Hospitality Trends: 10 Legal Challenges for Companies in 2023
1. Potential Down Market Pressures. Interest rate increases are driving up the cost of capital on both debt and equity, which we expect to persist in 2023 until the Fed indicates that it has achieved its terminal interest rate increase. With rate increases and increased return requirements, many deals will only pencil with adjusted asset values, which in turn contributes to market uncertainty. Review the results of our firm’s informal survey of the real estate market here, and learn more about the firm’s experience helping clients navigate turbulent markets.
2. Labor and Employment Issues. Hospitality companies, in particular owners and operators, are still struggling to bring staffing back to pre-pandemic levels. At the same time, there is increased labor activism and scrutiny by antitrust regulators of labor markets in the US. And on top of that, joint employer issues will remain at the forefront, as the National Labor Relations Board (NLRB) considers a revision to the Joint Employer rule, with the comment period having closed December 21, 2022. The new rule could greatly expand the scope of joint employer liability, including by allowing for a finding of joint employment where an entity merely reserves but does not use the right to exercise control over “essential terms and conditions of employment.” Read more about NLRB developments, including the potential impact on some franchise and management relationships.
3. Data Privacy Compliance. Regardless of the industry segment, time is running out to ensure that privacy policies comply with the latest laws. California and Virginia’s laws took effect January 1, 2023, and states like Colorado and Connecticut are next. Click here for an overview of these new requirements.
4. New Technology and Brand Protection Investment. The increased prevalence of new technology is making brand protection and meeting customer expectations increasingly complex, whether in the Metaverse, or using facial recognition or other AI services on properties. For more on managing risk while deploying new technology, see our guide for hospitality companies in the Metaverse and the latest on biometric risks and litigation.
5. ESG. In March 2021, the SEC proposed far-reaching climate-related disclosure rules for public companies that do business in the United States. Even without the final rule, we know that complying will be costly and complicated, and the risks of non-compliance will range from SEC enforcement to private lawsuits alleging “greenwashing” and “climate-washing.” Planning now can help ensure that sustainability efforts, like linen reuse programs, refillable amenities, auto dimming lights, local food sourcing, LEED certification, the installation of solar energy systems or the like, have maximum impact. Click here for more information on how to plan for ESG disclosures and their related risks, and check out our resources on marketing sustainability efforts.
6. Franchising Scrutiny. The last 18 months saw franchisee associations asking the FTC to investigate 11 major franchisors under Section 6(b) of the FTC Act, and advocating for the NASAA Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments. Some states are also reviewing their franchise laws. As emphasis on brand standards and pandemic-delayed property improvement plans (PIPs) increases, some systems could experience tension. As always, good communication between franchisors and franchisees, and early consultation with counsel if issues do arise, are wise preventative measures. For more on the firm’s franchise team, click here.
7. International Investment. While not a new issue, expropriation remains a serious risk in 2023 for investors in hotel properties located in foreign nations, and especially those that experience periodic political instability. Investors should consider carefully the structure of their investments with a view to minimizing the risks of expropriation under local law, including by avoiding or limiting direct capital investments, and considering, instead, the use of management agreements or joint ventures, among other approaches. In particular, careful consideration needs to be given to certain matters that are often overlooked or considered inconsequential in domestic contracts, such as choice of law provisions and dispute resolution mechanisms. Precise drafting of investment documents remains one of the important ways of providing protection for an overseas hotel investment. Learn more about the firm’s extensive experience with international investments and dispute resolution.
8. Consumer Class Actions. With jury trials resuming nationwide, many companies will face lawsuits in 2023 that they have avoided over the past couple of years. Last fall saw more filings of purported consumer class actions, in particular claims under the ADA, state consumer fraud statutes, data privacy and protection, and similar laws. Companies should review their data management and retention policies, and litigation service process, to ensure they are protected, despite any remote work arrangements in place. Look out for a full review of class action trends coming from the AFS Class Actions team in early 2023.
9. Intellectual Property Protection for New Offerings. Many hospitality companies are launching new brands to meet shifting demand in the post-pandemic travel environment. But new brands mean new intellectual property challenges, in the US and abroad, including trademark registrations, domain name disputes, and more complicated licensing arrangements. For more firm resources on brand protection, click here.
10. COVID-19 Restrictions. Although a COVID-19 public health emergency declaration will remain in effect nationwide through at least mid-January 2023, the strictest restrictions in the US have mostly been lifted and seem unlikely to return in full. However, some Middle Eastern and Asian countries have not yet fully re-opened, and progress toward allowing more international travel may be slowed if we see a significant rise in cases in those regions this winter. China, in particular, seems likely to face strong COVID-19 headwinds in early 2023, despite shifting policy there. For more on the status of US regulations, click here.
If you have questions about any of these issues or want to plan ahead, contact a member of the AFS Hospitality Industry team.
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