Hello everybody.  Most everyone hopes that 2015 will bring about world peace, a strong economy, more jobs and other important things like that.

As the legal writer for the Apartment Owners Association, my wish and 2015 New Year’s Resolution for AOA members is more modest, but nonetheless extremely important for owners and management companies of apartment buildings throughout California:  Prepare and sign a written employment agreement with each of your resident managers.

Failure to comply with statewide wage and hour laws can be financially devastating.  For example, it has become commonplace for lawyers representing a resident manager to sue for, or at least threaten, damages from $150,000.00 to $250,000.00 for unpaid wages, penalties and other related amounts even though the manager was only employed for two or three years. 

In light of cases such as those, not to mention employment grievances improperly paid managers often file with the California State Labor Commissioner, it is important that AOA members understand the applicable labor regulations and sign written agreements consistent with the law so as to avoid liability. 

Overview of the Law

During 2015 the statewide California minimum wage for managers will be $9.00 per hour.  Commencing January 1, 2016, it will increase to $10.00 per hour.  Certain cities in California, such as San Francisco, have even higher minimum wages.  (If a city has a wage requirement higher than California’s minimum wage, employers must comply with the city’s more stringent ordinance.)

Also, throughout 2015, the maximum allowable rental offset from wages owed in exchange for reduced or free rent is $508.38 per month for a single manager, and $752.02 per month where a couple is employed. 

Starting January 1, 2016, those amounts increase to $564.81 and $835.49 per month.

Further, the maximum rent in 2015 which can be charged to a manager whose residence in the apartment complex is required as a condition of employment is $508.38 per month for a single manager and $752.02 per month for a couple.  (Commencing January 1, 2016, the maximum monthly rent which may be charged will be $564.81 and $835.49 if the manager must live in the building.)

Also bear in mind: A resident manager is an employee, not an independent contractor, of the owner or management company who hired him. 

The IWC

The California Industrial Welfare Commission (IWC) promulgates wage and hour laws for resident managers.  The IWC authorizes substantial sanctions against an owner who does not pay the manager the proper minimum wage.  Of those, one of the most oppressive penalties is that if the owner or management company does not obtain the manager’s signature on a property drafted agreement, the reduced or free rent the owner or management company gave the manager may not be credited (i.e., offset) against the wages the manager otherwise earned during the Statute of Limitations periods of the preceding three or four years.  Thus, the employer will then have to write a check to the manager for what may amount to tens of thousands of dollars for back wages, plus penalties.  No insurance will cover that obligation. 

The General Rules 

Here are the General Rules for 2015:   

Rule No. 1: Payment of Minimum Wage

Virtually all resident managers are governed by so-called minimum wage and hour laws which require that they be paid at least $9.00 per hour for each hour  worked.  Managers who work more than 40 hours per week, 8 hours per day, or more than 6 consecutive days, are entitled to receive “time and one-half” at $13.50 for each excess hour.  Double time payment may also be required in some circumstances. 

Rule No. 2:  Maximum Rent that May Be Charged

If one or more managers are required to live at the property as a condition of employment, their rent may not exceed $508.38 or 752.02 per month, depending whether one or two managers are hired.

Much of the remainder of this article will explain the exceptions and qualifications to the two General Rules.  However,bear in mind that the exceptions and qualifications will not apply unless a properly drafted employment agreement is signed by both the manager and the owner or the owner’s management company. 

Minimum Wage Offset Exception

There is an exception to the general rule that a manager must actually be paid wages for the hours he or she works.  The exception involves a reduction in the compensation owed in exchange for the owner or other employer providing free or reduced rent for the manager’s living quarters. 

An owner may reduce the wages owed by the lesser of (1) two thirds the ordinary rental value of the unit, or (2) $508.38 per month if one manager is employed, or $752.02 per month if a couple is employed, such as a husband and wife management team. 

Stated in a slightly different manner, an owner may not offset more than $508.38 per month or 752.02 per month, respectively, from the manager’s minimum wages even though the rental reduction of the apartment unit might be substantially more.

For example, if the rental value for the unit is $1,500 per month (but the manager is not charged any rent), and the manager works 60 hours each month, he is entitled to receive $31.62 a month from the employer.  This is computed as follows:  60 hours at $9.00 per hour = $540, which is the minimum wage due.  A rent reduction of $508.38 is proper as the lesser of $508.38 and two-thirds the ordinary rental value of the unit (which would be $1,000).  Deducting $508.38 from $540 leaves a balance due of $31.62 per month.

The law is similar where a couple is employed to manage the complex.  In that case, the maximum wage offset is the lesser of $752.02 per month and two-thirds the rental value of the unit.  Thus, if the ordinary rental value of the unit is $1,500 per month (but no rent is paid) and the husband and wife managers collectively work 60 hours a month, the employer need not pay the couple any wages.  This is determined as follows:  60 hours at $9.00 per hour = $540, which is the minimum wage due.  A wage reduction therefrom of up to $752.02 is proper as the lesser of $752.02 and two-thirds the value of the unit.

Bear in mind that the above Minimum Wage Offset Exception does not apply unless a legally sound agreement is signed by the manager. 

Compensation for “On-call” Hours

After being terminated, disgruntled managers often seek compensation from their former employer under a contention that since they were available 24 hours a day on an “On-Call” basis, they should receive compensation for all of that time, even though they were not actually performing services throughout the period.

Recently, the California Court of Appeal disposed of that argument in Isner v. Falkerberg  by holding that the owner or management company need only pay the manager for the “time spent carrying out assigned duties.”  Thus, hours spent sleeping, cooking, eating, talking with friends on the telephone, watching television, playing computer games and engaging in other personal activities are not compensable even though the manager may be “waiting” for a repairman to arrive or to exhibit a vacant unit to a prospective tenant.

Thus, an owner or management company does not need to pay a resident manager for “on call” or “stand by” time if the Manager is not actively working. 

Maximum Rent Qualifications 

16 UNITS OR MORE

If an apartment building consists of 16 rental units or more, the owner is required to have a “responsible person” residing on the premises who has “charge of the apartment house.”  Usually that person is a manager, but he or she could also be a caretaker or janitor.  Regardless of the title given, he or she benefits from the same wage and hour laws applicable to a manager.  (For purposes of this article, I refer to all such “responsible persons” as “managers.”)

The maximum rent that an owner may charge a required resident manager for his unit in a 16 or more unit building is limited by law.  No matter how much of the minimum wage the owner pays the manager of such a building (even if the owner pays the full minimum wage or even more), the owner may not charge the manager(s) more than 508.38 or $752.02 per month, respectively, for the manager’s unit.  (It is my opinion that there is a legal, but highly technical way to avoid those monetary limitations on a 16 or more unit building.  While I am not comfortable publishing them, I am willing to discuss them privately with AOA members, management companies and attorneys.) 

The reason for the rental restrictions is that the IWC and California State Legislature have decided that if a manager is required to live at the premises, he or she has given up some personal freedom.  In exchange for this confinement, the landlord is limited as to the amount of rent that he can charge the manager for the unit.

Typically, an owner will offer the manager a reduction in his or her monthly rent in exchange for managerial services.  While a rent reduction is proper, the maximum rent which may be charged for the manager’s unit still remains as the lesser of 508.38 or $752.02 a month, and two-thirds the ordinary rental value of the unit. 

There is one recognized exception to the “Maximum Rent” limitation for a 16 or more unit building.  I call it the “Check Exchange” exception.           

Check Exchange Exception:  Under the Labor Code an owner may charge up to two-thirds of the ordinary rental value of the unit without regard to the 508.38 and $752.02 limitations, provided that separate checks for the minimum wage payment and the rent are exchanged between the owner and the manager. 

In order to take advantage of this exception, the owner must pay the manager the full minimum wage ($9.00 per hour for all hours worked) by one check and the manager must pay the owner rent in an amount not exceeding two-thirds the rental value by a separate check. 

Under this arrangement, the owner is not permitted to offset the minimum wage he owes by the rent due from the manager.  The theory is that payments for labor are absolutely required regardless of whether the manager pays the agreed rent. 

UNDER 16 UNITS:  If the apartment building has under 16 units and the manager’s employment agreement is properly prepared so that the manager is not required to live on the premises as a condition of his employment, then the 508.38 and $752.02 maximum rent limitations discussed previously are not applicable.  In such an event, the owner may charge the manager the full amount for the unit, provided that the owner separately pays to the manager the full minimum wage which the manager earns based on the number of hours worked.

For example, if the value of the unit is $1,500 and the manager works 60 hours a month, the owner may charge $1,500 as rent provided that he also pays the manager $540 for services rendered during the month.

However, if the manager is required to live in the “under 16 unit” building as a condition of employment, then the 508.38 and $752.02 wage and rent limitations discussed previously do apply just as though the building contained 16 or more units. 

Raising a Manager’s Rent In a Rent Controlled Building

There are a multitude of rules and limitations concerning rental increases of apartment managers residing in rent controlled units.  Owners having rent controlled buildings in Los Angeles and who wish information on that topic may review the City’s “Resident Managers as Tenants” publication.  That promulgation may be found at the web site:  www.lahd.lacity.org.  Once there, click on the “Forms and Publications” link near the bottom of the page.  Then click on “Rent Stabilization Ordinance Publications” at the bottom of the page.  Then scroll down and click on “Resident Managers as Tenants.”  The publication was last revised in May 2014, but remains applicable as of the present.

In rent controlled cities other than Los Angeles, AOA members who are attorneys will find a discussion of raising the manager’s rent in Von Nothdurft v. Steck.  AOA members who are not lawyers should confer with legal counsel about the Von Northdurft case.   

Penalties For Not Complying With Wage Laws

The Labor Code provides that an employer (including an apartment owner and management company) may be liable for liquidated damages to the resident manager in an amount equal to the unpaid minimum wages if the employer was not acting in good faith or did not have reasonable grounds for believing that he/she was not in violation of the minimum wage law.  Thus, the employer will owe the manager double the unpaid wages. (Labor Code Section 1194.2.)

Numerous other penalties may apply to unpaid wages.  Suffice it to say that AOA members do not want to have to defend against them. 

Cell Phone Usage

Owners are required to reimburse a resident manager a “reasonable percentage” of his manager’s personal cell phone bill if the employee is required to use his phone in the performance of his duties.  For a full discussion of the new cell phone reimbursement law and what may constitute a “reasonable” percentage for reimbursement, please see my column in the October 2014 issue of AOA Magazine. 

Recommendations

California’s labor laws are exacting.  The failure of an owner or management company to comply will expose them to well over $100,000 as back compensation to their managers, including substantial civil penalties plus potential criminal sanctions.  In order to stay within the bounds of the various laws, I recommend the following:

  1. Sign an Employment Agreement:  It is absolutely essential that every owner and management company who employs a resident manager enter into a written signed employment contract with that person.  The specific provisions to include in the contract are technical, but the general requirements concerning the wage and hour laws are contained in this article.  Remember, resident managers are employees, not independent contractors.
  2. Review Your Existing Agreement:  If you already have an employment agreement, review it for consistency with the wage and hour laws for 2015 as I have discussed them. Many existing agreements will need to be modified.
  3. Post Manager’s Name and Address:  Post the name and the address of the manager in charge of the apartment building.  Also post the hours and days that the manager will be available for assistance if the manager has a fixed work schedule.
  4. Keep Records:  Keep accurate records of all matters pertaining to the days and hours the manager works.  [Use AOA’s form #119A – Resident Manager’s Monthly Time Report.]
  5. Management Certification:  Require the manager to record all hours that he or she works during any given month.  Also require the manager to submit a written certification to the owner at the beginning of each following month setting forth the total number of hours that the manager worked the preceding month.  That is the key to deterring a disgruntled manager from later claiming that he/she worked more time than they actually did.  The law requires the employer to maintain daily time records for his manager.  It is important to do so.  But it is also important (from the standpoint of having me or any other attorney defend an owner or management company in court) to have the manager certify the total number of hours he/she worked during the entire month.
  6. Obtain A Copy of Minimum Wage Order No. 5 and MV-2014:  The current wage and hour regulations for apartment managers can be obtained by calling the Department of Industrial Relations at 415-703-4810.  For a copy of the complete wage and hour publications affecting resident managers, ask for:  “Public Housekeeping Order No. 5” as well as “MW-2014.”  MW-2014 is a short version of Order No. 5, but omits some of the longer version’s important provisions.  Both of those publications may be found online at www.dir.ca.gov/iwc.  Once there, click on “View or download wage orders.” CONCLUDING REMARKS

    The key to complying with the wage and hour laws when employing a manager is that the owner or management company obtains a signed, properly drafted written employment agreement and monthly certifications setting forth the number of hours that the manager worked.  By doing so, the employer can avoid thousands of dollars of potential liability to the manager under the wage regulations.  Better still, the contract and certifications will deter litigation. The manager’s attorney is not likely to sue if he does not expect to win the case in any substantial way.

    A handy “Cut Out Summary” of resident manager wage, hour and rent laws immediately follows this article.

    Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 38 years.  He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association.  He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.

    Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell.  An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity. You may Google “Dale S. Alberstone” for further background.          

    The foregoing article was authored on December 1, 2014 and effective as of January 1, 2015.  It is intended as a general overview of the law and may not apply to the reader’s particular case.  Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.

    Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067.  Phone:  (310) 277-7300.

“CUT OUT SUMMARY”

 

ALBERSTONE & ALBERSTONE

DALE S. ALBERSTONE, ESQ.

1900 Avenue of the Stars, Suite 650, Los Angeles, CA90067

TELEPHONE: (310) 277-7300     FAX:  (310) 277-7307

 

Apartment Managers:  Wage, Hour and Rent Laws.

January 2015 – December 2015

 

1.  General Rules: 

    A.        Minimum wage compensation for a manager is $9.00 per hour for each hour worked.

    B.        Overtime:  Overtime of 1½ times hourly rate ($13.50) must be paid if more than 8 hours per day, 40 hours per week, or 6 consecutive days.

    C.        If the Manager is not required to live at the property of an under 16 unit building, but the Manager chooses to live there, then any rent may be charged.

    D.        If the Manager is required to live at the property, regardless of the number of units, the rent paid by the Manager may not exceed the monthly sum of $508.32 for a single Manager, or $752.02 for a   

            couple.

    E.     If no rent is charged, the Manager’s wages may be offset by up to 2/3 the ordinary rental value, but no more than $508.32 (1 Manager) or $752.02 (couple) per month. 

2. Qualifications to General Rules: 

    A.        Under 16 Units:  If less than 16 units and the Manager is not required to live at the property, then Manager can be charged any rent, even if greater than $508.32 or $752.02.  But full hourly minimum

            wage must be paid to Manager without offset if full rent is charged.  Dollar-for-dollar wage reduction is allowed as a credit against payment of minimum wage up to $508.32 or $752.02 (but not

            exceeding 2/3 the unit’s value) if the rent is reduced below its ordinary rental value. 

    B.        16 Units or More:

            Exception No. 1:  “Offset of Wages”:  Manager’s wages may be reduced by the lesser of (1) 2/3 the unit’s rental value, or (2) $508.32 per month (1 Manager) or $752.02 per month (couple) if no rent is paid.  Dollar-for dollar wages reduction if only a partial rent reduction.  Manager’s wages may not be offset by more than $508.32 or $752.02 even though the apartment might be worth significantly more. 

            Exception No. 2:  “Check Exchange:  Manager may pay up to 2/3 the value of the unit as rent (without regard to $508.32 and $752.02 limitations) provided that separate checks are exchanged for the Manager’s payment of rent and Owner’s payment of wages.  Thus, the Owner must pay manager the full minimum wage ($9.00 for all hours worked) and the Manager must pay Owner an amount not exceeding 2/3 the rental value by separate checks. 

    C.        Cities With Higher Minimum Wages:  If the apartment complex is located in a city with a local minimum wage higher than the statewide minimum wage (e.g., San Francisco, Richmond, Berkeley

            and Oakland), then the employing Owner must compensate the Manager based on the higher wages. 

    D.        Managers are Employees:  Resident Managers are employees, not independent contractors of the Owner.  That is true even if the resident manager agreement specifies that the Manager is an

            independent contractor. 

3. Penalties for Non Compliance: 

    Liquidated damages to the Manager equal to the unpaid minimum wage for the past 3 years, plus Manager’s attorney fees, among others!  L.C. Sections 1194 and 1194.2. 

4. Recommendations: 

    A.        Sign a Contract:  No offsets to the minimum wage are allowed unless Manager signs a contract with Owner providing for such offsets!

    B.        Update all Contracts:  Review and update all contracts to be consistent with current law.

    C.        Management Certification:  Require Manager to record all hours worked, sign and deliver such report to Owner.

    D.        Posting:  Post manager’s name and address in conspicuous place at the building.

    E.     Record Keeping:  Keep accurate records of all matters concerning hiring, hours worked and firing of Managers. 

NOTE:  As used herein, “Owner” includes a management company employer.  For a fuller discussion of these laws and certain exceptions, please contact Mr. Alberstone.