Mid-way through 2012, the Hotel Association of New York City and the New York Hotel & Motel Trades Council, AFL-CIO (the “Union”), renewed a seven-year collective bargaining agreement known as the Industry Wide Agreement, or IWA. While the IWA controls nearly all aspects of the employer-employee relationship for covered hospitality organizations, it does much more and can potentially bind the unsuspecting. One important part of the agreement which hospitality employers must heed is the “accretion clause,” which has the potential to bind non-signatory parties to the terms of the IWA. An already powerful document, the renewed IWA increased the reach of the accretion clause to not only signatory corporations and individuals, but also to related companies and entities. This can complicate an already multi-layered industry whose members often use third-parties to manage or operate their businesses—as well as potentially increase the labor costs exponentially for those businesses.

Two recent federal cases in New York demonstrate the potential effect the accretion clause can have. In Chelsea Grand, LLC v. N.Y. Hotel & Motel Trades Council, AFL-CIO, No. 07 Civ. 2614 (PAC) (S.D.N.Y. Sept. 29, 2014), Judge Paul Crotty in the Southern District of New York affirmed a 2008 arbitration which found that Chelsea Grand, LLC, which owns a Four Points by Sheraton hotel in Manhattan, was bound by certain terms of the IWA because it had hired a third-party company, Interstate Hotels & Resorts, which had pre-existing agreements with the Union, to manage the hotel. Chelsea Grand had argued that it could not be bound by the arbitration because it never consented to the IWA, and, further, Interstate Hotels & Resorts was not a joint employer of the Chelsea Grand employees. Judge Crotty did not find Chelsea Grand’s arguments availing, instead finding that the two entities were joint employers, and alternatively, that the third-party management company was an agent with authority to bind Chelsea Grand to the IWA.

Less than one month later, the ownership of 12 non-union hotels—members of the same family which owns the Chelsea Four Points—brought suit in response to the Union’s assertion of rights under the IWA to organize the labor in its non-union hotels. In Brooklyn Downtown Hotel LLC v. N.Y. Hotel & Motel Trades Council, AFL-CIO, No. 14-cv-6067 (E.D.N.Y.) (filed Oct. 16, 2014; Amended Complaint filed Nov. 7, 2014), plaintiffs claim that the Union is using the Chelsea Grand decision as a springboard to organize the 12 non-union hotels under the IWA—asserting that because Chelsea Grand was found a joint employer with the IWA signatory, all other hotels owned by Chelsea Grand—or any affiliates thereof—would also be bound by the IWA.

Plaintiffs’ Complaint states clearly the risk of this “‘viral’ theory of offer and acceptance”: if these hotels are bound by the IWA, then in turn any management company or third-party they hire could also become bound by the IWA, and again in turn, any client hotels of those third-parties could become party to the terms of the IWA—“and so on forever.” While it is unlikely that absent the joint employer or agency indicators present in the Chelsea Grand case each of these hotels will be brought under the IWA’s umbrella, the matter is still pending in front of Judge Glasser the Eastern District. We will keep you updated as the case develops.