by Hotel Development Guide – Darren Blanchard
Last Updated: November 2026
Under a hotel management agreement, hotel employees typically work under the operator’s direction while being legally employed by the owner or an owner-affiliated company. This separation affects staffing decisions, employment obligations and responsibility when something goes wrong. The management agreement should explain who employs the team, who manages it and which decisions require owner approval. For a developer, these arrangements influence both the operation of the hotel and the risks attached to the investment.
The operator needs sufficient authority to recruit, train and lead the hotel team. The owner should have a direct interest in senior appointments, employment costs and the commitments made on the hotel’s behalf. The agreement brings these interests together through appointment procedures, budget controls and defined management responsibilities. Those provisions need to work alongside the clauses allocating liability between the parties.
Staffing arrangements should also anticipate the hotel’s development and operating lifecycle. Recruitment creates costs before opening, outsourced services introduce additional commitments, and a change of operator can affect leadership and employment continuity. Senior executives may have different employment arrangements from the wider hotel team. A clear contractual framework helps the owner understand these relationships from the outset.
Hotel Employees Under a Hotel Management Agreement
Employment Structure and Daily Management
Who Employs the Hotel Team?
An owner-employed structure places hotel personnel with the owner or a designated employing company. The operator then exercises agreed authority over recruitment, training, supervision and personnel administration on that company’s behalf. Delegating these activities does not automatically remove the employer’s legal obligations. The management agreement should therefore identify the employing entity and define the operator’s authority.
The property owner, hotel operating company and employing company may be separate entities within the ownership structure. Their responsibilities should be reflected consistently in the management agreement and employment documentation. Referring simply to “the owner’s employees” can leave uncertainty where the relevant company has not been identified. The structure must also meet applicable local employment and regulatory requirements.
Operator-employed and Seconded Executives
A management agreement may allow the operator to employ or second the general manager and certain other executives while the remaining staff are employed by the owner’s company. This creates a mixed structure in which executives working together at the hotel may have different employers. Secondment arrangements require clarity over employment status, supervision, payment and the duration of the assignment. The contract should identify which positions can be treated this way and whether owner consent is required.
A typical hotel management agreement template may include provisions allowing the operator to employ or second specified executives while charging their salaries and related expenses to the hotel. The employment relationship and the financial responsibility can therefore sit with different parties. The agreement should define the costs that can be charged and how they are approved and reported. It should also address what happens when an executive is reassigned, or the management agreement ends.
Who Directs Employees in Daily Operations?
The operator generally directs hotel operations through the general manager, who leads department heads and the wider team. Its personnel responsibilities can include recruitment, scheduling, training, performance management and disciplinary procedures, within the authority granted by the agreement. These responsibilities do not, by themselves, determine whether an employee’s conduct is attributed to the operator for liability purposes. The contract should distinguish operational authority, owner approval rights and responsibility for failures.
A clear reporting structure helps employees understand whose instructions to follow. The owner’s representative or asset manager can monitor performance, review staffing expenditure and raise concerns through agreed channels. Direct owner involvement in routine supervision can create uncertainty about authority and accountability. The agreement should establish how concerns reach the operator and how the operator must respond.
Owner Influence over Senior Management
Appointment of the General Manager and Key Executives
The general manager has a substantial influence on service standards, commercial performance and the relationship between owner and operator. Appointment provisions therefore deserve particular attention during negotiations. A contract may give the operator responsibility for proposing candidates while reserving formal appointment to the owner. The proposal, approval and appointment stages should each be described clearly.
A typical hotel management agreement may provide for the owner to appoint the general manager following a proposal from the operator. This establishes an appointment mechanism but does not, by itself, explain the owner’s ability to reject candidates or resolve a disagreement. It also does not establish equivalent rights over other executive positions. Those rights and procedures should be stated expressly in the agreement.
The following positions may warrant owner involvement, depending on the property’s scale and operating model. The table describes possible negotiated rights rather than rights automatically available under every agreement. Some owners concentrate on the general manager and senior finance executive, while others seek involvement in additional appointments. The agreed scope should reflect the importance of each role to the development.
| Key position | Why the role matters to the owner | Possible owner influence |
|---|---|---|
| General Manager | Leads the hotel and implements its operating strategy. | Interview and approve candidates, formally appoint the selected candidate, and receive consultation on replacement or reassignment. |
| Financial Controller / Director of Finance | Oversees financial reporting, budgeting and internal financial controls. | Approve the appointment, agree financial reporting access, and require consultation before dismissal or replacement. |
| Director of Sales and Marketing | Influences market positioning, customer relationships and commercial strategy. | Review experience, participate in interviews, or approve the appointment where agreed. |
| Director of Food and Beverage | Leads activities that can materially affect revenue, costs and the guest experience. | Consult on or approve the appointment, particularly where restaurants, bars and banqueting are significant. |
| Executive Chef | Shapes the culinary offering and influences kitchen staffing and purchasing. | Participate in selection where the food concept is central to the property. |
| Director of Human Resources | Oversees recruitment processes, employee relations and personnel administration. | Consult on the appointment and review the proposed employment framework. |
| Chief Engineer / Director of Engineering | Leads maintenance and technical operations affecting the asset. | Review qualifications and participate in selection where expressly provided. |
| Director of Revenue Management | Influences pricing, inventory allocation and distribution decisions. | Consult on appointment and understand any shared or regional responsibilities. |
In some jurisdictions, statutory financial reporting duties and potential criminal liability make the owner’s appointment of the director of finance or chief accountant particularly important, although appointment rights alone do not remove that exposure. The appointee may come from the owner’s team, provided they have the necessary qualifications, training in the operator’s standards and language skills to communicate with the management team, whether in English, French or another working language.
Similarly, a chief engineer drawn from the owner’s development project team can bring valuable knowledge of the property’s engineering systems, particularly during opening and early operations. This appointment should also include training in the operator’s standards and the language skills needed to work effectively with hotel management.
Making Appointment and Approval Rights Effective
Consultation, approval and formal appointment have different effects. Consultation gives the owner an opportunity to express its views, while approval requires consent subject to the agreement’s qualifications. Formal appointment identifies who takes the appointment action and should be read alongside the selection procedure. None of these rights, by itself, determines responsibility for the executive’s subsequent conduct.
An effective procedure specifies the candidate information supplied, interview arrangements and the owner’s response period. It should state whether silence constitutes approval and whether rejection requires reasonable grounds. Some agreements limit how many candidates the owner may reject before the operator can proceed with an appointment. The consequences of reaching that limit should be clear because they can materially reduce the owner’s influence.
Temporary appointments also require attention. The hotel may need an acting general manager while it selects a permanent candidate. The agreement should identify who can make that appointment, how long it can continue and which owner rights apply. Otherwise, a temporary arrangement may continue without the scrutiny intended for a permanent appointment.
Dismissal, Replacement and Reassignment
Rights over an initial appointment should be considered separately from the authority to dismiss or replace an executive. An owner’s approval of the general manager or financial controller does not give it the right to terminate that person’s employment or remove them from the hotel. The management agreement typically reserves these decisions to the operator, and unilateral owner action could breach the agreement even where the owner’s company is the legal employer. The contract should therefore distinguish the owner’s right to request replacement, any consultation or consent requirements, and the authority to implement a dismissal, subject to applicable employment law.
The agreement should explain how concerns about senior management performance are raised and reviewed. It should address whether the owner can request a replacement, how the operator must respond and who bears the resulting costs. Operator-led transfers may require notice, succession planning and approval of the replacement candidate. These procedures must also work with the executive’s employment terms and applicable law.
Maintaining Arm’s Length Oversight of Employees
The owner’s influence over employment matters should operate through the procedures agreed with the operator. Direct involvement in recruitment, disciplinary action or termination can encourage employees to view the owner as an alternative decision-maker. Staff may then approach the owner to challenge management decisions, seek exceptions or request intervention, bypassing the hotel’s reporting structure. This can weaken the general manager’s authority and create uncertainty over who leads the team.
The risk can be greater when the owner or its representatives are based close to the property and are readily accessible to employees. An institutional owner, in particular, will rarely have the resources or intention to handle frequent requests from a large hotel workforce. Responding to individual cases can gradually draw ownership into daily personnel management and create expectations of continuing involvement. The result can be inconsistent decisions, strained employee relationships and friction with the operator.
Hotel operations require sustained management attention, and informal owner intervention can make that responsibility harder to discharge. The owner should raise concerns through designated operator contacts and use its contractual consultation, approval and replacement procedures. Employee requests should generally follow established management and grievance channels, with appropriate routes for complaints involving senior management or matters requiring independent escalation. This preserves meaningful owner oversight while supporting clear authority and an effective working relationship.
“Direct and Supervise” and Operator Accountability
What the Wording Means
A management agreement may describe the operator’s role as directing and supervising the general manager and other hotel personnel. This wording can reflect a structure in which the operator provides oversight while employees carry out daily activities. It can also support a contractual distinction between the operator’s own conduct and the conduct of hotel employees. The expression does not automatically exclude liability, but its effect must be assessed alongside the employment, indemnity and limitation of liability provisions.
The distinction becomes important when an employee’s actions cause loss. An operator may argue that a failure by the general manager or another executive is an act of hotel personnel rather than a failure attributable to the operator itself. Depending on the contract, the owner may then need to establish a separate failure by the operator in selecting, instructing or supervising that person. This can leave the owner bearing the consequences of decisions made by executives whom the operator proposed and oversees.
Connecting Authority with Responsibility
Two separate questions affect the owner’s ability to recover. The first is whether the individual’s conduct is treated as conduct of the operator under the agreement. The second is whether that conduct meets the applicable liability threshold, which may be restricted to gross negligence or wilful misconduct. Even serious wrongdoing by an executive may not establish operator liability if the agreement excludes that executive’s conduct from attribution to the operator.
The treatment of the general manager and other senior executives therefore deserves particular attention. Agreements may distinguish between hotel employees, specified senior executives and the operator’s corporate personnel when allocating responsibility. The owner should establish which category includes each key executive and whether employment or secondment by the operator changes that treatment. The agreement should also clarify whether owner approval of an appointment affects the operator’s responsibility for subsequent conduct.
The negotiation objective is to connect management authority with clearly defined accountability. The agreement should identify whose acts and omissions are attributed to the operator, the standard of care governing its supervisory duties and the consequences of failing to perform them. An exclusion relating to hotel employees should be examined for its effect on claims arising from the operator’s own recruitment, instruction or supervision failures. The enforceability and practical effect of these provisions depend on the governing law and the complete contractual wording.
Staffing Costs and Financial Oversight
Executive Compensation and Charges to the Hotel
The identity of the employer does not determine who ultimately bears an executive’s cost. Operator-employed or seconded executives may have their salaries, benefits and related expenses charged to the hotel operation. These charges reduce the operating return available to the owner. The agreement should define permitted costs and establish how they are budgeted, reported and paid.
Executive compensation may be linked to the operator’s human resources policies, taking account of local law and market practice. The package can include incentive compensation, medical cover, pension contributions and life or disability insurance. The owner should assess the complete commitment rather than basic salary alone. Where policies can change over time, the agreement should explain how those changes interact with budget approval and other cost controls.
Some contracts describe these payments as an “Advance” or another defined term. The definition and related payment provisions must be reviewed together to establish the financial consequences. The label alone does not explain reimbursement timing, interest or the treatment of insufficient hotel funds. Costs for executives serving multiple properties also require a clear allocation method.
Staffing Budgets and Pre-opening Recruitment
The staffing budget translates the employment structure into a financial commitment. It should show proposed headcount, remuneration, benefits and the use of temporary or shared personnel. The agreement should establish the operator’s flexibility within the approved budget and identify changes requiring further consent. Budget approval should also be distinguished from approval of individual appointments.
For a development project, employment expenditure begins before the first guest arrives. Recruitment, training and the arrival of senior executives can create substantial pre-opening costs. The owner and operator should agree how those costs are authorised and what happens if opening is delayed. Accommodation, relocation and recruitment commitments should be included where relevant.
Outsourcing Hotel Services
Operator Authority and Owner Approval
The operator may appoint external providers for services such as housekeeping, security, maintenance and specialist engineering. These decisions affect staffing requirements, service quality and the hotel’s financial commitments. The management agreement should define the operator’s authority to enter into service contracts on the hotel’s behalf. It should also identify when owner consultation or approval is required.
Approval thresholds may reflect contract value, duration, service importance or the supplier’s relationship with the operator. The parties might agree, for example, that contracts exceeding 12 months require owner consent. That period is a negotiated threshold and should suit the service concerned. Renewals, minimum expenditure commitments and termination charges should be considered when assessing the total exposure.
Controls over Outsourced Commitments
Outsourcing provisions should provide visibility over commitments that materially affect the hotel. They should also allow the operator to procure services efficiently within an agreed framework. Particular attention is needed where a service contract could continue after the management agreement ends. The following matters help define the scope and limits of the operator’s authority.
| Outsourcing matter | Point to address in the management agreement |
|---|---|
| Scope of authority | Identify services the operator may outsource and functions requiring specific owner approval. |
| Financial thresholds | Define approval requirements and how total value, variable charges and related commitments are calculated. |
| Contract duration | Address initial terms, automatic renewals, notice periods and extensions. |
| Related-party suppliers | Establish disclosure and approval requirements for operator-affiliated suppliers. |
| Service standards | Set expectations for monitoring, reporting and remedies for inadequate performance. |
| Employee consequences | Allocate responsibility for employment obligations arising from the outsourcing decision. |
| Exit arrangements | Address termination, transfer or continuation when the management agreement ends. |
Outsourcing does not automatically remove employment risks associated with the service. Replacing an existing hotel team may trigger consultation, transfer or termination obligations under local law. The contract should allocate responsibility for identifying and managing those requirements. It should also establish who monitors supplier performance and responds when service delivery falls short.
Employment Claims and Changes of Operator
Handling Employment Claims
The legal employer has obligations under applicable employment law even where the operator administers personnel matters. The management agreement separately allocates responsibility between the owner and the operator for claims, costs and contractual failures. These arrangements do not necessarily determine the rights of employees or regulators. Local law and the actual working relationships can affect each party’s exposure.
The agreement should establish who handles employee claims, appoints advisers and approves settlements. These procedures need to work alongside the attribution rules, liability thresholds and indemnities discussed above. The party managing a claim may differ from the party ultimately required to bear its cost. Clear reporting and decision procedures help both parties understand their responsibilities.
Employees When the Management Agreement Ends
Staffing provisions should anticipate expiry, termination and a change of operator. Where the team remains employed by the owner’s company, continuity of employment may support an operational handover. Operator-employed or seconded executives may require withdrawal, replacement or a transition period. The outcome must be assessed under the employment documentation and applicable local law.
The agreement should allocate responsibility for outstanding remuneration, accrued benefits and any transfer or termination costs. It should provide for the lawful handover of employment records and personnel information. Outsourced service contracts also need attention so that essential services can continue through the transition. Addressing these matters at the outset helps the owner understand which commitments remain when the management relationship ends.
Further resources:
See HDG – Hotel Management Agreement Term
See HDG – Hotel Performance Tests in Hotel Management Agreements
See HDG – Hotel Contract Lawyer Contacts
See HDG – Hotel Operator Links
Legal500 (October 2026) – “Hotel Management Agreements: 10 Key Points For Hotel Owners“
Disclaimer
This page provides general information about hotel employees and hotel management agreements and does not constitute legal, employment or tax advice. Employment obligations, appointment and dismissal rights, and liability depend on local law, the relevant contracts and the circumstances of each hotel. Contractual arrangements between an owner and operator do not necessarily limit statutory duties or the rights of employees and regulators. Obtain advice from qualified legal and other professional advisers in the relevant jurisdiction before making employment decisions or negotiating or relying on contractual provisions.