The ruling represents the largest hotel-employee payout ever awarded in New York City, hotel owners and union representatives said. While the final amount of severance pay depends on a few factors, it is likely to be the biggest on record for any hotel-union group in the country, these people said.
The magnitude of the payments is heightening tensions between lodging owners and the hotel union as Covid-19 ravages New York’s hospitality business.
Corporate travel across the U.S. has collapsed, and after years of record tourism in New York City, visitors have dwindled. Broadway theaters are closed, and other attractions like museums and restaurants are operating at partial capacity.
Hotel owners say they have had to shut down operations throughout New York City, and even after they reopen, it might be years before their hotels can turn a profit. A number of New York hotel owners received federal assistance through the Paycheck Protection Program that helped them survive the early weeks of the pandemic, and some owners used part of those funds to support employees.
“Continuing health care in the context of a pandemic is a critical thing,” Rich Maroko, president of the Hotel Trades Council union, said in an interview. “These severance payments are a necessity for our hotel workers after the federal supplements ended last summer.”
New York City has more than 200 union-operated hotels. More than 75 property owners are on the hook for payments after the ruling by an arbitrator, agreed upon by the New York hotel owners’ trade association and the hotel union, say people familiar with the matter.
The value of the property owners’ payouts was based on worker seniority and included seven months of health benefits, according to the arbitrator’s September decision. Severance payouts would stop if an employee is rehired by the hotel.
Some hotel owners have already made their payments to members of the Hotel Trades Council, which represents nearly 40,000 hotel and casino workers in New York and New Jersey. Some owners will pay more by choosing to pay out over time through installments, and at least one is challenging the arbitrator’s decision in court.
New York City hotel-occupancy levels in October fell by more than half in comparison with the same month last year to less than 40%, according to hotel-data firm STR. October revenue per available room plummeted by about 80% to around $53, STR said.
Even those numbers don’t tell the full story, said Richard Born, a New York hotel owner with about two dozen properties. After excluding dozens of hotels rented by the city to house the homeless, the actual occupancy rate is closer to 10% and year-over-year revenue declines are approaching 90%, he said.
With further aid from Washington on hold, many New York hotel owners are giving up. Some of the city’s biggest hotels, including the Hilton Times Square and the Roosevelt Hotel with more than a thousand rooms, have said recently they are closing down permanently. As many as 25,000 rooms, or about 20% of New York’s total, might never reopen, analysts and hotel owners have said.
“Any hotel without access to capital will collapse over the next few months,” Mr. Born said. He is making severance payments but declined to discuss them.
Paul Rosenberg, a partner at law firm BakerHostetler, said the owner of the Renwick Hotel in Midtown Manhattan is appealing the decision in a U.S. District Court in New York. The owner is arguing that the ruling violates a collective-bargaining agreement that makes severance pay applicable only for permanent closings, not for shutdowns during the pandemic.
Mr. Rosenberg said the union’s payout could have long-term consequences for the industry, and ultimately lead to more permanent closings and loss of hotel jobs. “This is a really dangerous slope the union is going down,” he said.
Mr. Maroko disagreed. “Hotels are closed because there are no guests, not because of severance,” he said. “If anything, paying severance over time gives hotels an incentive to reopen so they can cease making [installment] payments.”
Separately, hotel owners and the union have been sparring over a New York City Council bill. The measure would require that hotel workers be kept on after a property sale, and it would extend certain protections currently afforded to unionized workers to all hotel employees.