This research explores employee perspectives on legal compliance and its impact on service quality within the hospitality sector. Legal compliance is crucial not only as a managerial duty but also as a key factor influencing employee morale, motivation and service delivery. Drawing on insights from arbitration cases, workplace dynamics research, secondary data analysis and qualitative interviews, the research examines how compliance-related disputes affect employee attitudes and service quality. Findings suggest that rigid compliance measures can reduce employee engagement, negatively affecting service quality, while effective communication and an inclusive approach can help mitigate these effects. Legal disputes play a significant role in shaping workplace dynamics and influencing service outcomes. To maintain high service quality, hospitality businesses should treat compliance as a strategic element of human resource management, incorporating employee perspectives and ensuring transparent communication to boost satisfaction and service quality. This research provides a basis for future studies on the interplay between legal frameworks and human dynamics in service industries.