Contract analysis

I. Executive Summary This memorandum analyzes the joint-employer exposure arising from the relationship between our client, Verimark Hospitality Group Inc. ("VHG"), and Palomar Realty Partners LLC ("Palomar") with respect to the Verimark Shores Clearwater property located at 455 Mandalay Avenue, Clearwater Beach, FL 33767. VHG operates the Verimark Shores Clearwater property pursuant to a Hotel Management Agreement d

1. Whether Palomar may be deemed a "joint employer" of VHG's employees at the Verimark Shores Clearwater property under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., as interpreted by the United States Court of Appeals for the Eleventh Circuit;

2. The implications of a joint-employer finding for VHG's exposure and the scope of the pre-litigation wage-and-hour audit currently underway; and

3. The indemnification and contribution rights between VHG and Palomar under the HMA, and the strategic considerations relevant to coordinating VHG's and Palomar's respective interests. Conclusion preview: Based on the information currently available to this office, VHG appears to be the sole employer of the Verimark Shores Clearwater workforce under a traditional economic-reality analysis. VHG exercises direct and e

II. Background and Factual Context A. The Parties and Their Relationship Verimark Hospitality Group Inc. VHG is a Delaware corporation, publicly traded on the Nasdaq Stock Exchange under the ticker symbol VMHG. VHG is headquartered at 2400 Bayshore Boulevard, Suite 1100, Tampa, FL 33629. The company's Chief Executive Officer is Theodore R. Langford. VHG's General Counsel is Devin K. Arroyo, who serves as our primary

1. Overtime violations under 29 U.S.C. § 207(a) — Allegations that VHG failed to compensate hourly employees at the required overtime rate of one and one-half times their regular rate for hours worked in excess of forty per workweek, due in part to the alleged failure to include all compensable time in the overtime calculation.

2. Illegal automatic meal-break deductions — Allegations that VHG's payroll system automatically deducted thirty minutes from each shift of six hours or more for a purported meal break, regardless of whether the employee actually received or took a full, uninterrupted thirty-minute break. This allegation is directly relevant to VHG's auto-deduction rule AR-MEAL-030, which is applied uniformly across all VHG propertie

3. Uncompensated pre- and post-shift work — Allegations that hourly employees were required or suffered to perform work-related tasks before the start of and after the end of their recorded shifts, including pre-shift preparation, post-shift cleanup, and system logins, without compensation.

4. Florida minimum wage violations for tipped employees — Allegations that VHG failed to comply with Article X, Section 24 of the Florida Constitution, which establishes a minimum wage for tipped employees and requires compliance with specific tip-credit requirements.

5. Misclassification of lead/senior hourly roles — Allegations that VHG improperly classified certain "lead" and "senior" hourly positions as exempt from overtime under the FLSA's administrative exemption, 29 U.S.C. § 213(a)(1), when those positions did not meet the salary-basis or duties tests for the administrative exemption. The demand letter asserts a putative collective period spanning from January 2023 to the p

III. Legal Framework — Joint-Employer Doctrine Under the FLSA A. Statutory Basis The Fair Labor Standards Act defines the term "employer" with extraordinary breadth. Under 29 U.S.C. § 203(d), an "employer" includes "any person acting directly or indirectly in the interest of an employer in relation to an employee." The term "employee" is defined under 29 U.S.C. § 203(e) to include "any individual employed by an emplo

1. The alleged employer's power to hire and fire employees. This factor examines whether the putative joint employer possesses the authority—whether exercised or not—to make or materially influence decisions regarding the hiring and termination of the workers at issue. The power need not be exclusive or directly exercised; a reserved right to approve, veto, or influence hiring and firing decisions can be sufficient.

2. The alleged employer's authority to supervise and control employee work schedules or conditions of employment. This factor examines the degree to which the putative joint employer exercises operational control over the day-to-day work of the employees, including setting work schedules, assigning tasks, establishing work rules and procedures, and determining the conditions under which work is performed.

3. The alleged employer's authority to determine the rate and method of payment. This factor assesses whether the putative joint employer sets or influences the wage rates, pay structures, and methods of compensation applicable to the workers at issue. In the hotel management context, this factor is frequently implicated where the property owner funds an operating account from which employee wages are drawn, even if

4. The alleged employer's maintenance of employment records. This factor examines whether the putative joint employer creates, maintains, or has access to employment records, payroll records, timekeeping data, or other workforce documentation relating to the workers at issue. No single factor is dispositive. The Eleventh Circuit has consistently held that the determination must be based on the "totality of the circum

IV. Application of the Economic-Reality Test to Palomar Realty Partners LLC This section applies each of the four economic-reality factors to the VHG/Palomar relationship at the Verimark Shores Clearwater, based on the information currently available to this office. As noted throughout this memorandum, a complete analysis requires review of HMA-2021-0601-PC and additional factual investigation. The assessments below

V. Analysis of Hotel Management Agreement (HMA-2021-0601-PC) A. Key Provisions Requiring Review The joint-employer analysis—and, equally important, the indemnification and contribution analysis—depends critically on the specific terms of HMA-2021-0601-PC. Calderwood & Harkness has requested a complete copy of the HMA from VHG General Counsel Devin K. Arroyo, along with any amendments, side letters, or supplemental ag

1. Scope of Manager's Authority and Autonomy. The provisions defining VHG's authority to manage and operate the Verimark Shores Clearwater property on Palomar's behalf, including the scope of VHG's discretion in day-to-day operational decisions, the boundaries of VHG's authority to bind Palomar to contracts and commitments, and any limitations on VHG's autonomy.

2. Owner's Reserved Rights. Any provisions reserving to Palomar consent, approval, or veto rights over specific categories of decisions, including hiring and termination of key personnel (particularly the General Manager), approval of the annual operating budget and any budget amendments, execution of material contracts, and other matters that could constitute control over employment conditions.

3. Operating Account Structure and Owner Funding Obligations. The provisions governing the establishment, funding, and operation of the property's operating account, including whether Palomar is required to fund the account to cover operating expenses (including payroll), the mechanism by which VHG draws from the account, and any conditions or approvals required for draws.

4. Reporting Requirements. The provisions requiring VHG to provide financial and operational reports to Palomar, including the frequency, scope, and level of detail of such reports, with particular attention to whether reports include employee-level or aggregate workforce data.

5. Termination Provisions. The provisions governing termination of the HMA by either party, including termination for cause, termination without cause, and any provisions addressing the disposition of the property's workforce upon termination—including employee transition, non-solicitation, and continuation of employment obligations.

6. Indemnification Provisions. Discussed in detail in Section V.B below.

7. Insurance Requirements. The provisions specifying the types and amounts of insurance coverage that each party is required to procure and maintain, including employment practices liability insurance, general liability insurance, workers' compensation insurance, and any umbrella or excess coverage.

8. Non-Solicitation and Employee-Transition Provisions. Any provisions restricting either party from soliciting or hiring the other party's employees, or addressing the transition of the property's workforce to a successor manager upon termination of the HMA. B. Indemnification and Contribution Provisions The indemnification provisions of HMA-2021-0601-PC will play a central role in determining the allocation of fina

VI. Implications for the Scope of the Wage-and-Hour Audit A. Inclusion of Verimark Shores Clearwater in the Audit Regardless of the outcome of the joint-employer analysis, the Verimark Shores Clearwater property must remain within the scope of the pre-litigation wage-and-hour audit currently being conducted by Calderwood & Harkness. There are three independent bases for this conclusion: First, the demand letter from

1. Obtain and review HMA-2021-0601-PC in full, including all amendments, side letters, and supplemental agreements. This is the threshold step for the joint-employer analysis and is expected to be completed within the next two weeks.

2. Interview the Verimark Shores Clearwater property general manager and HR manager. These individuals have been identified as two of the twenty-three litigation-hold custodians. Interviews should focus on any Palomar involvement in employment decisions (hiring, firing, discipline), scheduling, compensation determinations, or working conditions. The interviews should also explore whether any Palomar personnel maintai

3. Review correspondence between VHG and Palomar. All correspondence—including emails, letters, memoranda, and meeting notes—between VHG and Palomar regarding staffing, labor budgets, operational approvals, and employee-related matters should be collected, reviewed, and analyzed for evidence of Palomar's operational involvement.

4. Determine operating-account structure and flow of payroll funds. The financial architecture of the HMA must be mapped in detail, including the source of funds for employee wages, the mechanism by which VHG draws from the operating account, and whether Palomar approves or controls any aspect of the payroll funding process.

5. Assess dual reporting relationships. Determine whether any Verimark Shores Clearwater employees have dual reporting relationships or receive direction from Palomar personnel in any capacity. Even informal direction from a Palomar representative could be relevant to the joint-employer analysis. C. Impact on Exposure Calculations The joint-employer analysis has several implications for the overall exposure model: Jo

VII. Palomar's Potential Liability and Strategic Considerations A. Palomar's Independent Exposure If plaintiffs' counsel names Palomar as a defendant in any complaint—or if Palomar is joined as a party by VHG or the court—Palomar would face joint and several liability for all FLSA violations at the Verimark Shores Clearwater property, with the same range of remedies available against it as against VHG, including unpa

1. Scope of Shared Interest. The agreement should define the common legal interest as the defense of the wage-and-hour claims threatened by Garza, Linden & Okafor LLP on behalf of Daniela M. Serrano and any putative collective, to the extent those claims relate to the Verimark Shores Clearwater property.

2. Limitations on Use of Shared Information. The agreement should provide that information shared between VHG and Palomar pursuant to the common interest agreement may be used only for the purpose of the defense of the identified claims and may not be used for any other purpose, including in any dispute between VHG and Palomar (e.g., an indemnification or contribution claim).

3. Privilege Protection Protocols. The agreement should establish procedures for marking shared communications as privileged, restricting access to authorized personnel and counsel, and preventing inadvertent disclosure.

4. Withdrawal Provisions. The agreement should address the circumstances under which either party may withdraw from the common interest arrangement, including provisions for the treatment of information shared prior to withdrawal.

5. Allocation of Costs. The agreement should address whether and how defense costs attributable to the Verimark Shores Clearwater property will be shared between VHG and Palomar. Potential tension. It must be acknowledged that VHG's and Palomar's interests may not be fully aligned. If the joint-employer analysis concludes that Palomar is a joint employer, Palomar may seek to deflect liability entirely onto VHG as the

VIII. Insurance Considerations Specific to the Palomar Relationship VHG maintains an Employment Practices Liability ("EPL") insurance policy with Pinnacle Indemnity Corp. The relevant policy details are as follows: • Carrier: Pinnacle Indemnity Corp. • Policy Number: PIN-EPL-2025-44781 • Limits: $10,000,000 per occurrence / $25,000,000 aggregate • Self-Insured Retention ("SIR"): $500,000 • Policy Period: July 1, 2025

IX. Recommendations and Next Steps Based on the analysis set forth in this memorandum, Calderwood & Harkness makes the following recommendations:

1. Obtain and review the complete HMA-2021-0601-PC, including all amendments, side letters, and supplemental agreements, to complete the joint-employer analysis and the indemnification and contribution analysis. This is the single most important action item. The request has been communicated to VHG General Counsel Devin K. Arroyo as a priority item. Upon receipt, Calderwood & Harkness will prepare a supplemental memo

2. Prepare notice to Palomar of the threatened claim if required under the HMA's notice-of-claims provisions. A draft notice letter addressed to Ricardo E. Montalvo at Palomar Realty Partners LLC, 1901 West Cypress Street, Suite 400, Tampa, FL 33607, should be prepared in advance so that it can be delivered promptly upon confirmation that notice is required. The notice letter should be reviewed by the engagement team

3. Finalize and execute a common interest agreement between VHG and Palomar to protect the attorney-client privilege and work-product protection in shared communications regarding the Verimark Shores Clearwater wage-and-hour issues. James Underwood is preparing a draft common interest agreement for the engagement team's review. The agreement should be circulated to VHG General Counsel Devin K. Arroyo for comment befo

4. Conduct interviews with the Verimark Shores Clearwater property general manager and HR manager regarding Palomar's operational involvement in employment decisions, budget approval practices, schedulin