PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in anticipation of litigation within the meaning of Federal Rule of Civil Procedure 26(b)(3) and applicable Florida law. This document contains mental impressions, conclusions, opinions, and legal theories of attorneys at Calderwood & Harkness LLP. It is protected from disclosure by the attorney-client privilege, the work-product doctrine, and all other applicable privileges and protections. This memorandum is intended solely for the use of the addressee and the individuals identified herein. It shall not be disclosed, disseminated, distributed, copied, or otherwise communicated to any third party without the prior written authorization of Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of any privilege or protection.
MEMORANDUM
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I. Executive Summary
The purpose of this memorandum is to present a preliminary quantitative exposure analysis in connection with the demand letter dated January 14, 2026, transmitted by Marco A. Garza of Garza, Linden & Okafor LLP ("GLO"), 600 Brickell Avenue, Suite 2200, Miami, Florida 33131, on behalf of Daniela M. Serrano, a former front-desk associate (Employee ID VHG-EMP-20220314-5587) at the Verimark Regency Tampa property. Ms. Serrano was employed by Verimark Hospitality Group Inc. ("VHG" or the "Company") from March 14, 2022, through August 22, 2025, as an hourly, non-exempt employee. The demand letter was received by VHG General Counsel Devin K. Arroyo on January 16, 2026.
The GLO demand letter seeks $18.5 million in aggregate relief, encompassing back pay, liquidated damages, and attorneys' fees. The demand is asserted on behalf of a putative collective and class comprising all current and former hourly, non-exempt employees at Verimark-branded Florida hotel and resort properties from January 2023 to the present, a population that GLO estimates at between 4,100 and 5,900 individuals.
The demand letter identifies five categories of alleged wage-and-hour violations:
1. Unpaid overtime in violation of the overtime provisions of the Fair Labor Standards Act, 29 U.S.C. § 207(a), arising from the Company's alleged failure to compensate non-exempt hourly employees for all hours worked in excess of forty (40) per workweek;
2. Illegal automatic meal-break deductions, whereby VHG's payroll system (Luminos TimeTrack) allegedly applies an automatic thirty-minute deduction per shift for meal breaks regardless of whether the employee actually received a bona fide, uninterrupted meal period;
3. Uncompensated pre-shift and post-shift work, including time spent on mandatory pre-shift briefings, uniform changes, workstation setup, end-of-shift cash-out procedures, and other compensable activities allegedly performed "off the clock";
4. Florida minimum wage violations for tipped employees in violation of Article X, Section 24 of the Florida Constitution, arising from the Company's alleged failure to satisfy the applicable minimum wage when the tip credit is applied to front-desk, concierge, and other tipped positions; and
5. Willful misclassification of "lead" and "senior" hourly roles as exempt under the FLSA, resulting in the denial of overtime compensation to employees who, despite holding supervisory titles, allegedly do not satisfy the duties tests for any FLSA exemption.
Calderwood & Harkness LLP ("C&H") has prepared three exposure scenarios to frame VHG's potential financial risk:
• Scenario A (Narrow / Conservative): Considers only the overtime claim under a two-year, non-willful lookback, applied to the 1,895 current hourly employees at the seven named properties. Total exposure: $8,147,700 (inclusive of liquidated damages, exclusive of attorneys' fees).
• Scenario B (Broad Theoretical Ceiling): Considers all five claim categories under a three-year willful lookback, applied to the maximum putative collective of 5,900 individuals, assuming 100% participation and 100% success on all claims. Total exposure: approximately $202.4 million (inclusive of liquidated damages, exclusive of attorneys' fees). This figure is a theoretical maximum and is not a prediction of actual litigation outcome.
• Working Mid-Range Estimate: Incorporates more realistic assumptions regarding opt-in rates (20–35%), claim-by-claim success probabilities, blended lookback periods, and potential partial success on good-faith defenses. Estimated exposure: $22 million to $38 million (inclusive of liquidated damages, exclusive of attorneys' fees and VHG's own defense costs).
It is important to note that this assessment is preliminary and subject to substantial refinement. The analysis relies on blended averages, estimated population sizes, and incomplete payroll data. Calderwood & Harkness has not yet completed a forensic payroll analysis, and the engagement of Ridgepoint Advisory Group LLC — the forensic accounting firm proposed to conduct granular, employee-level damages modeling using the Company's Luminos TimeTrack data — remains pending VHG's approval. Additionally, full document collection from Luminos Payroll Solutions Inc. has not been completed, and employee-level data review is in its early stages.
Based on this preliminary assessment, Calderwood & Harkness recommends that VHG proceed with the engagement of Ridgepoint Advisory Group LLC, at an estimated cost of $85,000 to $120,000, to refine the exposure modeling and provide defensible damages analysis. This expenditure, combined with C&H's scoping-phase legal fees ($175,000–$225,000), falls within the $350,000 budget cap authorized by the VHG Audit Committee on January 29, 2026.
II. Background
A. The Demand Letter
On January 14, 2026, the law firm of Garza, Linden & Okafor LLP transmitted a detailed demand letter to VHG General Counsel Devin K. Arroyo. The letter was received by VHG on January 16, 2026. The demand letter identifies Marco A. Garza as lead attorney and Priya N. Chandrasekaran as the associate attorney handling the matter. GLO is a Miami-based plaintiff-side employment litigation firm with a recognized practice in FLSA collective actions and wage-and-hour class litigation. Mr. Garza is a Fellow of the College of Labor and Employment Lawyers and has served as lead counsel in numerous FLSA collective actions in the Southern and Middle Districts of Florida.
The named claimant is Daniela M. Serrano, a former front-desk associate (hourly, non-exempt) at the Verimark Regency Tampa property located at 1200 North Westshore Boulevard, Tampa, Florida 33607. Ms. Serrano was employed by VHG from March 14, 2022, through August 22, 2025, when she voluntarily separated from the Company. Her Employee ID is VHG-EMP-20220314-5587.
The demand letter seeks $18.5 million in aggregate relief, inclusive of back pay, liquidated damages, and attorneys' fees, on behalf of Ms. Serrano and a putative collective and class of similarly situated hourly, non-exempt employees at VHG's Florida properties. The letter identifies five categories of wage-and-hour violations, as summarized in Section I above.
GLO has set a response deadline of February 28, 2026, and has stated that if VHG does not engage in good-faith discussions by that date, GLO intends to file suit in the United States District Court for the Middle District of Florida, Tampa Division, asserting claims under the FLSA (with a corresponding motion for conditional certification of an FLSA collective action) and under Florida state law (with a potential Rule 23 class action for Florida constitutional minimum-wage claims). The demand letter also references the possibility of filing administrative complaints with the U.S. Department of Labor, Wage and Hour Division, and the Florida Department of Economic Opportunity.
B. Verimark's Workforce Profile
Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol VMHG. The Company is headquartered at 2400 Bayshore Boulevard, Suite 1100, Tampa, Florida 33629. VHG owns and operates a portfolio of full-service hotels and resort properties throughout the State of Florida.
For fiscal year 2025, VHG reported consolidated revenue of approximately $1.42 billion. The Company's operations are concentrated in the Florida market, which represents the entirety of its current property portfolio.
As of December 31, 2025, VHG employed approximately 8,200 individuals across its fourteen (14) Florida hotel and resort properties. Of that total, approximately 5,900 employees (representing roughly 71.95% of the total workforce) are classified as hourly, non-exempt employees under the Fair Labor Standards Act and applicable Florida wage-and-hour law. These non-exempt hourly employees are distributed across a range of job categories, including front-desk and guest services, food and beverage, housekeeping, maintenance, spa and wellness, valet and parking, and grounds and landscaping.
The demand letter identifies seven (7) of VHG's fourteen (14) Florida properties as being at issue, focusing on properties in the Tampa Bay, Orlando, and South Florida markets. However, the demand letter's reference to "all Verimark-branded Florida properties" in defining the putative collective/class raises the possibility that the affected population may ultimately encompass employees at all fourteen properties, depending on how the court defines the scope of any conditional certification order.
C. Properties at Issue
The demand letter specifically identifies the following seven VHG properties. The table below sets forth the relevant operational and workforce data for each property, as reported by Carla S. Whitfield, Vice President, Human Resources, and Enrique J. Fuentes, Director, Payroll & Workforce Compliance, based on headcount as of December 31, 2025:
As the table reflects, the seven at-issue properties collectively employ approximately 2,620 individuals, of whom an estimated 1,895 (approximately 72.3%) are hourly, non-exempt employees. These 1,895 current hourly employees form the baseline affected population for Scenario A. The broader putative collective of 4,100–5,900 individuals (as stated in the demand letter) includes former employees who worked at these and other VHG Florida properties during the relevant lookback periods.
It is important to note that the Verimark Shores Clearwater property presents a distinct ownership and management structure. The property is owned by Palomar Realty Partners LLC, a Florida limited liability company managed by Ricardo E. Montalvo. VHG operates the Clearwater property pursuant to a Hotel Management Agreement dated June 1, 2021 (HMA-2021-0601-PC). Under this arrangement, VHG functions as the property manager and employer of record for the property's workforce, while Palomar retains ownership of the real property and related assets. This structure raises joint-employer questions under the FLSA that may affect liability allocation, as discussed in Section IX.E below.
D. Calderwood & Harkness Engagement
Upon receipt of the GLO demand letter, VHG General Counsel Arroyo consulted with VHG's Audit Committee regarding the retention of outside counsel. On January 29, 2026, the Audit Committee authorized the engagement of Calderwood & Harkness LLP to conduct a scoping-phase analysis of VHG's exposure and to prepare a preliminary assessment and recommended course of action.
The matter was formally opened on January 30, 2026, and assigned Matter Number 1021-00005. The Audit Committee authorized a budget cap of $350,000 for the scoping phase, which encompasses outside counsel fees, expert/consultant fees (including the proposed Ridgepoint engagement), and related costs.
The Calderwood & Harkness engagement team consists of the following attorneys:
• Bernard Crawford, Responsible Partner — Mr. Crawford leads C&H's Labor & Employment Practice Group and has over twenty-five years of experience defending employers in FLSA collective actions and state-law wage-and-hour class actions. He serves as the primary relationship partner and supervises all work product on this matter.
• Renata Vasquez, Billing Partner — Ms. Vasquez is responsible for billing, budget management, and client-facing financial reporting on the engagement.
• Nadia Petrov, Lead Associate — Ms. Petrov is a seventh-year associate in the Labor & Employment Practice Group with substantial experience in FLSA collective-action defense, including conditional certification proceedings and damages analysis.
• James Underwood, Working Associate — Mr. Underwood is a third-year associate who will handle day-to-day document review, data analysis, and research tasks.
Calderwood & Harkness's estimated legal fees for the scoping phase (exclusive of the Ridgepoint engagement) are $175,000 to $225,000. When combined with the estimated Ridgepoint fees of $85,000 to $120,000, the total scoping-phase cost is projected at $260,000 to $345,000, which falls within the Audit Committee's authorized budget cap.
III. Methodology and Key Assumptions
This Section sets forth the data sources, analytical methodology, and key assumptions underlying the exposure calculations presented in Sections IV through VII below. Because this is a preliminary assessment, the assumptions described herein are necessarily generalized and will be subject to refinement as additional data becomes available.
A. Data Sources
Calderwood & Harkness's preliminary analysis is based on the following data sources, each of which has been reviewed but none of which has been subjected to comprehensive forensic analysis:
1. The GLO Demand Letter (dated January 14, 2026): The demand letter provides the factual allegations, the identification of the putative collective/class, and the stated basis for the $18.5 million demand.
2. Preliminary Payroll Data from Luminos Payroll Solutions Inc.: VHG utilizes Luminos Payroll Solutions Inc. ("Luminos") as its third-party payroll processor. The Company's payroll data is maintained in the Luminos TimeTrack system under account number LTT-VHG-2022-0041. Calderwood & Harkness has conducted a preliminary review of payroll summary data for the seven at-issue properties, with particular attention to the auto-deduction rule designated AR-MEAL-030, which governs the automatic deduction of thirty (30) minutes per shift for meal breaks. This auto-deduction rule is central to the meal-break claim category. The full scope of Luminos TimeTrack data has not yet been exported or analyzed.
3. VHG Employee Handbook (v.7.2, effective January 1, 2025): The current version of the Employee Handbook contains the Company's written policies on overtime authorization, meal and rest breaks, timekeeping procedures, tip pooling, and job classifications. Earlier versions of the Handbook have been requested but not yet received.
4. VHG HR Headcount Reports: Workforce data, including headcount by property, job code, exempt/non-exempt status, and hire/termination dates, has been provided by Carla S. Whitfield, VP, Human Resources, and Enrique J. Fuentes, Director, Payroll & Workforce Compliance. These reports form the basis for the affected-population estimates used in this memorandum.
5. Ridgepoint Advisory Group LLC — Proposed but Not Yet Engaged: Calderwood & Harkness has identified Ridgepoint Advisory Group LLC as the appropriate forensic accounting firm to conduct granular, employee-level damages modeling. Ridgepoint's principal, Dr. Alicia Tran, CPA, CFF, has extensive experience in FLSA collective-action damages analysis in the hospitality industry. The Ridgepoint engagement has been proposed but is pending VHG's approval. Once engaged, Ridgepoint will work under the protection of the attorney-client privilege and work-product doctrine, reporting to Calderwood & Harkness rather than directly to VHG.
B. Key Assumptions Common to All Scenarios
The following assumptions are applied across all three exposure scenarios unless otherwise noted. These assumptions are based on preliminary data and will be refined as the forensic payroll analysis progresses.
Wage Rates:
• Blended average hourly rate for affected workers across all job codes at the seven at-issue properties: $16.50 per hour. This figure represents a weighted average derived from VHG's HR headcount reports and reflects the range of hourly rates across job categories (housekeeping, front desk, food and beverage, maintenance, spa, valet, and other operational roles). Actual individual hourly rates range from approximately $12.50 to $24.00, with the $16.50 blended average serving as a reasonable midpoint for aggregate modeling purposes.
• Overtime premium rate (time-and-one-half): $16.50 × 1.5 = $24.75 per hour.
• Overtime premium (additional half-time component only): $8.25 per hour. This figure represents the premium component of overtime pay — i.e., the amount owed above and beyond the employee's regular rate. For purposes of calculating unpaid overtime, only the $8.25 premium is at issue (as the straight-time component of the overtime hour is presumed to have been paid through the employee's regular compensation).
Hours Worked:
• Average weekly hours worked per affected employee: 42.5 hours per week. This estimate is based on preliminary payroll data and reflects the typical scheduling pattern for full-time hourly employees at VHG's hotel properties, which frequently involves shifts in excess of eight hours and/or more than five shifts per workweek, particularly during peak occupancy periods.
• Average weekly overtime hours: 42.5 − 40 = 2.5 hours per week of overtime. This is a conservative estimate; some departments (notably housekeeping and food and beverage) may exhibit higher overtime averages, while others (such as spa and valet) may fall below this figure.
Pre-/Post-Shift Time:
• The demand letter alleges that non-exempt employees are required to perform compensable work activities before and after their scheduled shifts — including mandatory pre-shift briefings, uniform changes, workstation setup, security screenings, and end-of-shift cash-out procedures — for which they are not compensated. The demand letter estimates this uncompensated time at 15 to 25 minutes per shift.
• For modeling purposes, Calderwood & Harkness uses the midpoint of this range: 20 minutes per shift. At five shifts per week, this yields 100 minutes per week, or approximately 1.667 hours per week, of alleged uncompensated pre-/post-shift time.
Meal-Break Auto-Deduction:
• VHG's Luminos TimeTrack system is configured (under auto-deduction rule AR-MEAL-030) to automatically deduct 30 minutes per shift for meal breaks, regardless of whether the employee actually took or was permitted to take an uninterrupted, bona fide 30-minute meal break.
• The demand letter alleges that this practice results in systematic undercompensation, as employees frequently work through their meal periods or are interrupted during meal breaks but are still subjected to the automatic deduction. At five shifts per week, the alleged weekly meal-break auto-deduction error is 150 minutes per week, or 2.5 hours per week.
Applicable Wage Rates for Off-the-Clock and Meal-Break Claims:
• Uncompensated pre-/post-shift time and meal-break auto-deduction claims are calculated at the employee's straight-time rate of $16.50 per hour (using the blended average). To the extent that these additional hours push an employee's total compensable hours above 40 in a workweek, overtime implications may further increase the exposure; however, for purposes of this preliminary model, these hours are calculated at straight time.
Minimum Wage Rates:
• Florida minimum wage (effective September 30, 2025): $14.00 per hour.
• Florida tipped-employee minimum wage: $14.00 minus the $3.02 tip credit = $10.98 per hour. Under Article X, Section 24 of the Florida Constitution, employers may take a tip credit of up to $3.02 per hour against the minimum wage for tipped employees, provided the employer satisfies the applicable notice and record-keeping requirements and the employee's tips, combined with the direct wage, equal or exceed the full minimum wage.
• Federal minimum wage under the FLSA: $7.25 per hour. Because the Florida minimum wage ($14.00) exceeds the federal minimum wage, the Florida rate controls for minimum-wage purposes.
C. Lookback Periods
The applicable statutes of limitations define the temporal scope of the claims and significantly affect the size of the affected population and the total exposure:
• FLSA non-willful (2-year statute of limitations): Under 29 U.S.C. § 255(a), the default limitations period for FLSA claims is two years from the date of the filing of the complaint (or, for pre-litigation demand purposes, from the date of the demand). Using January 14, 2026, as the reference date, the two-year lookback extends to January 14, 2024.
• FLSA willful (3-year statute of limitations): If the employer's violation is found to be "willful" within the meaning of 29 U.S.C. § 255(a), the limitations period extends to three years. The three-year lookback extends to January 14, 2023. The demand letter explicitly alleges willfulness, which, if proven, would extend the lookback period by one year and substantially increase the affected population and aggregate damages.
• Florida constitutional minimum-wage claims (5-year statute of limitations): Claims arising under Article X, Section 24 of the Florida Constitution are subject to a five-year statute of limitations under Florida Statutes § 95.11(2)(b). The five-year lookback extends to January 14, 2021. This longer lookback period is relevant primarily to the tipped-employee minimum-wage claims and could encompass employees who worked for VHG prior to the Company's transition to the Luminos payroll system on January 1, 2022.
• Putative collective period per the demand letter: The GLO demand letter defines the putative collective as covering the period from January 2023 to the present, which corresponds to the three-year willful lookback period under the FLSA.
D. Affected Population Sizing
The size of the affected population is one of the most significant variables in the exposure analysis. The following population estimates are used in the three scenarios:
• Current hourly employees at the seven at-issue properties: 1,895 (as of December 31, 2025). This figure represents only current employees and excludes individuals who separated from VHG during the relevant lookback periods.
• Estimated putative collective/class (including both current and former employees over the applicable lookback periods): 4,100 to 5,900, as estimated in the demand letter. This range reflects the significant employee turnover characteristic of the hospitality industry, where annual turnover rates typically range from 60% to 80%.
• Scenario A uses the conservative figure of 1,895 (current hourly employees only at the seven named properties).
• Scenario B uses the maximum figure of 5,900 (the upper bound of the putative collective, including all former hourly employees at VHG Florida properties over the three-year lookback period).
• Working Mid-Range Estimate applies estimated opt-in / participation rates of 20% to 35% to the putative collective, yielding estimated participant populations of approximately 1,180 to 2,065 opt-in plaintiffs, in addition to current employees at the named properties.
E. Liquidated Damages
The FLSA provides for liquidated damages in an amount equal to the unpaid wages owed — effectively doubling the employer's liability — unless the employer demonstrates that it acted in good faith and had reasonable grounds for believing its pay practices complied with the Act. See 29 U.S.C. § 260.
All three exposure scenarios include liquidated damages at 100% of unpaid wages (i.e., the total exposure figures reflect a doubling of the calculated unpaid-wages amount). This approach reflects the FLSA's default rule that liquidated damages are mandatory absent a successful good-faith defense.
However, Calderwood & Harkness notes that VHG may have a viable good-faith defense under § 260. The Company's use of a reputable third-party payroll processor (Luminos), the existence of written compliance policies in the Employee Handbook, and any evidence of internal auditing or reliance on legal or accounting advice may support a reduction or elimination of liquidated damages. Analysis of the strength of this defense is ongoing and will be addressed in a supplemental memorandum. For purposes of the mid-range estimate, a partial good-faith defense (resulting in a 50% reduction in liquidated damages) is incorporated at the lower end of the range.
IV. Scenario A: Narrow Exposure (Conservative)
A. Scope and Assumptions
Scenario A represents the floor of VHG's exposure under the most conservative set of assumptions reasonably supported by the allegations in the demand letter. This scenario is designed to answer the question: What is VHG's minimum likely exposure if the litigation proceeds on the narrowest viable theory and with the most limited affected population?
The key assumptions and scope limitations for Scenario A are as follows:
• Claims included: Overtime only (29 U.S.C. § 207(a)). This scenario assumes that only the unpaid-overtime claim proceeds and that all other claim categories — meal-break auto-deductions, pre-/post-shift off-the-clock work, tipped-employee minimum wage, and misclassification — are either not pursued or are dismissed or defeated on the merits.
• Lookback period: Two (2) years, reflecting a non-willful finding. The lookback extends from January 14, 2024, to the present.
• Affected population: 1,895 current hourly employees at the seven at-issue properties. Former employees are excluded on the assumption that they do not opt into the collective or are otherwise unreachable.
• Turnover exclusion: No former employees are included in the affected population, which significantly reduces the participant count relative to Scenarios B and the mid-range estimate.
• Additional excluded claims: No meal-break, pre-/post-shift, tipped-employee, or misclassification claims are assumed to succeed.
B. Calculation
The Scenario A calculation proceeds as follows:
Step 1: Unpaid overtime premium per employee per week
2.5 overtime hours/week × $8.25 overtime premium = $20.625 per employee per week
Step 2: Number of weeks in the lookback period
2-year lookback (January 14, 2024, to January 14, 2026) = 104 weeks
Step 3: Per-employee unpaid overtime over the two-year period
$20.625/week × 104 weeks = $2,145.00 per employee
Step 4: Total unpaid overtime across the affected population
$2,145.00 × 1,895 employees = $4,064,775
Calderwood & Harkness's working model yields a slightly higher rounded figure of $4,073,850, calculated as 2.5 × $8.25 × 104 × 1,895 = $4,073,850.00. The minor variance between $4,064,775 and $4,073,850 is attributable to rounding conventions applied to intermediate computational steps (specifically, the treatment of $20.625 as $20.625 versus its precise multiplication against the employee count without intermediate rounding). For purposes of this memorandum, the working figure of $4,073,850 is used.
Step 5: Liquidated damages
Under the FLSA's default rule, liquidated damages equal the amount of unpaid wages:
$4,073,850 (liquidated damages) = $4,073,850 (unpaid wages)
Step 6: Total Scenario A exposure
$4,073,850 (unpaid wages) + $4,073,850 (liquidated damages) = $8,147,700
C. Key Assumptions and Limiting Factors
The following caveats and limiting factors should be considered in evaluating the Scenario A figure:
• Attorneys' fees and costs are excluded. Under the FLSA, a prevailing plaintiff is entitled to recover reasonable attorneys' fees and costs in addition to unpaid wages and liquidated damages. 29 U.S.C. § 216(b). Attorneys' fees would be an additional cost above the $8,147,700 figure. In FLSA collective actions, attorneys' fee awards can be substantial, and in some cases, fee awards may approach or even exceed the underlying damages award.
• The scenario assumes all 1,895 current hourly employees actually worked overtime averaging 2.5 hours per week. In practice, individual employees' overtime experience will vary significantly by property, department, job code, and scheduling patterns. Many employees may have worked fewer than 2.5 hours of overtime per week on average, while others may have worked substantially more. Actual opt-in rates and individual claims data may reduce (or, in some cases, increase) the aggregate figure.
• The scenario assumes no successful FLSA good-faith defense under § 260. If VHG successfully demonstrates good faith and reasonable grounds for its pay practices, the court has discretion to reduce or eliminate liquidated damages, which would reduce the Scenario A exposure to approximately $4,073,850 (unpaid wages only, without doubling).
• The scenario does not account for employees at VHG's remaining seven properties that are not named in the demand letter. If the scope of the collective or class is expanded to encompass all fourteen Florida properties, the affected population — and correspondingly, the aggregate exposure — would increase substantially.
• Tipped-employee claims and minimum-wage differentials are excluded. The scenario does not account for any additional exposure arising from the alleged failure to satisfy the Florida minimum wage for tipped employees.
• Misclassification exposure for "lead" and "senior" roles is excluded. The scenario does not separately quantify the potential damages arising from the alleged misclassification of "lead" and "senior" hourly employees as FLSA-exempt.
D. Assessment
Scenario A represents the floor of VHG's reasonably anticipated exposure. Even under this most conservative set of assumptions — limited to a single claim category, a two-year lookback, and only current employees — the Company faces potential liability of approximately $8.1 million.
It is notable that even this conservative figure exceeds the $500,000 self-insured retention under the Pinnacle Indemnity Corp. Employment Practices Liability ("EPL") insurance policy (Policy No. PIN-EPL-2025-44781) and approaches the $10 million per-occurrence policy limit. This means that, even in the best-case scenario, VHG's out-of-pocket exposure (inclusive of the SIR and any amounts exceeding the per-occurrence limit, as well as defense costs that may or may not be covered) could be significant.
Additionally, Scenario A does not account for the Company's own defense costs, which — in an FLSA collective action involving seven properties and nearly 1,900 putative members — could be substantial. Based on C&H's experience in comparable matters, defense through trial (including expert fees, e-discovery, and deposition costs) could range from $1.5 million to $4.0 million, depending on the complexity and duration of the litigation.
V. The GLO Demand Amount: $18.5 Million
A. Basis as Stated in the Demand Letter
The GLO demand letter seeks $18.5 million in aggregate relief on behalf of the named claimant and the putative collective/class. The demand letter does not provide a granular calculation methodology or a line-by-line breakdown of the $18.5 million figure. Based on the structure and language of the demand letter, Calderwood & Harkness infers that the figure aggregates all five categories of alleged claims — overtime, meal-break deductions, pre-/post-shift off-the-clock work, tipped-employee minimum wage, and misclassification — and includes back pay, liquidated damages, and an estimated component for attorneys' fees.
The demand letter defines the putative collective as covering the period from January 2023 to the present, which corresponds to the three-year willful lookback period under 29 U.S.C. § 255(a). The affected population is described as "all current and former hourly, non-exempt employees" at Verimark-branded Florida properties during that period, estimated at 4,100 to 5,900 individuals.
GLO does not disclose whether the $18.5 million figure is based on sampling of individual employee payroll records, extrapolation from Ms. Serrano's individual experience, or some other methodology. It is likely that plaintiff's counsel has conducted at least some preliminary analysis of Ms. Serrano's individual records and extrapolated from that data, potentially combined with publicly available information regarding VHG's workforce size and industry benchmarks for wage-and-hour violations in the hospitality sector.
B. Calderwood & Harkness's Assessment of the $18.5 Million Figure
Calderwood & Harkness observes that the GLO demand amount of $18.5 million falls at or below the lower end of C&H's working mid-range estimate of $22 million to $38 million. This is a significant finding, as it suggests one of the following:
1. GLO has used more conservative assumptions than C&H regarding opt-in rates, the scope of the affected population, or the per-employee damage figures;
2. The demand is designed as an opening settlement position — a number intended to initiate negotiations rather than to reflect the full theoretical exposure, with the expectation that VHG will negotiate downward from the $18.5 million figure; or
3. GLO's fee component is netted differently — the $18.5 million may include a substantial component for attorneys' fees, and the underlying damages figure net of fees may be lower than C&H's mid-range estimate.
It is also notable that $18.5 million exceeds Scenario A by more than two times ($18.5M / $8.1M ≈ 2.27x), which strongly suggests that GLO is pricing in multiple claim categories beyond overtime alone. The inclusion of meal-break, pre-/post-shift, and tipped-employee claims — each of which adds a significant per-employee weekly damage increment — would explain the substantial gap between the Scenario A figure and the GLO demand.
Regarding attorneys' fees, typical FLSA fee awards in collective actions can add 25% to 35% to the damages base. If the $18.5 million demand includes an anticipated fee component in that range, the implied underlying damages amount would be approximately $13.7 million to $14.8 million (i.e., $18.5M ÷ 1.25 to $18.5M ÷ 1.35), which is well below even the low end of C&H's mid-range estimate. This further supports the inference that GLO may be using conservative assumptions or that the demand is structured as a negotiation-oriented figure.
C. Strategic Observations
Several strategic observations flow from C&H's analysis of the GLO demand:
First, GLO's demand may represent a settlement-oriented figure rather than a full-exposure assessment. Plaintiff-side employment firms frequently calibrate their demand letters to a level that is sufficiently large to command attention and demonstrate the seriousness of the claims, while remaining within a range that is plausible for settlement purposes. A demand that vastly exceeds any realistic assessment of exposure (such as Scenario B's $202.4 million) would risk being dismissed as posturing; conversely, a demand that is too low may leave money on the table. The $18.5 million figure occupies a middle ground that is designed to open a negotiation.
Second, Marco A. Garza is a recognized plaintiff-side employment class-action specialist with a track record of successfully certifying FLSA collectives in the Middle and Southern Districts of Florida. GLO has the financial resources and litigation infrastructure to pursue conditional certification aggressively and to sustain a prolonged litigation campaign if settlement discussions are not productive. VHG should not assume that the February 28, 2026, deadline is a bluff; GLO is likely prepared to file suit promptly if VHG does not engage.
Third, settlement in the range of the demand amount ($18.5 million) would exceed the $500,000 SIR under the Pinnacle Indemnity EPL policy but would only be partially covered by the $10 million per-occurrence limit. Depending on the outcome of the coverage analysis (discussed in Section VIII below), VHG could bear significant out-of-pocket costs — potentially in the range of $8.5 million to $18.5 million — depending on whether the wage-and-hour claims constitute covered "loss" under the policy and whether any applicable exclusion limits or eliminates coverage.
Fourth, and most importantly, VHG should not interpret the GLO demand as capping its exposure. The demand letter is a pre-litigation settlement overture, not a damages proof. If the matter proceeds to litigation, the actual exposure — particularly if a broad collective is conditionally certified and a high opt-in rate is achieved — could substantially exceed $18.5 million. The demand amount may serve as a useful benchmark for early settlement discussions if VHG elects to pursue that path, but it should not be treated as the ceiling of risk.
VI. Scenario B: Broad Theoretical Ceiling (Maximum Exposure)
A. Scope and Assumptions
Scenario B is designed to present the theoretical maximum of VHG's exposure under the most adverse assumptions that could reasonably be applied. This is not a prediction of the likely outcome; rather, it is an outer boundary intended to provide the VHG Board and Audit Committee with a comprehensive understanding of the full scope of potential risk. The key assumptions for Scenario B are as follows:
• Claims included: All five categories — overtime, meal-break auto-deduction, pre-/post-shift off-the-clock work, tipped-employee minimum wage, and misclassification. All claims are assumed to succeed in their entirety.
• Lookback period: Three (3) years (willful), extending from January 14, 2023, to the present (156 weeks). This scenario assumes that the court finds VHG's violations to be willful within the meaning of 29 U.S.C. § 255(a).
• Affected population: 5,900 individuals, representing the maximum putative collective identified in the demand letter, including all current and former hourly, non-exempt employees at VHG Florida properties over the three-year lookback period.
• Opt-in / participation rate: 100%. This scenario assumes that every member of the putative collective opts into the FLSA collective (or, for state-law class claims, is included in a certified class) and receives the full modeled damages.
• Violation rate: 100%. This scenario assumes that every member of the collective experienced every category of alleged violation in every week of the lookback period.
B. Calculation
The Scenario B calculation aggregates the weekly per-employee exposure across all claim categories:
Step 1: Combined unpaid wages per employee per week
The weekly per-employee unpaid wages are calculated for each claim category:
• Overtime premium: 2.5 hours/week × $8.25/hour = $20.625
• Meal-break auto-deduction: 2.5 hours/week × $16.50/hour = $41.25
• Pre-/post-shift off-the-clock: 1.667 hours/week × $16.50/hour = $27.50 (rounded from $27.5055)
Combined total per employee per week: $20.625 + $41.25 + $27.50 = $89.375
Calderwood & Harkness's working model also employs an alternative, simplified calculation approach that treats all unpaid hours at the straight-time rate:
Total unpaid hours per employee per week: 2.5 (overtime) + 2.5 (meal break) + 1.667 (pre/post shift) = 6.667 hours/week
Simplified calculation: 6.667 hours/week × $16.50/hour = $110.01 per employee per week
The two approaches diverge because the overtime component of the precise calculation uses the overtime premium rate ($8.25 per hour — i.e., only the additional half-time owed), while the simplified approach applies the full straight-time rate ($16.50) to all hours, including the overtime hours. The reconciliation is as follows:
Precise approach: (2.5 × $8.25) + (2.5 × $16.50) + (1.667 × $16.50) = $20.625 + $41.25 + $27.5055 = $89.38
Simplified approach: 6.667 × $16.50 = $110.01
Difference: $110.01 − $89.38 = $20.63 per employee per week
The simplified approach (6.667 × $16.50 = $110.01) overstates the result by approximately $20.63 per employee per week because it treats the overtime hours at $16.50 rather than at the correct premium-only rate of $8.25. However, for purposes of establishing a conservative ceiling, the working model uses the simplified formulation. This approach ensures that Scenario B captures the maximum possible exposure and accounts for potential arguments that the off-the-clock and meal-break hours should themselves trigger additional overtime (a theory that, while potentially viable, has not been separately modeled at this stage).
Step 2: Weeks in the lookback period
3-year willful lookback (January 14, 2023, to January 14, 2026) = 156 weeks
Step 3: Per-employee total unpaid wages over the three-year period
6.667 hours/week × $16.50/hour × 156 weeks = $17,152.20 (approximate; precise figure: $17,152.02 based on exact intermediate calculations)
Step 4: Total unpaid wages across the affected population
$17,152.20 × 5,900 employees = $101,197,980 (approximately $101.2 million)
Calderwood & Harkness's working model, using precise intermediate calculations without rounding, yields a total of $101,193,988.80.
Step 5: Liquidated damages (equal amount)
$101,193,988.80
Step 6: Total Scenario B exposure
$101,193,988.80 + $101,193,988.80 = $202,387,977.60
Rounded: approximately $202.4 million (before attorneys' fees and costs)
C. Key Caveats
Scenario B is a theoretical maximum and should not be interpreted as a realistic prediction of VHG's actual litigation exposure. The following caveats and limitations are essential to a proper understanding of this figure:
1. 100% opt-in rate is unrealistic. FLSA collective actions require individual employees to affirmatively opt in by filing written consent to join the action. Unlike Rule 23 class actions, FLSA collectives do not automatically include all potential members. Historically, opt-in rates in hospitality industry FLSA collectives range from 10% to 40%, with the rate depending on factors such as the effectiveness of notice, employee awareness, fear of retaliation, and the size and geographic dispersion of the workforce. An opt-in rate at the midpoint of this range (25%) would reduce the participant population from 5,900 to approximately 1,475, with a corresponding reduction in aggregate exposure.
2. 100% violation rate is unrealistic. The scenario assumes that every member of the collective experienced every category of violation in every week of the lookback period. In practice, the incidence of violations will vary significantly by property, department, and job code. For example, meal-break auto-deduction issues may be more prevalent in certain departments (such as front desk and food and beverage) than in others (such as maintenance and grounds). Similarly, pre-/post-shift work requirements may differ substantially from property to property based on local management practices.
3. Willfulness is assumed but not proven. The scenario assumes that the court finds VHG's violations to be willful, extending the lookback period to three years. A willfulness finding requires that the employer either knew or showed reckless disregard for the fact that its conduct was prohibited by the FLSA. If VHG can demonstrate that it made good-faith efforts to comply, the lookback may be limited to two years, reducing the relevant time period by one-third.
4. No defenses are applied. The scenario does not discount for any applicable defenses, including the good-faith defense under § 260 (which could reduce or eliminate liquidated damages), the de minimis doctrine (which could eliminate the pre-/post-shift claim), the fluctuating workweek method (which could reduce overtime damages), or other affirmative defenses that may be available.
5. Tipped-employee claims are not separately quantified. The tipped-employee minimum-wage claim affects only a subset of the workforce (primarily front-desk, concierge, and certain food-and-beverage positions). The exposure from this claim category is subsumed into the combined calculation at straight-time rates, which may overstate or understate the actual tipped-employee exposure depending on the number of affected employees and the magnitude of any wage shortfall.
6. Misclassification exposure is not separately quantified. The demand letter alleges that certain "lead" and "senior" hourly employees have been misclassified as exempt. These employees are included within the 5,900-person putative collective, and their exposure is calculated at the same blended rate as other hourly employees. In practice, misclassified employees may have higher individual hourly rates and greater overtime hours, which could either increase or decrease the exposure depending on the specific facts.
7. Longer lookback for Florida claims. Additional exposure from Florida constitutional minimum-wage claims under the five-year statute of limitations (extending to January 14, 2021) could further expand the theoretical ceiling if tipped-employee claims are added for the longer period. This extended lookback would primarily affect a smaller subset of employees in tipped positions and would also require the retrieval and analysis of pre-Luminos payroll records. This additional exposure is not separately modeled in Scenario B but should be considered in the overall risk assessment.
D. Assessment
Scenario B's theoretical ceiling of approximately $202.4 million vastly exceeds the limits of VHG's Pinnacle Indemnity EPL policy ($10 million per occurrence / $25 million aggregate). Even at a small fraction of this theoretical ceiling, VHG would face exposure well in excess of its insurance coverage.
This figure is presented primarily for board awareness and to underscore the importance of pursuing an aggressive and well-resourced defense strategy, as well as proactive remediation measures designed to mitigate ongoing violations and support a good-faith defense. The Scenario B figure also highlights the critical importance of contesting conditional certification and limiting the scope of the collective, as the size of the affected population is the single most significant driver of aggregate exposure.
Actual exposure is expected to fall well below this theoretical ceiling. The working mid-range estimate of $22 million to $38 million, discussed in Section VII below, provides a more realistic assessment of the Company's probable exposure range.
VII. Working Mid-Range Estimate: $22–$38 Million
A. Methodology
The working mid-range estimate represents Calderwood & Harkness's current best assessment of VHG's realistic exposure range, incorporating more nuanced and defensible assumptions than either Scenario A (which is artificially narrow) or Scenario B (which is a theoretical maximum). The mid-range estimate is constructed using the following analytical approach:
• Blended lookback periods: Some claims are modeled with a two-year lookback (on the assumption that a willfulness finding is avoided on those claims), while others use a three-year lookback (on the assumption that willfulness may be found on certain claim categories where VHG's conduct is more difficult to defend, such as the auto-deduction rule).
• Estimated opt-in / participation rates: Based on historical data from FLSA collective actions in the hospitality industry and C&H's experience in comparable matters, the mid-range estimate applies opt-in rates of 20% to 35% of the maximum putative collective. These rates reflect the typical range of employee participation in judicially approved FLSA notice campaigns.
• Claim-by-claim success probabilities: Not all five claim categories are assumed to succeed in full. The mid-range estimate applies differential success probabilities to each claim category based on the relative strength of the allegations and the available defenses.