Hello everybody. The latest trend in labor law litigation by a resident manager against his employer is to file a class action type of lawsuit, known as PAGA, on behalf of all of the employer’s other resident managers living in other apartment buildings.
In other words, managers are now not only suing to recover their own unpaid wages, but also to recover wages and other penalties on behalf of all similarly situated resident managers who are employed by the same owners or management companies.
“PAGA” is an acronym for Private Attorneys General Act and is codified in California Labor Code Sections 2698 through 2699.5.
Although a PAGA cause of action filed by a resident manager on behalf of other resident managers is not technically a class action, it is similar in the respect that PAGA allows one plaintiff (i.e., one resident manager) to file suit on behalf of all other similarly situated resident managers hired by the same employer. Thus, if an investor owns five apartment buildings in which each has a resident manager, or a management company employs 20 managers at differently owned buildings, a resident manager in any one of the tenements who claims unpaid wages against the employer, can expand the scope of a traditional lawsuit so as to include claims on behalf of all the managers in all the other properties.
As I have commented in prior issues of AOA Magazine, the past two years have seen a significant increase in the number of lawsuits filed by resident managers against their employers. Most of those lawsuits have involved claims for unpaid wages and penalties allegedly owed by the employer to only the one manager who is suing (i.e., the plaintiff).
Now however, pursuant to PAGA, managers (or more precisely, their attorneys) are typically filing an extra cause of action on behalf of other similarly situated managers, thereby exposing the employing owner or management company to substantial additional monetary penalties including unpaid wages owed to all managers.
To be specific, PAGA allows one aggrieved employee, acting as a private attorney general of California on behalf of himself and as a representative of existing or previously hired employees, to sue to collect wages and penalties from his employer on behalf of all of the other employees whose rights were allegedly violated.
From the monetary recovery, all of the underpaid wages (which is a type of penalty) awarded by the Court go entirely to the other aggrieved employees. The remaining penalties the Court awards are disbursed as follows: 75% to the Labor and Workforce Development Agency (which is an agency of the State of California), with the remaining 25% being apportioned among the affected employees.
In addition, the prevailing plaintiff, on behalf of the other managers, is awarded his reasonable attorneys’ fees (against the employer) for having sued for the benefit of the other managers. The ultimate recipient of those fees is not the plaintiff, but rather, his attorney. It is the award of those fees which is the motivating factor for the plaintiff’s lawyer to file a PAGA suit on behalf of the other managers.
The primary purpose of the PAGA statutory scheme is to lessen the burden on the California Attorney General’s busy office to have to enforce various labor law violations. Not having sufficient time to pursue many such violations, most of them would go unnoticed and unpunished.
By empowering individual employees, such as resident managers, to act as an agent or proxy for the State’s labor law enforcement agency, the theory is that more Labor Code offenders will be held accountable to their employees.
Similar to a class action lawsuit, once a PAGA cause of action is filed, it cannot be dismissed just because the plaintiff may reach his own settlement with the employer. The PAGA statute is written in such a manner that the Superior Court must review and approve any penalties sought (or not sought) on behalf of all other employees as part of a proposed settlement agreement with the plaintiff. (Labor Code Section 2699(l))
One bit of good news for employers is that the Statute of Limitations under PAGA limits the resident managers’ recovery of civil penalties to just one year (C.C.P. Section 340(a)). Contrast that with the three year Statute of Limitations for the recovery of statutory wages for the designated plaintiff manager (C.C.P. Section 338(a)), and the four year Statute of Limitations if plaintiff manager’s suit is brought for Unfair Business Practices (B&P Code Section 17208).
Thus, the aggrieved resident manager who files suit for unpaid wages can recover for the preceding three or four years, whereas the PAGA recovery of civil penalties on behalf of resident managers in other apartment buildings owned or managed by the same employer as the plaintiff’s manager, is only the preceding one year. But even one year of unpaid wages and other monetary penalties can be substantial.
One mitigation aspect of PAGA insofar as the employer is concerned is that it allows the trial court to reduce the civil penalty if, based on the facts and circumstances of a particular case, the assessment of the full penalty would result in an award that is unjust, oppressive or confiscatory. (L.C. Section 2699(e)(2)) However, I would hasten to say, do not count on that reduction as applying very often. The reduction of the penalty would likely be the exception, rather than the rule.
Recommendations: The best way to avoid a PAGA claim is for the employer to ensure that he follows the following seven recommendations:
- Sign a written employment contract with the resident manager which complies with all of the applicable wage and hour laws as well as all other regulations, ordinances and statutes which govern the employment of an on-site manager. Bear in mind that without a written agreement, none of the manager’s free or reduced rent can be credited against the minimum wages which would otherwise be owed by the employer to the manager. California law authorizes such a credit (up to certain limits), but that is true only if the owner or management company and the manager enter into a voluntary written agreement.
- Regularly obtain written time records for all hours the manager works throughout each month. Surprisingly, it is the employer, not the employee, who is required by California labor law to keep and maintain such records.
- Without the employer doing so, the manager is free to claim that he worked any number of hours, say for example, 100 or more hours per month performing the assigned duties. In the courtroom, the burden to disprove the manager’s claim then shifts to the employer, and that can be daunting task.
- Limit the amount of the lodging credit in the employment contract. Under California law an employer with less than 26 employees who has a signed and properly drafted contract may offset a rent reduction against the wages otherwise owed to the manager provided that the amount (in 2017) does not exceed $564.81 for a single manager and $835.49 where a couple is employed. Do not exceed those amounts in the contract as a lodging allowance against wages. In 2018, the amounts increase to $593.05 and $877.26, respectively.
- Include a provision addressing the new California sick leave law. Be certain that the written employment contract includes a provision consistent with California’s sick leave law. If the property is located in Los Angeles, ensure that the provision is consistent with L.A.’s more onerous sick leave ordinance.
- Include a provision concerning the reimbursement of the manager’s cell phone usage. Be certain that the contract provides that the employer will reimburse the manager for a “reasonable percentage” of the employee’s cell phone bill if the manager’s use of the phone is required in the performance of his duties.
- Do not charge the manager rent in excess of the maximum allowable amounts. If the manager is required to live on site as a condition of employment, be certain that the manager’s rent, as specified in the contract, does not exceed $564.81 for a single manager or $835.49 per month for a couple, or $593.05 and $877.26 in 2018. The only exception to that would be the “check exchange” exception which I have discussed in previous issues of this magazine.
- DO NOT USE A PREPRINTED FORM AGREEMENT FOR A RESIDENT MANAGER. Instead, execute a contract drafted for the specific employment. Preprinted resident manager contracts will almost never comply with California’s fast changing laws which govern resident managers. Nor will a form agreement likely comply with the ordinances of cities in California that have passed their own regulations affecting the employment of resident managers. Those cities include Los Angeles, West Hollywood, Santa Monica, Berkeley, San Francisco, Oakland, San Diego, Malibu, Cupertino, Emeryville, Mountain View, Pasadena, Long Beach, Palo Alto, Los Altos, Santa Clara, San Mateo, San Jose, El Cerrito and Richmond. Also, San Francisco County and the unincorporated areas of Los Angeles County have their own laws which would regulate aspects of the employment of resident managers. Instead, engage qualified counsel to draft an employment contract which is tailored specifically for the owner or management company in accordance with their employment terms and conditions as integrated with the laws of the State and local municipalities.
For a full discussion of how owners and management companies can avoid being sued by a resident manager, please read my article in the August 2017 issue of AOA Magazine entitled “How Not to Be Sued By Your Resident Manager.”
Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 40 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.
The foregoing article was authored on September 1, 2017. 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, or call Mr. Alberstone.
Questions of a general nature are warmly invited. Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067. Phone: (310) 277-7300.