be adopted in whole or in part at the state level, just as the state may take the role of creating model regulations for possible use at the local level. Consider the case of A. J. Patel. Mr. Patel is the regional manager for a hotel company that operates properties that provide a free continental breakfast to all registered guests. His properties operate in three different states. Mr. Patel must be familiar with the public health codes of three different state and local governments, which means he must stay abreast of the changing health code regulations of all six entities. His task has been made easier, however, because the federal Food and Drug Administration (FDA), has created a model Food Service Sanitation Ordinance, found at www.foodsafety.org, that is followed, with varying degrees of specificity, by many state and local communities. Figure 5.10 is a section of the Preface to the State of Michigan’s Food Service Sanitation Ordinance. Note the relationship that is detailed among the federal, state, and local regulators. There will be times when requirements placed on a hospitality manager will be in conflict; a federal requirement may conflict with a local one, for example. While this can sometimes be frustrating, it is important to know what you, as a manager, should do in such a situation. A conflict of regulatory restriction occurs when one entity sets a standard higher or lower than another. If, for example, a local sanitation code requires all shelving in a kitchen to be 12 inches above the floor, yet the state code allows shelving to be within 6 inches of the floor, the more restrictive regulation will prevail. This is true because, in this case, a shelf 12 inches above the floor satisfies both regulatory bodies. The principle to remember is this: When regulatory demands conflict, the “most restrictive” regulation should be followed.

Managing Conflicting Regulations 137 In some cases, a regulatory agency will influence a hospitality manager’s operation in an indirect, but intentional manner. An example is the Hotel and Motel Fire Safety Act of 1990. Because the federal government was hesitant to require many older hotels to incur the expense of adding in-room sprinkler systems to their rooms, yet wanted to influence the safety of the traveling public, it enacted this law. The Hotel and Motel Fire Safety Act of 1990 (Public Law 101-391) aims to increase the level of fire safety in hotels and motels by discouraging federally funded travel to hotels and motels that do not meet certain minimum fire protection standards. These standards require the installation of automatic sprinkler systems in hotels and motels over three stories in height, and the installation of hardwired (not battery-operated) smoke detectors in every room of each and every hotel and motel. In general, the act prohibits federal funding of a meeting, conference, convention, or training seminar that is conducted in a place of public accommodation that does not meet the fire safety requirements of the act. Under the act, ANALYZE THE SITUATION 5.3 Sharon Alexander operated The Texas Saloon, an upscale steakhouse restaurant that also served beer and wine. Sharon’s average menu item sold for $10. Employees were allowed to eat one meal during their shift. For those who voluntarily elected to eat this meal, Sharon would deduct $0.25 per hour ($2 per eight-hour shift) from the federal minimum wage rate she paid her entry-level dishwashers, which reflected the reasonable cost of the meal. Sharon relied on the Fair Labor Standards Act (FLSA) Section 3(m), which states that employers can consider, as wages, “reasonable costs . . . to the employer of furnishing such employees with board, lodging, or other facilities if such boards, lodging, or other facilities are customarily furnished by such employer to his [or her] employees.” Sharon interpreted this regulation to mean that she could pay the entry-level dishwashers a rate that, when added to the $0.25 per hour meal deduction, equaled the federal minimum wage. One day, Sharon was contacted by her state department of employment, which charged that she was in violation of the state minimum wage law. The law stated that “total voluntary deductions for meals and uniforms may not decrease an employee’s wages below the federal minimum wage on an hourly basis.” Sharon maintained that because she was in compliance with the federal law, she was allowed to take the meal credit against the wages paid to her entry-level dishwashers. 1. Is Sharon in compliance with the compensation laws of her state? 2. Do federal laws, in this case, take precedent over state law?   Figure 5.10 State of Michigan Sanitation Ordinance.

138 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry states are responsible for submitting data to the U.S. Fire Administration regarding which hotels and motels meet those specified standards. Note that, in this case, the regulatory body, Congress, did not implement a restriction on operating hotels without sprinkler systems; it simply prohibited funding, by the federal government, of any travel to such a hotel. 5.5 RESPONDING TO AN INQUIRY Despite the best efforts of management, it is not uncommon for a facility to be found in violation of a regulation. Consider the case of Gerry Monteagudo. Gerry has, for many years, heavily decorated the lobby and public areas of his hotel during the Christmas season. This year, shortly after the decorations had been put in place, Gerry received a letter from the local fire chief citing the hotel for three violations of the local fire code. An inspector noticed that some of the holiday lights were illuminated via the use of extension cords. These extension cords are not allowed, by ordinance, in the township where Gerry operates the hotel. In this case, the problem could be quickly rectified by replacing the extension cords with surge protector cords that are allowed by the local ordinance. At the other extreme, consider the case of the hospitality manager who is notified that the IRS will be conducting an audit of tip-reporting compliance in her facility. The IRS auditors plan to trace the last three years of tips to all employees, and verify that the required employment taxes were paid on those tips. The manager, in assembling three years of paperwork, discovers that not all taxes were paid during the first year, before she assumed management of the facility. A penalty may still be assessed. As can be seen, some regulatory violations can be very serious. Because that is true, it is a good idea to follow a standard set of procedures anytime a governmental agency raises the question of regulatory noncompliance. LEGALLY MANAGING AT WORK: Recommended Steps for Responding to Inquiries and Complaints by Government Agencies 1. Upon notification of a complaint or violation, document the date and time that all paperwork was received, and be sure to check of correspondence for required deadlines. Upon receipt of correspondence from a government agency, the first thing that you or your clerical staff needs to do is to note on the correspondence itself the date that it was received. This can be done manually, but preferably with a small mechanical stamping device (as shown in Figure 5.11). Be sure that you include the day, month, and year of receipt. This is important because many governmental agencies require you to respond within a certain number of days from the date you received the correspondence. As you read the correspondence, be on the lookout for the due dates of responses. Some due dates are measured from the date of receipt; other due dates are measured from the date mailed. For instance, a letter might state, “If you do not respond within 10 days of your receipt of this correspondence, then we will assume that the claimant’s position is true and act accordingly.” This is known as an automatic default provision. It is imperative that if you intend to respond, you do so within the time frame specified in the correspondence. There is rarely a remedy to missing a deadline for an initial response. Figure 5.11 Date stamp.

Responding to an Inquiry 139 2. Assess the severity of the complaint. Determine if legal consultation is necessary. As you read the correspondence, you will need to decide if legal counsel should be consulted in order to deal with the complaint raised in the correspondence. Additionally, you will need to decide if the issue raised needs to be referred to your insurance carrier. It may be a good idea to fax the correspondence to your insurance agent to get his or her opinion as to whether or not there might be coverage for the particular concern raised. In the event you do forward this matter to your insurance carrier, and the carrier determines that you are covered, ordinarly as part of your coverage, the carrier will provide an attorney to defend the claim. If the carrier denies you coverage, you will need to hire your own counsel. In the event that occurs, or in the event that you determine on your own that you need legal counsel when dealing with a government agency, you may want to consult with, or retain, an administrative law specialist, an attorney who devotes a significant part of his or her practice to handling complaints for alleged violations of government regulations and/or prosecutions by the government. 3. Develop a plan of action. How you as a manager should respond to a complaint or violation will vary based on whether or not you have determined that legal assistance is needed. Without an Attorney Calendar all response dates, and be sure to allow yourself enough time for mailing. Identify all the people who need to be involved in the response, and contact them in a timely fashion to solicit their input. Always keep clear, legible copies of anything that you forward as a response to a complaint. In any response that you give, if it is not true or you cannot prove it, do not state it in your response. Follow the instructions on the correspondence exactly. If it says that you only have one page to respond, then use only one page. If it says that the response must be typed, then make sure it is typed. If your response needs to be signed and your signature must be notarized by a notary public, be absolutely certain that it gets done, and make sure that the copies that you keep are copies of the responses after you have signed them and had them notarized. With an Attorney Forward the correspondence immediately to your attorney, together with any supporting documentation that the attorney might need to understand the situation completely. Also, include a list of people who might have knowledge of the situation raised in the correspondence. It is a good idea to include contact information for the attorney. You want to facilitate communication between the attorney and any witnesses who can help present a positive response on your behalf. Stay in direct communication with your attorney until the matter is resolved. Just because you have given it to an attorney does not mean it is off of your plate. It is still crucial that you keep up with time deadlines and potential witnesses. For instance, if you know that certain people are going on vacation or you yourself are going on vacation, let the attorney know so that he or she can plan accordingly in the event he or she needs statements of additional information from you or the witnesses. 

140 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry As a manager, you should never willingly violate a legitimate regulation. In most cases, noncompliance is unintentional, and the governmental agency has, as its responsibility, the duty to inform management of violations. Because many of these agencies can have a significant effect on the facility and, in some cases the manager personally, it is best to respond quickly and professionally to any charge of noncompliance. 5.6 MONITORING REGULATORY CHANGE It is simply not possible to know every governmental regulation that could affect the hospitality industry, and some laws change on a regular basis. While changes in major federal law are rather well publicized, you cannot be sure that the policies of all federal agencies, state regulators, and local governments will be made known to you. Sources such as www.HospitalityLawyer.com can be very helpful in keeping managers current. The URLs listed in Figure 5.12 can be of help in following legislation at the national level. Reading about the hospitality industry will not only make you a better manager, but will also enable you to keep up with changing regulations. For those managers employed by a national chain or management company, the parent company can be an excellent source of information on changing regulations. Indeed, one valuable service provided by franchisors to franchisees is regular updates on regulatory agencies and their work. Because the federal government can play such a major role in regulating the hospitality industry, it is important to have current and rapid access to the actions taken by each of the federal regulatory agencies. Accessing the Web site addresses provided next to each agency name is a good way to keep up to date on any changes in the law in that particular area. As a hospitality manager, it is important to stay involved in the hospitality trade association that most closely represents your industry segment. The National Restaurant Association (NRA), the American Hotel and Motel Association (AH&MA), the American Dietetics Association (ADA), and others regularly provide their memberships with legislative updates. Many of these organizations have state, regional, or local chapters that can be invaluable sources of information. On a local level, chambers of commerce, business trade associations, and personal relationships with local police, fire, and building officials can help a manager stay up to date with municipal changes. As a hospitality manager, it is critical that you take an active role in shaping the regulations that affect the industry. Governments, on the whole, attempt to pass regulations that they believe are in the best interests of the communities they represent. The problem arises, however, when the cost in dollars or the infringement upon individual rights will far exceed the societal value of implementing a proposed regulation. For example, some consumers feel that it would be a good idea to have 24-hour video surveillance cameras placed in hotel corridors, even if the cost of installing them resulted in higher room rates. Such a camera might be a deterrent to crime and would make them feel safer; however, other guests object to the cameras as an invasion of their privacy. Hotel managers caught in the middle agree that the safety of their guests is a major concern, but they also know that there are less intrusive ways to make people feel safe while respecting their privacy. Without input from the hospitality industry, however, regulators may not be aware of those alternatives and could pass a law that is ultimately not in the best interests of the hotel guest, the lodging industry, or society. It is only by staying aware of regulatory changes and being committed to proactive participation in the regulatory process through education and leadership that the hospitality industry will continue to flourish.

141 Figure 5.12 Hospitality industry sampling of Internet home page addresses for corporate information, reports, and publications. (Created by Cathleen Baird, director of archives, and maintained by the Lateka Grays, supervisor of the Conrad N. Hilton College Library for the University of Houston, students, faculty, and hospitality industry professionals.)

142 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry Figure 5.12 (Continued)

Monitoring Regulatory Change 143 INTERNATIONAL SNAPSHOT Immigration The growing globalization of the world’s economy and labor markets, in addition to amplif concerns regarding security, has increased the awareness of immigration issues for everyone. For employers in the hospitality industry, who want to secure “the best and the brightest” as well as meet the needs of a labor-intensive industry, these issues are especially acute. They must accomplish these goals while remaining in compliance with complicated immigration laws, rules, regulations, and processes. Globally, the process of employing noncitizens in a given country typically requires some sort of sponsorship by an in-country employer. (One significant exception is certain European Union nations, which do allow for employment of nationals of other EU nations.) By and large, time-limited work authorization or work permits are available to noncitizens in highly skilled professions, to corporate transferees or managerial/executive positions, and to certain entrepreneurs/investors. In many countries, permanent residence status is also available, allowing a noncitizen to work and remain in a given country permanently, typically after having been a lawful resident in the country for several years. The availability of temporary work authorization or permanent residence status for noncitizens who work in low-skill or unskilled positions is far less common. In the United States, the immigration system classifies persons into two primary categories: citizens, born in the United States, born to a U.S. citizen parent, or naturalized as U.S. citizens; and aliens, which essentially accounts for everyone else. The alien group is further divided into two primary segments: immigrants, who are aliens coming to the United States permanently or indefinitely (the terms “lawful permanent resident” and “green card holder” are used to describe persons authorized to remain indefinitely, for the remainder of their lives) in the United States, subject to certain conditions), and nonimmigrants, who are aliens coming to the United States for a defined time period (e.g., three years) and for a definitive purpose (e.g., to work in a professional capacity for a U.S. employer.) Typically, most nonimmigrants are limited to employment with a specific employer. For example, professional (specialty occupation or H-1B) workers employed in a capacity requiring a bachelor’s degree or higher are generally limited to employment with their employer sponsor. Likewise, L-1 intracompany transferees (managerial or specialized-knowledge persons transferred by a multinational corporation from an office overseas to a U.S. office) are limited to employment within the multinational organization. The U.S. system also has a limited H-2B temporary worker nonimmigrant classification available to even unskilled workers. An employer must establish a short-term or seasonal need and demonstrate the unavailability of U.S. workers via a labor market test to employ such nonimmigrants. The most common use of this classification in the hospitality industry occurs at seasonal resort properties during the high season. Unlike many other countries, permanent residence is not available to persons based upon any particular period of U.S. residence, but instead depends upon specifically qualifying under existing family relation–based or employmentbased categories. Most employment-based permanent residence cases require an employer to demonstrate the unavailability of a qualified, willing, and able U.S. citizen or lawful permanent resident worker, a labor market test known as labor certification. More senior or specialized persons can sometimes be sponsored without the need for labor certification. Following the elimination of the Immigration & Naturalization Service (INS) as a separate department, the Department of Homeland Security (DHS) was

144 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry established in 2003 and assumed all INS responsibilities. The U.S. Citizenship and Immigration Services (USCIS), a bureau within the DHS, handles the majority of functions that were once completed by the INS, including nonimmigrant and immigrant (permanent resident) petitions. The DHS U.S. Immigration and Customs Enforcement (ICE) handles enforcement of federal immigration laws and customs laws, including I-9/IRCA. Provided by Andrew Galeziowski of Ogletree and Deakins Law Firm, Atlanta, Georgia. www.ogletreedeakins.com WHAT WOULD YOU DO? After the highly publicized death of a college student, a local sports bar in your town lost its liquor license for 60 days. The student had consumed 21 shots of alcohol on his birthday and later died in his dorm room from alcohol poisoning. The bar was crowded, and because the shots had been purchased by a variety of friends of the victim, the bar manager and staff were not aware of the impending problem. Subsequently, the college’s student newspaper published editorials warning against the perils of binge drinking and accused the management of the facility of negligence or indifference. Sorrow in the community and outrage in the local press prompted the mayor of the city in which you operate your own Italian restaurant/pizzeria to propose a local ordinance banning the sale of more than three drinks per day to any individual. A drink, under the ordinance, would be defined as either a 12-ounce beer, a 4- ounce glass of table wine, or a 11 /2-ounce shot of liquor. Violators would face a fine of $5,000 per incident. Enforcement would fall to the local police. It is widely known in the community that the mayor, generally a strong promoter of business, is a nondrinker, and support for the ordinance is strong because of the accident. As the elected president of your local restaurant association, you have been asked to address the proposed ordinance at the next meeting of the city council. Develop a plan of action and outline for your address to the city council. In your essay, answer the following four questions: 1. What issues will you consider as you prepare your statement to the city council? 2. What message do you believe the majority of citizens in your community will support? 3. Where will you turn for advice and counsel in preparing your statement? 4. Will it make a difference to you if you know that the local television station will cover the council meeting? THE HOSPITALITY INDUSTRY IN COURT To emphasize the importance of a hospitality operator knowing about OSHA and its hazardous materials definition, consider the case ot Halterman v. Radisson Hotel Corp., 523 S.E.2d 823 (Va. 2000). FACTUAL SUMMARY John Halterman (Halterman) was permanently injured while working for a Radisson Hotel (Radisson) in Alexandria Virginia. H&H, the company Halterman worked for, was hired by Radisson to do some welding repairs to washing machines in the laundry facility of the hotel. The machines contained residue of a product called Liquid Lusterfixe, an acidic laundry detergent. None of the Radisson employees warned Halterman about the presence of the chemical. However, Radisson did maintain a display unit for material safety data sheets (MSDS) on one wall of the laundry room. Those sheets listed all hazardous chemicals and their effects on humans. During the welding process, the heat from Halterman’s welding electrode caused the Lusterfixe to turn into a toxic gas. Halterman spent anywhere from 30 to 45 minutes welding on the machines without any protective breathing equipment. He breathed in unknown quantities of the gas while he worked on the washing machines. In all the repairs took several hours to complete. Halterman was in good health when he began the work. By the time he left the hotel he had developed a cough. His cough worsened over the next few days, and he became short of breath. A doctor diagnosed him as having acute chemical

Monitoring Regulatory Change 145 pneumonitis. The gaseous compound he inhaled was known to cause pneumonitis. Eventually, he developed interstitial fibrosis, or scarring of the lungs. Halterman lost about one-third of his lung capacity. Halterman sued Radisson Hotel for failing to maintain the laundry room in a safe manner and for failing to warn him about the presence of Liquid Lusterfixe, a hazardous chemical. He also sued Radisson for violation of the Hazard Communication Standard (HCS) of the Occupational Safety and Health Act (OSHA). Under OSHA, an employer is required to implement a written system for warning employees about hazardous chemicals used on the work site. Radisson was required to tell its employees and the employer of other employees about the existence of the MSDS display unit. QUESTION FOR THE COURT The question for the court was whether Radisson violated the HCS provision of OSHA. Halterman argued Radisson did not communicate the hazardous nature of the working conditions to him. Radisson responded by claiming it was not required by the statute to warn him about the hazard but was merely obligated to inform his employer of the existence of the MSDS display unit. DECISION The court ruled in favor of Radisson, holding that the only obligation under the statute was to communicate the existence of the MSDS display to Halterman’s employer. While Radisson had a duty to inform its own employees of hazardous chemicals present at the work site, there was no such duty for employees of other companies working at the hotel. MESSAGE TO MANAGEMENT Become familiar with your obligations under OSHA and meet them. Your employee’s safety and the safety of others are at stake. Despite this ruling, the best practice is to make all aware of know dangers. WHAT DID YOU LEARN IN THIS CHAPTER? Federal, state, and local governments all pass laws and regulations that can potentially impact a hospitality operation. These laws and regulations are enforced by administrative agencies at all three levels of the government. Hospitality managers need to be familiar with the most common agencies and the areas of the industry that they regulate. In order to comply with these regulations, hospitality managers may be required to file forms, submit to inspections, apply for licenses, operate their business in a specified manner, and maintain their facilities and equipment in good working order. Many government and nonprofit agencies publish guidelines for managers that can help you take the necessary steps to keep your facility in compliance with various regulations. In situations where federal, state, or local laws conflict with one another, the most restrictive regulation is the one that must be followed. If you receive a complaint from a government agency, it is important that you take the appropriate steps to respond to the complaint in a timely fashion, respond in the manner requested, and develop a satisfactory plan of action. You may also choose to consult with an attorney or your insurance company, depending on the nature and severity of the complaint. Government publications and Web sites, industry trade associations, and local community groups are common sources of information that hospitality managers can turn to for information on changing laws and regulations. RAPID REVIEW After you have studied this chapter, you should be prepared to: 1. Analyze the role of at least three federal entities that regulate the hospitality industry. Why do you think the federal government feels the need to be involved with regulation in each of these three areas?

146 Chapter 5 Regulatory and Administrative Concerns in the Hospitality Industry 2. Tip reporting is mandatory. Create a memo to a restaurant staff describing why they should comply. 3. Secure a material safety data sheet and compare its content to the list of required items detailed in this chapter. 4. Review the protected classes identified by the EEOC and determine if others should be added. 5. List five reasons a state’s alcohol beverage commission might revoke a liquor license. Prepare a five-minute bartender training session that addresses one of these reasons and how a restaurant or bar might avoid the difficulty. 6. Assess the rationale behind the “most restrictive” concept as it relates to regulatory conflict. 7. Prepare, in detail, a management checklist for responding to an administrative inquiry. 8. Using the Internet, locate the home page of your state hotel and restaurant association. Secure the name of the person in the organization responsible for monitoring regulatory changes affecting the hospitality industry, and cite on such recent change in your state. 9. Log on to www.HospitaltyLawyer.com and review the OSHA summary update in the National Library. TEAM ACTIVITY In teams, list as many (at least 10 in each category) local, state, and federal regulatory agencies that you would have to be concerned with if you were contemplating opening a country club in your community, with the following amenities: golf, tennis, pools, full-service restaurant, banquet facilities, and service of alcohol.

Chapter 6 Managing Insurance 6.1 INTRODUCTION TO INSURANCE 6.2 TYPES OF COVERAGE Property-Casualty Liability Employee Liability Dram Shop Health/Dental/Vision Workers’ Compensation 6.3 SELECTING AN INSURANCE CARRIER 6.4 SELECTING THE INSURANCE POLICY 6.5 POLICY ANALYSIS

148 Chapter 6 Managing Insurance “That was truly a great meal!” said Trisha Sangus as she left the lobby area of Chez Louise, one of her favorite restaurants in the city. Trisha was in a festive mood, as she walked back to the restaurant’s parking lot with Bob Zaccarelli, editor of The Community News, her city’s largest newspaper. Trisha and Bob had just enjoyed dinner while they worked together on planning the print advertising for the city’s annual Taste of the Town festival. As they approached Bob’s car, he shouted, “What the . . . !!!!” Trisha looked at Bob’s brand-new sports car. The driver’s side window had been smashed. Shattered glass was everywhere, and Trisha noticed on the ground beneath the car window that it included the distinctive brown glass of a beer bottle with its wrapper still partially attached. “Did they take anything?” asked Trisha, as Bob examined the inside of the car. “No, I don’t think so. My CD player’s still here,” replied Bob still angry. “I can’t believe this. We were only inside for an hour! I thought this restaurant was in a safe neighborhood. It will take me a week to order a new window and get this fixed! I’ll have to rent a car in the meantime.” Trisha looked up at one of the halogen lamps in the well-lighted parking lot. Nearby, other cars passed on a busy commercial street. “I’m really sorry, Bob,” she said. “It looks like the work of some kids with nothing better to do. If they had been car thieves, you would have lost the whole car! By the looks of things, I would guess someone drove by and threw the bottle from the street. I’m sure the police will be able to determine what happened better than we can. I have my cell phone. Would you like me to call them?” “Don’t bother,” replied Bob. “The police are not going to be able to fix my window. Besides, as you say, it looks like vandalism. It’s unfortunate, but I guess it goes with doing business in the city. Anyway, I’m sure the restaurant has insurance for this type of thing. “ “The restaurant?” asked Trisha quizzically. “Won’t you file a claim with your own auto insurer?” “No way,” said Bob. “This happened in a restaurant parking lot. The owners’ insurance should pay. My car is supposed to be safe here. It wasn’t, and that’s their responsibility. Just as if the car had been vandalized in your hotel parking lot, it would be your responsibility. It’s as clear-cut a case of liability as I have ever seen. I’m going back in to see the manager!” “Clear-cut,” repeated Trisha to herself. She wondered what type of reception Bob would get from the manager at Chez Louise. She had never seen Bob so upset. She wondered how the hotel managers on her own staff would react if Bob approached them with a similar complaint. She knew what she would say, but what about her manager on duty? Just as important, if they said the wrong things, she wondered what impact might that have on the hotel’s liability insurance coverage. Trisha made a mental note to add this issue to the top of her agenda for tomorrow’s staff meeting. 1. To understand the value of insurance in protecting a business from financial loss. 2. To become familiar with the different types of insurance required of hospitality operations. 3. To understand the role of workers’ compensation and the requirements of an employer. 4. To critically evaluate the financial rating of an insurance company and other information to help you select an insurance carrier. 5. To distinguish between the terms “primary” and “umbrella” insurance coverage, and determine appropriate amounts of coverage. 6. To analyze an insurance policy and determine what types of claims will be covered and what types of claims will not be covered. IN THIS CHAPTER, YOU WILL LEARN: 6.1 INTRODUCTION TO INSURANCE Every individual faces risk. Illness, accidents, the acts of others, and even death, are all potential hazards each of us faces in life. Your business will face possible calamities also. Floods, fire, and the acts of guests, employees, and others can all put your business at risk. To guard against the financial loss these risks can bring, both individuals and businesses need to insure themselves. In its simplest form, insurance involves the spreading of risk from one person or business to a larger group. LEGALESE Insure (insurance): To protect from risk.

Introduction to Insurance 149 Hospitality businesses seek insurance, or protection from risk, for two basic reasons. First, because doing so makes good financial sense. Second, some types of insurance coverage are required either by law (such as workers’ compensation) or by lenders to protect their collateral. Consider, for example, the restaurateur who owns a business that provides her a salary of $100,000 per year. The restaurant is her sole source of income. If the restaurant were to burn down, she would lose this source of income. To protect her business, and her income, she would want to buy a fire insurance policy that would pay to completely replace the restaurant in the event of a fire, provided the cost of the insurance was reasonable. Not buying the insurance would put this restaurateur and her family at great financial risk. Buying the insurance would provide that the restaurateur with both financial security, in the event of an accidental fire and the peace of mind that such security brings. To be protected from risk does not mean that hazardous events will not occur. Insurance does mean, however, that the person with insurance is provided some protection against the financial loss he or she may incur as a result of a hazardous event. The insurance industry is built upon four fundamental premises: 1. The type of hazard the insurance company is underwriting must be faced by a large enough number of individuals or businesses so that statisticians can use actuarial (actuary) methods to predict the average frequency of loss involved in the risk. 2. The monetary value of the loss must be calculable against an accepted standard. For example, if a hotel seeks coverage for broken windows caused by vandals, it must be possible for the insurer to fairly determine the cost of replacing such a window. 3. The premiums (fees) for the insurance must be low enough to attract those who seek to be insured, but high enough to support the number of losses that will be incurred by the insurer. 4. The risk must not have the possibility of occurring so frequently during any given time period that the insurer cannot pay all legitimate claims. Insurance companies spend millions of dollars annually researching industries to determine the risk factor of providing insurance for a specific market, such as hospitality. Obviously, the fewer number of casualty losses, workers injured, lawsuits, and so on, the lower the risk that the insurance company may have to pay out money on a claim. Logically then, the safer the operation, and the safer the industry as a whole, the lower the cost of insurance. The insurance contract between an insurer and an insured is called a policy. There are a variety of policy types, but they can be conveniently grouped into three categories: Life insurance Health insurance Property-casualty (often referred to as “property-liability”) Life insurance policies generally are written to pay a certain amount of money at the time of the insured’s death, or to pay the insured an annuity upon the insured’s reaching a specified age. Health insurance is generally created to pay for hospital and doctor bills, as well as annuity payments for those who are disabled. In the hospitality industry, it would be common for you, as a manager, to receive some level of both life and health insurance as part of your compensation package. Property-liability insurance provides financial protection (indemnification) in the event of occurrences such as floods, fire, lawsuits, and automobile accidents. As a manager, it is important to know the types of insurance policies that make sense for your operation, and how to evaluate the quality of the companies that offer insurance, as well as the merit of the actual policies. LEGALESE Actuary: A mathematician or statistician who computes insurance risks and establishes premium rates. LEGALESE Insured: The individual or business that purchases insurance against a risk. LEGALESE Policy (insurance): The contract for insurance agreed upon by insurer and insured. LEGALESE Premium: The amount paid for insurance coverage; can be paid in one lump sum or over time, such as monthly. LEGALESE Annuity: Fixed payments, made on a regular basis, for an agreed-upon period of time or until the death of the recipient. LEGALESE Indemnification: To insure against possible liability and loss, and/or to compensate financially for losses incurred. LEGALESE Insurer: The entity that provides insurance.

150 Chapter 6 Managing Insurance It is also important to remember that insurance companies, like hospitality companies, are in business to make a profit. Profits in the insurance industry are the result of increasing premium amounts, increased return from the investment of premiums, and the reduction of costs, including the payment of insurance claims. Because this is true, insurers are very careful to pay only those claims that are proven to be legitimate and within the terms of the insurance policy. Because insurance protects against risk at an agreed-upon price, it is critical that you as a hospitality manager know: The risks you are insuring against. The amount of coverage you will receive. Any exceptions to your coverage that are written into your policy. How much the insurance will cost. The likelihood that the insurance company is financially sound enough to pay, if it becomes necessary. To purchase insurance, a potential buyer must demonstrate that he or she has an insurable interest in the premises to be insured. That is, he or she must demonstrate that a loss would, in fact, affect him or her in a material way. This insurance concept is fundamental and helps protect against possible intentional acts of destruction or fraud. In addition, an insured must honestly divulge information needed by the insurer to enable the insurer to establish appropriate premium rates. ANALYZE THE SITUATION 6.1 Samuel Renko, president of the Senframe Hotel Management company, authorized the purchase of a $2 million fidelity insurance policy, the purpose of which was to protect the company in the event of employee theft or fraud. In discussing the purchase with the insurance agent, Jana Foster, Mr. Renko assured Ms. Foster that all hotel controllers were subject to a thorough background check before they were hired. As a specific condition of the insurance policy, background checks on controller candidates were required prior to employement. The insurance policy was purchased and went into effect on January 1, 2003. On June 1, 2003, the Senframe company took over the management and operation of the Roosevelt Hotel, a 300-room property in a resort area. As part of the operating agreement with the Roosevelt Hotel’s owners, the hotel’s controller and its director of sales were retained by Senframe. On December 20, 2003, Senframe management discovered that the Roosevelt Hotel’s controller had been creating and submitting false invoices. The invoice payments were deposited in a bank account he had established for himself five years earlier. Total losses for the five-year period that the falsification occurred were over $500,000. The controller resigned, but the hotel owners sued Senframe for the portion of misappropriated fund ($70,000) taken during the period the hotel was under Senframe’s management. Ms. Foster maintained that her insurance company was not liable to indemnify Senframe, because the controller had not been subjected to a background check, as Mr. Renko had promised. Mr. Renko countered that the controller, although not background-checked, had no criminal record of any kind, and thus a background check would not have prevented the hotel from hiring the controller. 1. Must Ms. Foster’s company defend Senframe in the litigation brought by the hotel’s ownership? 2. If you were on a jury, would you hold Senframe responsible for the employee theft? 3. Regardless of the outcome of this situation, what changes in operational procedure should be implemented by Mr. Renko and the Senframe Hotel Management Company?   As with any purchase, careful comparison-shopping before selecting insurance is a very good idea. Because insurance is a contract between the insurer and the insured, it is also a good idea to read the contract carefully, or to have an expert evaluate it for you. As with any type of contract, it is critical that the insurance policies be kept in a safe, secure location. LEGALESE Claim: Demand for money, property, or repairs to property.

Types of Coverage 151 Purchasing insurance is often complex and can be confusing. You may find it easier if you think of buying insurance as a three-step process: 1. Determine the type of insurance coverage you need. Here, you are looking at various aspects of your operation and deciding which risks to protect against. 2. Determine the ideal monetary amount of insurance coverage and the type of policy you will require. Remember, as the dollar value of your coverage increases, so will the premiums you have to pay. 3. Select a specific insurance company from which you will buy your policy. The next three sections of this chapter examine each of these steps in detail and offer some guidelines for helping you determine the appropriate type of insurance coverage. 6.2 TYPES OF COVERAGE Because the hospitality industry is made up of a variety of operations in different locations, the insurance needs of restaurants and hotels will vary considerably. A hospitality establishment’s insurance policies will reflect the unique characteristics of the type of business being operated and the location in which it does business. For example, a restaurant on the United States Gulf Coast may well feel that hurricane insurance makes sense, while the same type of operation in South Dakota would not. Similarly, the resort that offers overnight camping excursions for families may desire insurance against animal attacks, while the yogurt store in a shopping mall would be hard-pressed to justify purchasing such a policy. Insurance companies offer a wide variety of products designed to meet the needs of their customers. Because this is true, hospitality managers must be very careful to make sure they select the proper insurance coverage for their specific situation. With too much coverage, or with coverage that is not necessary, operational profits are reduced because premium payments are unnecessarily high. With no insurance, or too little insurance of the right type, however, the economic survival of the hospitality operation and its members may be at risk. Many states have laws requiring businesses to carry certain types of insurance, at specified minimum amounts, in order to conduct business within the state. In addition, when hospitality firms lease space in buildings, the lease agreement may also require them to carry minimum amounts of insurance. While the specific types and amounts of insurance needed for any given hospitality operation will vary, the following types of insurance coverage are common. Property-Casualty Just as its name indicates, property-casualty insurance is purchased to protect against the loss of property. These losses include damages incurred due to fire, flood, or storms. Some insurance companies will classify threats to property in different ways, but in all cases, property-casualty insurance protects property and its contents. The determination of which risks to insure against must be made on the basis of each hospitality operation’s special circumstances. Consider the case of Ralph Escobar. Ralph operates a seafood restaurant that is housed on a ship that is permanently docked on one of the Great Lakes. Ralph, unlike many other restaurateurs, must insure his operation against a variety of water-related events that could destroy his business. These include accidentally being hit by another boat, high- or low-water damage, and seasonal storms that could damage his floating restaurant. Ralph must select casualty insurance that will cover these incidents and reimburse him for the cost of repairs and any potential loss of business.

152 Chapter 6 Managing Insurance Property-casualty insurance, in its many forms, is the most common type of business insurance purchased. It may be purchased in policies covering losses as small as a few hundred dollars or as large as many millions of dollars. Liability General liability insurance is selected when you wish to protect against injuries to other people resulting from the operation of your own hospitality facility. For example, Diane Sulayman operates a French fine-dining establishment that serves a variety of items including flamed desserts. One evening, her server accidentally sloshes flaming alcohol out of a flambé pan and it splashes onto the suit of a diner. The diner is not injured seriously, but suffers some minor burns, and is quite upset. Should the diner elect to bring a lawsuit against Diane, her general liability insurance would help cover the expenses and potential damages that might be awarded in such a lawsuit. There are a variety of liability insurance types on the market today. The following are some of the most popular. Property damage liability coverage is selected when you wish to protect against claims resulting from damage to the property of others. Personal injury liability coverage provides you with protection for such offenses as false arrest, libel, slander, invasion of privacy, and food poisoning. Advertising injury liability coverage helps cover your legal liability for offenses arising out of the advertising of your business’s goods and services. Insurance companies have the right and obligation to defend any lawsuit against their insured customers that seeks damages for bodily injury or property damage, even if the allegations in the suit are groundless, false, or fraudulent. The insurance company can also enter into any settlement agreement it deems expedient. It is important to remember, however, that the company is not obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been reached or that falls outside the coverage of the policy. Consider the case of Roger Kuhlman. Roger owns and operates a hotel in which a guest accidentally discharges a pistol in one of the guestrooms. The shot passes through the wall of the room and injures a guest in the next room. The injured guest sues both Roger and the guest responsible for the accidental shooting. Roger’s insurance company defends his hotel in the lawsuit. In the resulting jury trial, Roger’s hotel is deemed to be partially responsible for the accident and is ordered to pay the victim $3 million. The hotel’s insurance policy provides only $1 million of coverage. In this case, Roger’s hotel is responsible for paying the remaining $2 million. With the increasing monetary value of awards resulting from litigation today, wise hospitality managers are attempting to confirm they have sufficient liability coverage. This is not an easy task. You must weigh the cost of coverage (the premium payments) versus the risk (possible damages), and assess your ability to absorb or pass on these insurance costs to your customers. Employee Liability An employee liability policy is selected when, as an owner or manager, you wish to supplement your general liability coverage with additional coverage for any harmful acts your employees may commit in the course of their employment. Some areas of coverage to be considered include those related to: Wrongful termination Workplace harassment

Types of Coverage 153 Sexual harassment Breach of employment contract Discrimination Failure to employ or promote Deprivation of a career opportunity Negligent evaluation Employment-related misrepresentation Defamation Theft Dram Shop Liquor liability, or dram shop, insurance provides establishments that sell alcohol coverage for bodily injury or property damage that may result from any or all of the following acts: Causing or contributing to the intoxication of a person. Serving alcoholic beverages to a person under the legal drinking age. Serving alcohol to an intoxicated person. Violating any statute, ordinance, or regulation relating to the sale, gift, distribution, or use of alcoholic beverages. Serving alcoholic beverages in today’s society makes a hospitality manager subject to great risk. Dram shop insurance is truly a necessity in today’s legal environment, and states may require it as a condition for granting a liquor license. Health/Dental/Vision One of a hospitality manager’s greatest costs, and one that continues to rise dramatically, is that of employee medical insurance. While medical coverage such as health, dental, and vision insurance is not a requirement, the degree to which it is offered can have a significant effect on a manager’s ability to retain and maintain a quality workforce. Like all types of insurance, the variety of coverage available in medical insurance is tremendous. In addition, this is one area of insurance where the cost is generally split, in some manner, between the employer and the employee. Employers can choose from contributing 100 percent of medical insurance premiums for their employees to simply making such coverage available to employees on a voluntary basis. Employees often depend on such coverage for their families, and can maintain that insurance even if they lose their jobs. The Consolidated Omnibus Budget Reconciliation Act (COBRA), passed by the federal government in 1986, requires employers to continue providing health, dental, and optical coverage benefits to employees who have resigned or been terminated, and to family members of employees who have lost their health insurance due to death, divorce, or dropping out of school. COBRA participants may continue their benefits for up to 18 months following the loss of their insurance, although they are responsible for paying the entire cost of their premiums. Workers’ Compensation The Workmen’s Compensation Act of 1908 was the first effort to provide injuryrelated insurance to those workers who were hurt while on the job. This law, passed by Congress, and covering federal employees, spurred the states to enact similar legislation covering workers in their states. Today, all states require public and private sector employers to provide some form of mandatory workers’ compensation insurance.

154 Chapter 6 Managing Insurance Workers’ compensation policies provide payments to workers or their families in the event of an employee’s injury or death. Coverage normally includes medical expenses and a significant portion of the wages lost by the employee being unable to work due to the injury. In more serious cases, lump-sum payments can be made to those workers who have been partially or permanently disabled. In addition, if a worker is killed while on the job, payments may be made to the worker’s family. The injury must have happened in the “course and scope” of employment. The courts have broadly defined course and scope to sometimes include commuting to and from the place of employment, during mealtimes, or on or off the work site. Injured employees are generally prohibited from suing their employer for damages beyond those awarded by workers’ compensation. Only in the case of gross negligence or an intentional act will an employer potentially be subject to paying greater damages than those normally imposed by workers’ compensation. It is important to know that some states will designate specific doctors who will examine those employees who appear to have been injured. This is an effort on the part of the state to hold down premium costs and reduce incidents of fraud. It is also important to remember that employers cannot claim the negligence of the worker as a defense for a work-related injury. Usually, only in cases where the worker has been proven to be under the influence of drugs or alcohol at the time of the injury, or if the injury was fraudulent, will an employer be able to mount a legally valid defense against a workers’ compensation claim. In cases where another employee or third party has caused a worker injury, or when the employer challenges the legality of a worker’s claim for compensation, a hearing is held before the state workers’ compensation board. A judge will determine whether or not the claim has merit, and how much compensation the worker is entitled to receive, if any. Both parties have the right to appeal the judge’s decision, if they choose. Because some form of workers’ compensation is mandatory in every state, the failure on the part of management to provide it is punishable by fines and/or imprisonment. Employers are also required by law to accurately report on-the-job accidents to the state agency overseeing the workers’ compensation program. This information is significant, as the cost of providing workers’ compensation insurance varies based on the safety history of the employer and the potential risk of injury to employees working for a specific employer. For example, a restaurant manager who does not encourage the immediate clean-up of spills in the kitchen, and thus experiences greater-than-average employee injuries due to slips and falls, will pay a higher premium than an employer in an identical situation whose internal policies help prevent such accidents. Many state workers’ compensation boards use experience ratings, which categorize businesses by the number of injury claims that are paid out, to determine the amount of insurance premiums that will be assessed. Depending on the state in which they are operating, an employer may provide workers’ compensation insurance through a private insurance company, a state agency, or itself. If the state allows a self-insurance option, the security deposit required can be substantial since, under the self-insurance option, an employer might be solely responsible for the payment of large awards in the case of a serious accident. ANALYZE THE SITUATION 6.2 Christina Fleischer was 16 years old when she was hired to work as a busser for a private country club. On Sunday mornings, the club operated a popular brunch that served 500 to 1,000 people between the hours of 9:00 A.M. and 3:00 P.M. On Christina’s first day of work, her supervisor quickly detailed the job requirements. As part of her job, Christina was to remove the guests’ used dishes from the table, take the dishes to a bussing station, and scrape any  LEGALESE Course and scope: The sum total of all common, job-related employee activities dictated or allowed by the employer.

Selecting an Insurance Carrier 155 leftover food from the dishes into a garbage receptacle lined with a plastic trash bag. Periodically, she was to bring the dishes to the kitchen to be washed and take the garbage receptacle to a designated area, where she would then remove the plastic trash bag and replace it with an empty one. The filled bags were left in the designated area until they could be taken out to a dumpster by a member of the dishroom staff. The garbage receptacles would often get very heavy, and all bussers were instructed to replace the plastic bags in them when they were half-full. Christina’s supervisor made it a point of mentioning that during their 15-minute training session. The club was very busy with Sunday morning brunch patrons on Christina’s first day of work. Halfway through her shift, Christina forgot to replace one of the garbage bags until it was nearly full. She placed the garbage bag with the others in the designated location. Later that afternoon, a dishroom attendant, while taking out the 20 plastic garbage bags filled from the brunch, attempted to lift the bag that Christina had accidentally overfilled. The dishroom attendant seriously injured his back. The injury was deemed within the scope of his work, so the dishroom attendant was awarded a monetary settlement by the workers’ compensation board in his state. However, he then threatened to sue the country club, claiming negligence in Christina’s training, and stated that this negligence was the direct cause of his accident. He also stated that management had provided workers with garbage receptacles that were too large and thus directly contributed to the accident. 1. Was management negligent? 2. Does the dishroom attendant have a viable claim against the club? 3. Do you feel the workers’ compensation premiums for the club should be increased because of this incident? 4. What steps might the country club take to avoid paying higher premiums?  6.3 SELECTING AN INSURANCE CARRIER Most insurance companies sell their products through agents, rather than directly to the public. Some companies use agents that represent them exclusively, while others use independent agents. These independent agents may represent several insurance companies, and can be a real asset in selecting the best policy at the best price. The premium rate, however, is set by the insurance company, and generally it cannot be changed by the agent. An insurance agent does not provide insurance. The agent merely represents the insurance company that underwrites the actual insurance policy. When you buy an insurance policy, it is critical that you purchase it from a credible insurance company, and not just from an agent who is an effective salesperson. If an insurance company is to protect against risk, it must have the financial capability to pay any and all claims you are held responsible for during the coverage period. The last thing you want is to buy an insurance policy, then relax, believing you have coverage, only to find out after a claim has been filed that your insurance company does not have the assets to pay the claim. It is important to remember that if your insurance company will not, or cannot, pay a claim, you will be held responsible for payment. Insurance companies are rated based on their financial capability to pay claims. According to analysts, the stronger the rating, the more financially solvent the company is projected to be. Rating categories vary based on the organization doing the rating, but generally use either an A, A, A, B, and so on, system, or an AAA, AA, A, BBB, and so on, system. Today, it would be difficult to justify purchasing an insurance policy from an underwriter with a rating of less than A or AA. It is best to buy from those companies that have achieved a rating of A or AAA. Ratings can be verified by contacting the rating companies directly. A.M. Best and Standard & Poor’s are two such companies. Alternatively, you can contact your state’s insurance regulatory department. It can also provide you with a list LEGALESE Underwrite: To assume agreedupon maximum levels of liability in the event of a loss or damages.

156 Chapter 6 Managing Insurance of complaints filed against the insurance companies for failure to pay claims in a timely fashion or to act in good faith. This is information you need to know before you buy your policy.  SEARCH THE WEB 6.1 Log on to www.insure.com. 1. Select: Insurance Company Guide. 2. Select: What the Ratings Mean. 3. Read the definitions of AAA through B insurance ratings. 4. Select: Go to Insurance Company Guide. 5. Follow the path required to find the rating of your own automobile or life insurance company. 6. What is your insurance company’s rating? 7. How does it rank among the insurance companies in your state? 6.4 SELECTING THE INSURANCE POLICY Once you have found two or three companies that you feel are financially sound, the next step is to get quotes, or bids, to provide coverage from each of the companies. Consider the case of Vasal Bakar. Mr. Bakar is seeking to add a dental plan to his employees’ health coverage. He selects three companies, all of which are rated AA, and proceeds to request a bid from each. When he asks for dental insurance bids to cover his 240 employees, he gets the following response: Dental Insurance Quote for Vasal Bakar Insurance Company Coverage Cost per Employee One $45.00/month Two $43.25/month Three $17.80/month While at first glance it might appear that Company Three is offering the best policy price, it will be important to determine whether the level of dental coverage is the same under the terms of all three policies. When Mr. Bakal investigated further, he found that in the proposals of the first two companies, annual per-employee maximum benefits were $3,000, while in the case of Company Three, the per-employee annual maximum was only $1,000. Under these circumstances, the price for each $1,000 of employee dental insurance provided was actually highest from Company Three. The decision of whether to pay for the higher amounts of coverage, and whether the employees would be asked to contribute partial payments, is of course, left to Mr. Bakal. To understand how much insurance you are actually purchasing for your premium dollar, and to realize how much total insurance you have for the period of time covered by the policy, it is critical that you understand the terms used in marketing insurance products. Tina Shulky, the owner of a bagel franchise, is seeking liability coverage for her business. She selects some potential insurance providers, based on their financial ratings, then requests quotes on a primary policy with a per-occurrence amount of $500,000, an aggregate of $1 million, and an additional umbrella policy of $1 million. If the policy that Ms. Shulky ultimately selects states that she has $500,000 of coverage per occurrence, it means that for each and every incident that occurs for which Ms. Shulky could be held liable, her insurance company will pay up LEGALESE Primary policy: The main insurance policy that provides basic coverages and the amount of insurance provided by the policy. LEGALESE Per occurrence: The maximum amount that can or will be paid by an insurer in the event of a single claim. LEGALESE Aggregate: The maximum amount that can or will be paid by an insurer for all claims during a policy period. LEGALESE Umbrella: Insurance coverage purchased to supplement primary coverage. Sometimes referred to as excess insurance.

Policy Analysis 157 to $500,000 on her behalf, less any deductible. If the judgment exceeds that amount, she would be responsible for anything over and above $500,000. If her insurance policy has the term “aggregate” after the amount, it means that this is the total amount her insurance company will pay for all incidents and damages incurred during the coverage period. Thus, if she had a $500,000 peroccurrence policy and $1 million aggregate, two claims of $500,000 would wipe out her total insurance coverage (as would four claims of $250,000). It’s also important to understand how a deductible affects your total insurance costs. The deductible is an amount of money you are responsible for paying on a claim before your insurance company will begin paying for it. If you choose a high deductible, your premium payments will be lower, because you are assuming more risk by agreeing to pay a higher share of any claim filed against you. Managers must learn to factor the cost of the deductible into their insurance buying decision, and balance the needs of having a set amount of coverage that will be paid out by their insurance company with the amount of premium payments they are willing to make. Basic coverage is referred to as primary coverage. In addition, you can also purchase an umbrella, or what is commonly referred to as excess coverage. Be aware that umbrella coverage ordinarily pays only when and if your primary per-occurrence coverage is completely exhausted from a single claim. To illustrate this point, assume the following scenario: You have a $500,000 per-occurrence policy with $500,000 aggregate, plus you have $1 million in umbrella, or excess coverage. The policy period runs from January 1, 2005, to December 31, 2005. An accident occurs on January 20, 2005, and the claim is settled for $750,000. The primary coverage will pay the first $500,000, less any deductible you might have. Your umbrella policy will pay the remaining $250,000. However, if you have a subsequent claim from an incident that occurs on February 15, 2005, how much coverage do you have available to pay this claim? The answer is zero. You have depleted your coverage under your primary policy because it has a $500,000 aggregate. Your umbrella policy is not available, because it pays only if you have exhausted your primary per-occurrence amount on a given claim. If you do not have any primary peroccurrence coverage left, the conditions for coverage of your umbrella policy cannot be met, unless you are able to pay out of your pocket the first $500,000. If you find yourself in this situation, you need to buy additional primary coverage. 6.5 POLICY ANALYSIS Analyzing an insurance policy consists of determining both what is and what is not covered. You are responsible for knowing and understanding the types and amounts of coverage that are written into your insurance policy. And be aware that when you purchase insurance, you ordinarily do not immediately receive a copy of the actual policy, because it takes some time for the insurance company to put the formal policy together with your unique coverages and exclusions. Instead, you receive a one-page face sheet, which generally sets out the types and amounts of coverage; it does not contain detailed information on what is specifically included and excluded from the policy’s coverage. The actual policy will contain this information, but usually, you will not receive it until 30 to 60 days from the date of purchase. In other words, the face sheet contains the large print, or overview, while the actual policy contains the fine print, and you won’t get the latter until after you buy. Figure 6.1 shows a segment of language taken from an actual insurance policy. It is important to remember that, despite the difficulty of reading documents such as this, the courts will hold an insured party responsible for reading and LEGALESE Deductible: The amount of money the insured has to pay before the insurance coverage will begin to pay. Accordingly, the higher the deductible, the less risk to the insurance company which should equal lower premiums. LEGALESE Face sheet: A one-page document briefly describing the type and amount of insurance coverage contained in an insurance policy. Sometimes referred to as a declaration page.

158 Chapter 6 Managing Insurance understanding his or her policy. If you are at all unclear about what your final insurance policy will and will not cover, have your attorney review a sample policy, which can be provided by the insurance company. Because you will not receive the actual insurance policy until after you purchase the policy, it is imperative that you discuss any unclear issues with the insurance agent before you buy. Ask for written answers to your questions, and continue to request information until you are satisfied with your comprehension of the details. Once the policy arrives, read it and make sure you fully understand: The policy’s language, and whether it is consistent with your agent’s earlier explanations. The policy’s coverage, exclusions, exceptions, and clarifying language. Most insurance policies will have both exclusions and exceptions. The insurer will almost always retain the right to exclude certain types of liability claims. If, for instance, a restaurateur has purchased fire insurance, but proceeds to intentionally set fire to his or her own restaurant, the insurance company would exclude, or refuse to cover, the cost of replacing the restaurant. Common exclusions include those involving intentional acts and fraud by the insured. Exceptions are also common in insurance policies, and it is best to be well aware of all that apply. An exception is a statement by the insurer that it will not pay for an otherwise legitimate claim if certain conditions have not been met. For example, the insurance company may require a restaurant to have a valid license to serve food, in order to protect that restaurant in the event a guest claims damages resulting from food poisoning. Likewise, a fire insurance policy may require that an operator purchase and install specific types of fire suppresFigure 6.1 Insurance policy language. LEGALESE Exceptions: Insurance coverage that is normally included in the insurance policy, but that will be excluded if the insured fails to comply with performance terms specifically mentioned in the policy. LEGALESE Exclusions: Liability claims that are not covered in an insurance policy.

Policy Analysis 159 sion equipment, and that the equipment be inspected and approved on a regular basis by a qualified inspector. In most cases, your insurer will require you to notify the company immediately if a claim is made by you, or if you believe something has occurred that might lead to litigation. In addition, if an attorney serves you with notification of intent to sue you, you must contact your insurance carrier. Some insurance policies are “claims made” policies. This term means that the coverage is available only if an actual claim is brought to the attention of the insurance company during the policy period. Most insurance policies, however, cover claims that occur during the policy period, even though they are not brought to the attention of the insurance company until after the coverage period has elapsed. Obviously, this type of policy is preferable to the “claims made” policy. In spite of the problems and expense involved, insurance is not an option; it is a protection needed to operate your businesses with a sense of comfort and peace. You can avoid unpleasant surprises by taking the proper care when selecting insurance. This includes speaking and listening to your colleagues and asking those questions that will make it easier for you to purchase the right coverage in the right amount from the right insurance company. Most policies are issued for a one-year period. Generally, new policies are issued annually, assuming there is mutual satisfaction with the coverage, claim responsiveness by the carrier, and an agreement as to the premium (or cost) paid for the amount of insurance. In Chapter 9, “Your Responsibilities as a Hospitality Operator,” we will examine how you can take steps to reduce insurance costs through the effective management and training of staff. Prevention of insurance claims, like the prevention of all legal claims, should be the goal of every hospitality manager. WHAT WOULD YOU DO? Assume you are an insurance agent with the Arizona Business Insurance Company (ABIC). You sell ABIC products exclusively. Your company, which is rated AA, offers insurance coverage against a variety of risks, including workers’ compensation, and specializes in the hospitality industry. You are approached by Ted Betz, the operational vice president of J-Town Smokies, a chain of pit barbeque restaurants. Mr. Betz would like to purchase workers’ compensation insurance from your company because he will be opening five stores in the Southwest in the coming year. A review of his application and claim history indicates that J-Town Smokies has experienced a rather large number of worker injuries in its four years of existence. In fact, the rate of worker injury per man-hour worked is nearly two times that of the restaurant industry average. Further investigation indicates that most of these injuries resulted from cutting meat prior to or after the barbeque process. A review of the U. S. Department of Labor statistics reveals the following highest injury rate industries for this year and last. Accident Rate per Thousand Employees This Last (in thousands) Year Year Meat-packing plants 147.2 36.6 30.3 Ship-building and repairing 102.5 32.7 27.4 Steel foundries 26.6 26.4 26.4 Mobile homes 68.0 24.3 26.2 Automotive stamping117.7 23.8 23.2 Restaurants 250.0 16.1 16.6 1. What type of information would you want to see from Mr. Betz before you offer to sell him a workers’ compensation policy from your company? 2. Do you believe Mr. Betz’s restaurants should pay the same amount for workers’ compensation coverage as other restaurants, or should he be charged rates consistent with those in the meat-packing industry?

160 Chapter 6 Managing Insurance INTERNATIONAL SNAPSHOT Hotels Operating Internationally Need to Think Globally about Their Insurance Programs Due to a number of factors, international insurance issues typically lag behind the U.S. insurance market by several years. These factors include: Less litigious claims environment Lower claims counts Absence of punitive damages Social environment, as respects claims Because of this, international insurance pricing has remained lower than that in the U.S. insurance market. Quite often, this has led multinational hotel chains to place more emphasis on claims and risk control in the United States. Most hotels, especially those chains with large properties, are fairly adept at the basics of risk management that will allow them to control claims costs, minimize litigation potential, and maximize safety and risk mitigation. Too often, these concepts are not pushed out to the overseas locations on a consistent basis due to cost or internal operational hurdles. Meanwhile, as the hotel industry was focused on the tight insurance market in the United States, the international insurance market and global legal climate changed in ways that are critical to the way a hotel operates. Over the past five years, the international insurance industry has started to drive the development of more sophisticated risk management programs throughout the world through market selection and pricing. The increasingly tight and limited international insurance capacity for both property and casualty lines is going to force multinational hotel chains to take more risk and to manage that risk in more countries. WHY IS THIS HAPPENING? A number of changes within the global insurance market and global legal climate are forcing underwriters and hotels alike to reexamine international insurance: Market capacity: Because hotels have traditionally been loss leaders in the insurance marketplace, there have always been a fairly small number of insurance carriers that are willing to look at a hospitality risk. Additionally, in the past five years, numerous insurance companies that have done multinational programs have left the market—Kemper, Royal US, and others. More international carriers have moved away from doing hospitality risks at all. This puts fewer markets in play for a hotel risk and forces pricing and selectivity up. Legal changes: The world legal climate still remains well behind the litigious environment in the United States. However, there have been significant increases in “claims awareness” in a number of countries. While the systems are not as developed, they are nevertheless making large strides and increasing claims for the hospitality industry. There is also a growth of global case law—that is, legal decisions in countries such as Australia have cited California case law. Claims counts: Around the world, we are seeing sharp increases in the claims counts being recorded on hospitality business. Since underwriting pricing is traditionally much lower on international accounts, as compared to U.S. accounts, this increase will put an immediate strain on insurer profitability and insured’s costs.

Policy Analysis 161 Social change: More and more, we are becoming a global economy. People travel the world and expect the legal system to keep up with them—not the other way around. Legislation such as the European Union’s Tour Operators Liability is globally focused. Hotels need to protect every location they have in every country of the world, not just those where the claims occur. WHAT SHOULD BE DONE? Hospitality companies need to start managing the risk worldwide more aggressively than ever before. The basics of risk management need to be adhered to by all locations. Additional strategies would include: Claims and litigation management: Hotel chains should settle claims worldwide in the same manner, whether they are self-insured or not. A claim settled in Germany should be settled in the same manner as a claim in California. This will allow a hotel to create precedent in a lawsuit situation, not be surprised by it. Program management: Many international programs stand alone from a domestic program and may or may not require participation from all locations. This should be managed very closely: as carriers fail or exit the hospitality business, it will be much harder to be reactive to a program change than be proactive to it. Brand-name protection: All locations bearing the company name should be required to carry the same levels of insurance or carry a documented exception. All franchises should be required to carry U.S. suits no matter where they are in the world. Since that is not available in most countries, they should be required to purchase this as part of a program that the parent company sponsors. As lawsuits go global, companies need to ensure that the brand is protected in any court in the world. Information management: The key to underwriting and managing insurance risk is information flow. Standardize the forms for information on property and liability risks. Enforce the forms and collect them annually. While this is an administrative burden, it is critical to managing the insurances. Insurance programs should help a hotel manage their risk. Historically, most international hotels have used insurance as a reason not to manage their risk, since it did not cost them to have claims. As the changes evolve, a hotel chain must be a step ahead of its carrier to allow it to control its own insurance destiny. Provided by Elizabeth Francy Demaret, Managing Director, Worldwide Risk Services Group, Arthur J. Gallagher & Co. in Itasca, IL. www.ajg.com.

THE HOSPITALITY INDUSTRY IN COURT To review a case that involves the distinction between furniture and permanent fixtures, as discussed in Chapter 4, “Legally Managing Property,” and to learn how insurance policies are closely analyzed by the courts when there is a dispute, consider the case of Prytania Park Hotel v. General Star Indem., 179 F.3d 169 (5th Cir. 1999). FACTUAL SUMMARY The Prytania Park Hotel (Prytania) in New Orleans, Louisiana, was heavily damaged by a fire in one of the hotel buildings. The guestrooms in the hotel contained custom-made furniture, which was attached by screws and bolts to the walls of the rooms. A significant amount of the furniture was destroyed by the fire. The owners of the Prytania submitted a claim to General Star Indemnity Company (General Star), the insurer of the hotel. The insurance policy for the Prytania covered loss or damage to the building, loss or damage to business personal property, and loss of business income resulting from business interruption. The provision in the policy for loss or damage to the building included permanently installed fixtures, machinery, and equipment. Prytania was entitled to the full replacement value of permanently installed items under the terms of the policy. The business personal property provision in the policy included furniture and fixtures, and limited the amount of a claim to the actual cash value of items lost or destroyed. The owners of the Prytania submitted a building claim to General Star for $276,687.96. This amount included the damaged hotel building and all the hotel furniture at full replacement value. A contents claim was also submitted in the amount of $85,888.10, covering business personal property, but not the hotel furniture. Prytania also submitted a claim $75,000.00 for loss of income. General Star adjusted the claims and paid $186,448.47 on the building claim, which did not include compensation for furniture; $68,273.93 on the contents claim; and $34, 988.00 for loss of business income. The owners of the Prytania sued General Star to recover the unpaid portions of the claims. QUESTION FOR THE COURT The question for the court concerned the definition of permanently installed fixtures under the building provision and furniture and fixtures under the business personal property provision. Prytania argued the hotel furniture was permanently installed fixtures since removal from the walls would cause considerable damage to the furniture and walls. Prytania also argued the room furnishings were permanently installed fixtures based on the dictionary definition of each word. Since the owners intended the furniture to stay in one place and it had been secured to the wall, they argued it was permanently installed. General Star argued the hotel furniture was clearly covered under the business personal property provision since the word “furniture” was used there and not in the building provision. Additionally General Star offered evidence showing removal of the furniture would cause no damage to either the furniture or the room. DECISION The court held the guestroom furniture was not permanently installed fixtures under the building provision of the policy. The furniture was covered under the business personal property provision since furniture was explicitly listed under the category. The court also found the furniture was not permanently attached since removal was possible without damage to the room walls or furniture. MESSAGE TO MANAGEMENT In insurance policies, leases, and other legal documents, it pays to clearly describe personal property, fixtures, and real property. 162 Chapter 6 Managing Insurance

Policy Analysis 163 WHAT DID YOU LEARN IN THIS CHAPTER? Insurance is a valuable tool to help protect a business and its owners from financial loss. There are many different types of insurance coverage, including property/casualty, liability, health/life, and that for injuries to workers. Not all insurance companies are the same, so an owner/operator should research a company’s reputation, claims-paying record, and financial strength prior to purchasing the needed coverage for the business. A thorough understanding of the terms used in the insurance industry—such as primary, umbrella, exclusions, and exceptions—is crucial for an owner/operator to make informed decisions about coverage and pricing. RAPID REVIEW After you have studied this chapter, you should be prepared to: 1. Describe the importance of mathematics and statistics to the insurance industry. 2. Identify at least five types of insurance that would be needed by a nightclub or bar owner, and discuss the importance of each. 3. Assess the pros and cons of self-insurance in the area of workers’ compensation. 4. Use the Internet to find a company that will likely provide liability coverage for your new hotel. Assume the hotel is to be built in Berlin, Germany, and that your company requires a minimum of an AA Standard & Poor’s financialstrength rating. 5. Assess the legal climate today, then determine the amount of umbrella coverage your hospitality company would need to defend itself against a wrongful death suit brought about by Dram Shop legislation. Assume you have $1 million in primary coverage. Be prepared to discuss the factors that influenced your decision. 6. Describe the function and limitations of a face sheet, or declaration page. 7. Develop a checklist for purchasing insurance, beginning with the recognition of the need for insurance to the evaluation of the face sheet and actual policy. 8. Describe, in detail, an example of both an exclusion and an exception that might be in effect with a workers’ compensation policy at a hospitality operation where you have worked. TEAM ACTIVITY In teams, identify and evaluate Internet sites that would enable a prospective purchaser of insurance to discover information about various types of insurance coverage, the financial status of the companies offering the coverage, and the cost for the coverage. Present to the class the top three sites, and describe why your team selected them (e.g., scope and depth of information, ease of navigation, etc.).

Chapter 7 Legally Selecting Employees 7.1 EMPLOYEE SELECTION Job Descriptions Job Qualifications Applicant Screening 7.2 DISCRIMINATION IN THE SELECTION PROCESS Civil Rights Act of 1964, Title VII Americans with Disabilities Act Age Discrimination in Employment Act 7.3 VERIFICATION OF ELIGIBILITY TO WORK Immigration Reform and Control Act Fair Labor Standards Act of 1938 7.4 THE EMPLOYMENT RELATIONSHIP At-Will Employment Labor Unions and Collective Bargaining

166 Chapter 7 Legally Selecting Employees “Okay Laura,” said Trisha Sangus brightly. “Where are we on the hiring of the new sales manager?” Laura O’Leary, the director of sales and marketing at Trisha’s hotel, was very pleased. Three weeks ago, she had successfully presented the hotel’s owners with a proposal to expand the nine-member sales staff to ten, and the owners had accepted her recommendation. Now, Laura was heading the search for just the right candidate. It was important to Trisha that the selection of a candidate for the new sales position go smoothly, and with some speed, because she wanted to demonstrate to the owners that their decision had been a good one. Trisha had discussed the new position with Laura at great length. The city was becoming a popular destination for several association meetings and annual conventions. While the hotel had ample meeting and banquet facilities, this new market had gone virtually untapped. Trisha was convinced that the right person and the right strategy could make a huge difference in the number of rooms and meetings booked. The result on the hotel’s bottom line could be significant as well. “I know you have held some interviews,” said Trisha. “I’d like to review the resumes of your three finalists.” Laura gave Trisha the file containing the resumes. “We have three candidates who meet the criteria we established,” Laura explained. “Each is very different from the other, and each has strengths and weaknesses. On the whole, I’m very pleased with our choices.” Trisha rapidly scanned the resumes, along with the notes that Laura had taken during the candidates’ interviews. She, Laura, and Michael Pinnard, the new human resources director, had come up with several important interview questions for this particular search. Strengths Limitations Candidate One: Beverly Four-year degree in HRI First position in sales from State University Candidate Two: Pat Five years’ hotel sales Outside responsibilities experience Professional appearance Candidate Three: Leon Two-year associate’s degree Limited computer skills Two years’ hotel sales experience “I haven’t ranked the candidates in order of preference, but I would like you to see candidates number one and three,” said Laura. “I think either one could do a great job.” “I’m curious about your comments on candidate two,” said Trisha. “I understand the strength, but help me be clear on the weaknesses. Let’s start with the ‘outside responsibilities.’” “Well,” Laura began, “it has to do with children.” She paused. “I know what you are thinking,” said Laura, as she watched Trisha arch an eyebrow in response to her comment. “We certainly didn’t ask Pat if she was married or had children. But when we asked her about the ability to work past five o’clock, she replied that she had four children at home, ranging from 8 to 14 years old, and that, given advanced notice, arranging for child care was certainly possible.” Laura looked earnestly at Trisha Sangus, then continued, “You know Trisha,” said Laura, “we don’t always know when our staff will have to work late. Site tours can pop up anytime. And client dinners can drag on and on. I told the candidate that sometimes we knew ahead of time and sometimes we did not. I was just being honest.” Trisha was well aware of the hours involved in hotel sales. She had spent four years as a director of sales and marketing. She adjusted the rim of her glasses, and carefully reviewed Pat’s resume. “Laura,” she began, “now help me understand the professional appearance comment.” “Well,” Laura said, “you know how you stress that we should be professional-looking at all times?” Trisha smiled slightly. She knew that she was perceived in the hotel as a stickler for detail. Staff uniforms were required to be pressed and clean, and nametags had to be fastened straight, and Trisha’s reaction in the staff meeting when a junior manager proposed “casual Friday” for the hotel’s administrative staff was still talked about. In short, Trisha expected management personnel to look sharp at all times. “Well,” Laura continued, “ this candidate wore no makeup at all—no nail polish, no lipstick, not even a little blush! I think our customers expect a higher level of sophistication than that.” Trisha looked at Laura. There was no doubt that wellgroomed Laura did in fact present the appearance Trisha had come to associate with a professional salesperson. At times like this, Trisha thought, it was nice to have a human resources director in the hotel who was both knowledgeable and a good communicator, so she called him. “Michael,” she said, as the human resources director picked up the telephone, “can you step in here for a minute? And bring your calendar. I think Laura will want to schedule some information sessions for her and her staff. And I want to schedule three interviews.”

Employee Selection 167 7.1 EMPLOYEE SELECTION Legally selecting and managing a staff can be a very challenging task in today’s complex world of laws and regulations. Some managers, especially those with many years of experience, believe that finding, maintaining, and retaining a qualified, service-oriented staff is every manager’s most difficult task. It is true that the challenges of managing people are generally greater than those involved in managing technologies or products. People are complex and are affected by so many nonwork-related issues that you will find it both difficult and rewarding to be a leader to your staff. The law is very specific regarding what you, as an employer, can and cannot do as you secure your workforce. Both you and your workers have rights that affect the employment relationship. In the next two chapters, we’ll look at how to select and manage employees in accordance with the law. As an employer, you will have wide latitude in selecting those individuals whom you feel would best benefit your business. However, it is critical that you develop an employee selection procedure that ensures fairness and compliance with the law (to avoid the risk of a discrimination lawsuit), while also allowing you to hire the best possible candidate for the job. One tool that managers use to make good hiring decisions is the job description, which they then use as a basis for establishing a list of job qualifications that each candidate should possess. Job Descriptions Before an employee can be selected to fill a vacant position, management must have a thorough understanding of the essential functions that the employee will need to perform. These are contained in the job description. Legally, only those tasks that are necessary to effectively carry out the responsibilities and perform the tasks required in the job should be used in the description. Job descriptions need not be long. In most cases, a single typewritten page or two will be sufficient to detail the information that makes up the body of a job description. Figure 7.1 is a sample of a job description used in the hospitality industry. The description includes the job title, reporting relationship, tasks, and competencies required for the job. The job description serves a dual role. It is important from an operational perspective in that it helps supervisors and the human resources department keep track of the changing responsibilities of workers. However, it is also important from a legal perspective in that it may need to be produced in court to demonstrate that an employer fairly established the requirements of a job prior to selecting the candidates to fill those jobs. 1. To utilize job descriptions, qualifications, and other tools for legally selecting employees. 2. To avoid charges of discrimination by knowing the classes of workers that are protected under the law. 3. To understand the procedure for verifying the work eligibility of potential employees before offering them employment. 4. To distinguish the rights of both employers and employees under the AtWill Employment doctrine. 5. To understand the concept of collective bargaining and the legal obligations when interacting with labor unions. IN THIS CHAPTER, YOU WILL LEARN: LEGALESE Job description: A written, itemized listing of a specific job’s basic responsibilities and reporting relationships. LEGALESE Job qualifications: The knowledge or skill(s) required to perform the responsibilities and tasks listed in a job description.

168 Chapter 7 Legally Selecting Employees If you review Figure 7.1 carefully, you will see that the job description does not mention the physical or mental abilities required to perform the job. The role of the job description is to define the job itself, while the role of the job qualification is to define the personal attributes required to satisfactorily perform the job. Job Qualifications Once you know exactly what kinds of tasks employees must perform in a given job, it is possible to create a list of the skills or knowledge they must possess in order to successfully perform those tasks. These skills should be written down and attached to the job description. If a potential job candidate is not selected for employment, and later elects to bring legal action against you, it will be critical that you can show how each component of your job qualification list is driven by, or logically flows from, the job description. Figure 7.1 Sample job description.

Employee Selection 169 Job qualifications can consist of both physical and mental requirements. It is important to remember that the job qualifications list must not violate the law nor include any characteristics that would unfairly prevent a class of workers from successfully competing for the position. If, for example, a hotel groundskeeper listed a height of 6 feet as a job qualification for a grass-cutter, that qualification would be considered inappropriate, because there are minority groups that would have difficulty meeting it. The courts might interpret this job qualification as one that unfairly limits the potential for a minority candidate to secure the job. Even though the groundskeeper might be able to show that the tools normally used by the groundskeeping employees were located on shelves most easily reached by those who were 6 feet tall or taller, it is highly unlikely that this occupational qualification could stand up under the scrutiny of the courts, unless the groundskeeper could prove that a height of 6 feet was a bona fide occupational qualification (BFOQ). To establish that a qualification is, in fact, a bona fide occupational qualification, you must prove that a class of employees would be unable to perform the job safely or adequately, and that the bona fide occupational qualification is reasonably necessary to the operation of the business. In the case of the groundskeeper, simply moving the tools or making the reasonable accommodation of providing a short ladder would open the job to candidates of any height, and probably would prevent a discrimination lawsuit. The following types of qualifications are examples that are appropriate in jobs where knowledge or skill is a necessary requirement of the job: Physical attributes necessary to complete the duties of the job, such as the ability to lift a specific amount of weight Education Certifications Registrations Licensing Language skills Knowledge of equipment operation Previous experience Minimum age requirements, (for serving alcohol or working certain hours) ANALYZE THE SITUATION 7.1 Cruz Villaraigosa owns and manages The Cruz Cantina, a lively bar and dance club that serves Cuban and other Caribbean-style cuisine. The club has a dance floor, has small tables, and serves outstanding food. Cruz’s clientele consists mainly of 20- to 40-year-old males, who frequent the Cantina for its good food, as well as the extremely low-cut, Spanish-style blouses worn by the young female servers who bring the food and drinks to the tables. The Cruz Cantina advertises to women and families, as well as to young men, but the reputation of the facility is predicated upon the physical attractiveness of the women whom Cruz has hired to serve the guests, and the uniforms these servers wear. Cruz employs women and men of all races and nationalities, but all food and drink servers are female. When Cruz elects not to hire a young man for a job as a server, Cruz is contacted by the young man’s attorney. The attorney alleges the young man has been illegally denied a server’s job at the Cantina because of his gender, and that sex cannot be a bona fide occupational qualification for a food and beverage server position. Cruz replies that her operation employs both men and women, but that one necessary job qualification for all servers is that they be “attractive to men,” and that the qualification of “attractiveness to men” is a legitimate one, give the importance of maintaining the successful image, atmosphere, and resulting business the Cantina enjoys. She maintains that the servers not only serve food and beverages, but also play a role in advertising and marketing the unique features of the Cantina. Cruz also maintains that attractiveness is indeed an occupa-  LEGALESE Bona fide occupational qualification: A job qualification, established in good faith and fairness, that is necessary to safely or adequately perform the job.

170 Chapter 7 Legally Selecting Employees Applicant Screening When choosing potential applicants for employment, hospitality managers generally utilize some or all of the five major selection devices. These are: 1. Applications 2. Interviews 3. Testing 4. Background checks 5. References Applications The employment application is a document completed by the candidate for employment. It will generally list the name, address, work experience, and related information of the candidate. The requirements for a legitimate, legally sound application are many; however, in general, the questions should focus exclusively on job qualifications and nothing else. Most hospitality companies will have their employment application reviewed by an attorney who specializes in employment law. If, as a manager, you are responsible for developing your own application, it is a good idea to have the document reviewed by a legal specialist prior to its utilization. It is important that each employment candidate for a given position be required to fill out an identical application, and that an application be on file for each candidate who is ultimately selected for the position. Figure 7.2 is a sample of a legally sound employment application used by the Four Seasons Hotel, Houston. Note, specifically, how the questions are related to previous work history and job qualifications. Interviews From the employment applications or resumes submitted, some candidates will be selected for the interview process. It is important to realize that the types of questions that can be asked in the interview are highly restricted, because job interviews, if improperly performed, can subject an employer to legal liability. If a candidate is not hired based on his or her answer to—or refusal to answer—an inappropriate question, that candidate has the right to file a lawsuit. The Equal Employment Opportunity Commission (EEOC) suggests that an employer consider the following three questions in deciding whether to include a particular question on an employment application or in a job interview: Does this question tend to screen out minorities or females? Is the answer needed in order to judge this individual’s competence for performance of the job? Are there alternative, nondiscriminatory ways to judge the person’s qualifications? tional characteristic that she can use to promote her facility, citing modeling agencies and TV casting agents as examples of employers who routinely use attractiveness as a means of selecting employees. Cruz states that her right to choose employees she feels will best benefit her business is unconditional, as long as she does not unfairly discriminate against a protected class of workers. 1. Do you think that the requirement that servers be “attractive to males” is a bona fide occupational requirement, and “necessary” for the continued successful operation of The Cruz Cantina? 2. If you were on a jury, would you allow Cruz to hire female servers exclusively, if she so desired? Why or why not? 3. What damages, if any, do you feel the male job applicant not selected for employment at the Cantina would be entitled to? 

Employee Selection 171 Figure 7.2 Employment application from the Four Seasons Hotel, Houston. (Reprinted with permission.)

172 Figure 7.2 (Continued)

Employee Selection 173 As a manager, you must be very careful in your selection of questions to ask in an interview. In all cases, it is important to remember that the job itself dictates what is an allowable question. Questions should be written down and followed. In addition, supervisors, co-workers, and others who may participate in the interview process should be trained to avoid questions that could increase the liability of the facility. Generally, age is considered to be irrelevant in most hiring decisions, therefore, date-of-birth questions are improper. Age is a sensitive preemployment question, because the Age Discrimination in Employment Act protects employees 40 years old and older. It is permissible to ask an applicant to state his or her age if he or she is younger than 18 years old because that age group is permitted to work only a limited number of hours each week. It is also important when hiring bartenders and other servers of alcohol, who must be above a state’s minimum age for serving alcohol. Race, religion, and national origin questions are also inappropriate, as is the practice of requiring that photographs of the candidate be submitted prior to or after an interview. Questions about physical traits such as height and weight requirements have been found to violate the law because they eliminated disproportionate numbers of female, Asian-American, and Spanish-surnamed applicants. If a job does not require a particular level of education, it is improper to ask questions about an applicant’s educational background. Applicants can be asked about their education and credentials if these are indeed bona fide occupational qualifications. Certainly, it is allowable to ask a potential hotel controller if he or she has a degree in accounting and which school granted that degree. Asking a potential table busser for the same information would be inappropriate. It is permissible to ask an applicant if he or she uses drugs or smokes. It is also allowable to ask a candidate if he or she is willing to submit to a voluntary drug test as a condition of employment. Questions concerning whether an applicant owns a home potentially discriminate against those individuals who do not own their own homes. Questions concerning the type of discharge received by an ex-military applicant are improper, because a high proportion of other than honorable discharges are given to minorities. Safe questions can be asked about a candidate’s present employment, former employment, and job references. In most cases, questions asked on both the application and in the interview should focus on the applicant’s job skills, and nothing else. Figure 7.3 contains some guidelines, developed by the EEOC, for asking appropriate interview questions. Preemployment Testing Preemployment testing is a common way to improve the employee screening process. Test results can be used, for example, to measure the relative strength of two candidates. In the hospitality industry, preemployment testing will generally fall into one of the following categories: Skills tests Psychological tests Drug screening tests Skills tests were among the first tools used by managers to screen applicants in the employment process. In the hospitality industry, skills tests can include activities such as typing tests for office workers, computer application tests for those who use word processing or spreadsheet tools, or food production tasks to test culinary artists.

174 Figure 7.3 Guidelines for conducting a job interview. (Source: Supervision in the Hospitality Industry, Fourth Edition, by Jack E. Miller, John R. Walker, Karen Eich Drummond, Copyright 2002, John Wiley & Sons, Inc.; used by permission.)

Employee Selection 175 Psychological testing can include personality tests, tests designed to predict performance, or tests of mental ability. For both skills tests and psychological tests, the important rule to remember is this: If the test does not have documented validity and reliability, the results of the tests should not be used for hiring decisions. Preemployment drug testing is allowable in most states, and can be a very effective tool for reducing insurance rates and potential worker liability issues. A drug-free environment tends to attract better-quality employment candidates, with the resulting impact of a higher-quality workforce. There are, however, strict guidelines in some states as to when and how people can be tested. A document with language similar to that found in Figure 7.4 should be completed by each candidate prior to drug testing, and the signed document should be kept on file with the employee’s application form. If preemployment drug testing is to be used, care must be taken to ensure the accuracy of the testing. In some cases, applicants whose erroneous test results have cost them a job have successfully sued the employer. The laws surrounding mandatory drug testing are complex. If you elect to implement either a preemployment or postemployment drug-testing program, it is best to first seek advice from an attorney who specializes in labor employment law in your state. Background Checks Increasingly, hospitality employers are utilizing background checks prior to hiring workers in selected positions. It has been estimated that as many as 30 percent of all resumes and employment applications include some level of falsification. Because this is true, employers are spending more time and financial resources to validate information supplied by a potential employee. Common verification points include the following: Name Social Security number Address history Education/training Criminal background Credit reports Background checks, like preemployment testing, can leave an employer subject to litigation, if the information secured during a check is false or is used in a way that violates employment law. In addition, if the information is impropFigure 7.4 Employee consent form for drug testing. (Adapted from Foodservice Safety and Security Managers Handbook, by the National Restaurant Association Educational Foundation. Reprinted with permission.)

176 Chapter 7 Legally Selecting Employees erly disclosed to third parties, it could violate the employee’s right to privacy. Not conducting background checks on some positions can, however, subject the employer to potential litigation under the doctrine of negligent hiring. Consider the case of Holly Rosecrans. Ms. Rosecrans is the assistant general manager of a country club in Florida. One of her responsibilities is the selection and training of pool lifeguards, which are required in her facility by local statute. Each lifeguard must be certified in cardiopulmonary resuscitation (CPR). Ms. Rosecrans interviews a candidate who lists the successful completion of a CPR course as part of his educational background. If Ms. Rosecrans does not verify the accuracy of the candidate’s statement, and if a death results because the lifeguard did not have CPR training, the club might well be held liable for the death of the swimmer. Using background checks as a screening tool does involve some risk, as well as some responsibility. Employers should search only for information that has a direct bearing on the position a candidate is applying for. In addition, if a candidate is denied employment on the basis of information found in a background check, the employer should provide a candidate with a copy of that report. Sometimes, candidates can help verify or explain the content of their own background checks. Reporting agencies can make mistakes, and if you rely on obviously false information to make a hiring decision, it may put your organization at risk. In all cases, a candidate for employment should be required to sign a consent form, authorizing an employer to conduct a background check. Figure 7.5 is a sample consent form that could be used to document this authorization. References In the past, employment references were a very popular tool for managers to use in the screening process. But in today’s litigious society they are much more difficult to obtain. While many organizations still seek information from past employers about an employee’s previous work performance, few sophisticated companies will divulge such information. It is important to note that some employers have been held liable for inaccurate comments that have been made about past employees. In addition, there are companies that specialize in providing job searchers with a confidential, comprehensive verification of employment refer- LEGALESE Negligent hiring: Failure on the part of an employer to exercise reasonable care in the selection of employees. Figure 7.5 Employee consent form for background checks. (Adapted from Foodservice Safety and Security Managers Handbook, by the National Restaurant Association Educational Foundation. Reprinted with permission.)

Employee Selection 177 ences from former employers. Thus, employers are becoming more cautious about supplying information on employees who have left their organization. To help minimize the risk of litigation related to reference checks, it is best to secure the applicant’s permission in writing before contacting an ex-employer. Employers must be extremely cautious in both giving and receiving reference information. Employers are usually protected if they give a truthful reference; however, that does not mean these employers will be spared the expense of defending a defamation case brought by an ex-employee. If, for example, an employer giving a reference states that an ex-employee was terminated because he or she “didn’t get along” with his or her co-workers, the employer may well have to be able to prove the truthfulness of the statement, as well as show proof that all of the blame for the difficulties were the responsibility of the ex-employee. To minimize the risk of a lawsuit, you should never reply to a request for information about one of your ex-employees without a copy of that employee’s signed release authorizing the reference check. How much you choose to disclose about an ex-employee is your decision; however, your answers should be honest and defendable. Also, it is best never to disclose personal information such as marital difficulties, financial problems, or serious illness, because you could be sued for invasion of privacy. Many employers today give only the following information about past employees: Employer’s name Ex-employer’s name Date(s) of employment Job title Name and title of person supplying the information If a prospective employee provides letters of reference, always call the authors of reference letters to ensure that they did in fact write them. When possible, it is best to put any request for reference information in writing, and ask that the response be in written form. If a verbal response is all you can get, document the conversation; write down as much of the dialogue as possible, including the name of the party you spoke to and the date and time the contact occurred. Even with authorization, many employers are reluctant to give out information about former employees. If this happens, simply ask if the company would rehire that worker. The response to that question, combined with the information received from other employers, should help to determine the accuracy of the information given by the applicant. The selection of the right employee for the right job is a specialized area of human resources, and the hospitality manager will often be able to rely on a human resources department or personnel director for assistance when undertaking this important task. For the independent entrepreneur, it is critical that the entire employee selection process be reviewed by an expert in employment law and continually monitored for compliance with established procedures. Wording of Classified Advertisements One final aspect of employee selection that you must be aware of involves the wording of classified ads that you might place in newspapers or journals when announcing a job opening. As with job descriptions and qualifications, it is important that the terms you use in a classified ad do not exclude or discriminate against individuals. Federal law prohibits the use of words or phrases that might prevent certain types of people from applying for an advertised position. Phrases to avoid include references to age (“ages 20 to 30”), sex (“men” or “women”), national origin, and religion. There are a limited number of cases where a bona fide job qualification might limit the type of person who could apply, and that can be mentioned. In general, however, employers should focus their classified ads on a description of the job and any applicable educational, licensing, or background requirements needed. LEGALESE Defamation: False statements that cause someone to be held in contempt, lowered in the estimation of the community, or to lose employment status or earnings or otherwise suffer a damaged reputation.

178 Chapter 7 Legally Selecting Employees 7.2 DISCRIMINATION IN THE SELECTION PROCESS Although employers are free to hire employees as they see fit, they are not free to unlawfully discriminate against people in their employment selection. Employment discrimination laws have been established to protect certain classes of people from unfair or exclusionary hiring practices. The Fifth and Fourteenth Amendments of the United States Constitution limit the power of the federal and state governments to discriminate. The Fifth Amendment has an explicit requirement that the federal government not deprive any individual of “life, liberty, or property,” without the due process of the law. Though discrimination by employers in the private sector is not directly addressed in the Constitution, it has become subject to a growing body of federal and state laws, which were passed in recognition of the personal freedoms guaranteed by the Constitution. Although many antidiscrimination statutes affect employee selection, the three most significant are: Civil Rights Act of 1964; Title VII Americans with Disabilities Act; Title I Age Discrimination in Employment Act Civil Rights Act of 1964, Title VII Title VII of the Civil Rights Act of 1964, and its resulting amendments, applies to employers with 15 or more employees, and who are engaged in interstate commerce. Figure 7.6 presents the original language of the bill that relates to employee selection. The act prohibits discrimination based on race, color, religion, sex, or national origin; sex includes pregnancy, childbirth, or related medical conditions. The act makes it illegal for employers to discriminate in hiring and in setting the terms and conditions of employment. Labor organizations are also prohibited from basing membership or union classifications on race, color, religion, sex, or national origin. The law also prohibits employers from retaliating against employees or candidates who file charges of discrimination against them, who refuse to comply with a discriminatory policy, or who participate in an investigation of discrimination charges against the employer. One outcome of the Civil Rights Act was the formation of the Equal Employment Opportunity Commission, which oversees and enforces federal laws regulating employer/employee relationships. The EEOC investigates complaints by employees who think they have been discriminated against. Businesses that are found to have discriminated can be ordered to compensate the employee(s) for damages such as lost wages, attorney fees, and punitive damages. In later amendments, the Civil Rights Act was expanded to include affirmative action requirements. Affirmative action constitutes a good-faith effort by employees to address past and/or present discrimination through a variety of specific, results-oriented procedures. This is a step beyond equal opportunity laws like Title VII that simply ban discriminatory practices. State and local governments, agencies of the federal government, and federal contractors and subcontractors with contracts of $50,000 or more, including colleges and universities, are required by federal law to implement affirmative action programs. Employers have used a variety of techniques for implementing affirmative action plans. These include: Active recruiting to expand the pool of candidates for job openings. Revising the selection tools and criteria to ensure their relevance to job performance. Establishing goals and timetables for hiring underrepresented groups. LEGALESE Interstate commerce: Commercial trading or the transportation of persons or property between or among states. LEGALESE Affirmative action: A federally mandated requirement that employers who meet certain criteria must actively seek to fairly employ recognized classes of workers. (Some state and local legislatures have also enacted affirmative action requirements.)

Discrimination in the Selection Process 179 Originally, affirmative action activities were intended to correct discrimination in the hiring and promotion of African-Americans and other people of color. Now, affirmative action protections are being applied to women, and some government jurisdictions have extended affirmative action provisions to older people, the disabled, and Vietnam-era veterans. The goal of affirmative action is to broaden the pool of candidates and encourage hiring based on sound, job-related criteria. The result is a workforce with greater diversity and potential for all. In addition to the federal Civil Rights Act, many states also have their own civil rights laws, which prohibit discrimination. Sometimes, the state laws are more inclusive than the Civil Rights Act, in that they expand protection to workers or employment candidates in categories not covered under the federal Civil Rights Act, such as age, marital status, sexual orientation, and certain types of physical or mental disabilities. State civil rights laws may also have stricter penalties for violations, including fines and/or jail time. As a hospitality manager, you should know the provisions of your state’s civil rights law. Figure 7.6 Excerpt from the Civil Rights Act of 1964. ANALYZE THE SITUATION 7.2 Jetta Wong is the owner and manager of the Golden Dragon oriental restaurant. The restaurant is large, inexpensive, an enjoys and excellent reputation. Business is good, and the restaurant serves a diverse clientele. Ms. Wong places a classified ad for the table busser in the employment section of her local newspaper. The response is good, and Ms. Wong narrows the field of potential candidates 

180 Chapter 7 Legally Selecting Employees Americans with Disabilities Act On July 26, 1990, the Americans with Disabilities Act (ADA) was enacted. The ADA prohibits discrimination against people with disabilities in the areas of public accommodations, transportation, telecommunications, and employment. The ADA is a five-part piece of legislation; Title I focuses primarily on employment. There are three different groups of individuals who are protected under the ADA: An individual with a physical or mental impairment that substantially limits a major life activity. Some examples of what constitutes a “major life activity” under the act are: seeing, hearing, talking, walking, reading, learning, breathing, taking care of oneself, lifting, sitting, and standing. A person who has a record of a disability. A person who is “regarded as” having a disability. Employers cannot reduce an employee’s pay simply because he or she is disabled, nor can they refuse to hire a disabled candidate if, with reasonable accommodation, it is possible for the candidate to perform the job. Employers are also required to post notices of the Americans with Disabilities Act and its provisions in a location where they can be seen by all employees. Even with the passage of the ADA, an employer does not have to hire a disabled applicant who is not qualified to do a job. The employer can still select the most qualified candidate, provided that no applicant was eliminated from consideration because of his or her qualified disability. Although the law in this area is changing rapidly, the following conditions, among others, currently meet the criteria for a qualified disability, and are protected under the ADA: AIDS Cancer Cerebral palsy Tuberculosis Heart disease Hearing or visual impairments Alcoholism Conditions that are not currently covered under ADA include: Kleptomania Disorders caused by the use of illegal drugs or two. One is the same ethnic background as Ms. Wong and the rest of the staff. The second candidate is Danielle Hidalgo, the daughter of a Mexican citizen and an American citizen. Ms. Hidalgo was born and raised in the United States. While both candidates are pleasant, Ms. Wong offers the position to the candidate who matches the background of the restaurant and Ms. Wong. Her rationale is that, since both candidates are equal in ability, she has a right to select the candidate she feels will best suit her business. Because it is an oriental restaurant, Ms. Wong feels diners will expect to see oriental servers and bussers. No one was discriminated against, she maintains, because Ms. Hidalgo was not denied a job on the basis of race, but rather on the basis of what was best for business. Ms. Wong simply selected her preference from among two equal candidates. Ms. Wong relates her decision to Ms. Hidalgo. Ms. Hidalgo maintains that she was not selected because of her Hispanic ethnic background. She threatens to file a charge with the EEOC unless she is offered employment. 1. Do you think Ms. Hidalgo was denied the position because of her ethnicity? 2. In the situation described here, does Ms. Wong have the right to consider race as a bona fide occupational qualification? 3. How should Ms. Wong advertise jobs in the future to avoid charges of discrimination? 

Discrimination in the Selection Process 181 Compulsive gambling Sexual behavior disorders The ADA has changed the way employers select employees. Questions on job applications and during interviews that cannot be asked include: Have you ever been hospitalized? Are you taking prescription drugs? Have you ever been treated for drug addiction or alcoholism? Have you ever filed a workers’ compensation insurance claim? Do you have any physical defects, disabilities, or impairments that may affect your performance in the position for which you are applying/ interviewing? In situations where a disabled person could perform the duties of a particular job, but some aspect of the job or work facility would prevent the applicant from doing so, the employer may be required to make a reasonable accommodation for the worker. An employer has provided reasonable accommodation when it has made existing facilities readily accessible to individuals with mobility impairments or other disabilities, and restructured a job in the most accommodating manner possible to allow a disabled individual to perform it. The employer is not obligated to provide a reasonable accommodation where such accommodation would result in undue hardship to the employer. Generally speaking, an undue hardship occurs when the expense of accommodating the worker is excessive or would disrupt the natural work environment. The law in this area is vague, thus any employer who maintains that accommodating a worker with a disability would impose an undue hardship should be prepared to document such an assertion. After investigation, the EEOC issues a “right to sue” letter to an employee if it concludes that an employer is in violation of the ADA. LEGALLY MANAGING AT WORK: Accommodating Disabled Employees To reduce the risk of an ADA noncompliance charge related to reasonable accommodation, follow these guidelines: 1. Can the applicant perform the essential functions of the job with or without reasonable accommodation? (You can ask the applicant this question.) If no, then he or she is not qualified and is therefore not protected by the ADA. If yes, go to question 2. 2. Is the necessary accommodation reasonable? To answer this question, ask yourself the following: Will this accommodation create an undue financial or administrative hardship on the business? If yes, you do not have to provide unreasonable accommodations. If no, go to question 3. 3. Will this accommodation or the hiring of the person with the disability create a direct threat to the health or safety of other employees or guests in the workplace? If yes, you are not required to make the accommodation and have fulfilled your obligation under the ADA.