Hello everybody. In recent years the incidents of lawsuits filed by disgruntled resident managers against their employing owners or management companies has grown from rare to frequent. The principal reason for this is the ease by which managers can now access applicable laws by using the Internet.
For example, a Google search of RESIDENT MANAGER LAWS (without placing that expression in quotations) will bring up more than 2.5 million blogs which educate (but sometimes mislead) managers of their rights.
That knowledge often results in managers contacting attorneys who advertise on the web that they specialize in suing employers in court on wage and hours violations.
Such lawsuits must be taken seriously. That is because litigation initiated by most lawyers on behalf of their manager clients now typically seek $150,000 to $300,000, if not more, in combined unpaid wages, liquidated damages, penalties, refunds of excessive rent, attorney’s fees, costs, etc. Unfortunately, employer insurance policies generally do not cover unpaid wages or related amounts owed.
Managers can also file their grievances with the California Labor Commissioner without an attorney. The Labor Commissioner then pursues the claims for free, on behalf of the employees.
My column this month discusses what steps resident manager employers can take to avoid being sued or pursued on such claims, with that protection starting at the very moment the manager is hired.
1. Sign a Written Agreement
A resident manager is an employee of the owner or management company. Resident managers are not independent contractors.
Above all else, the most important prophylactic step an employer can take is to sign a written employment agreement with his, her or its manager at the time of the hiring. While most preprinted form agreements are poorly prepared and often contain provisions which are flat out contrary to law, just about any employment contract is better than no agreement. That is particularly true for owners and management companies who reduce a manager’s rent or provide the manager free rent in exchange for receiving his/her monthly services instead of issuing paychecks for the labor.
California law is crystal clear that unless the manager voluntarily agrees in writing that the reduced or free rent is to be credited against the manager’s wages otherwise owed under California’s minimum wage law, that lodging credit is illegal and the manager must be retroactively paid for each hour he/she worked over the preceding three or four years, depending on the applicable statute of limitations.
In other words, a verbal agreement or a handshake understanding between the employer and the manager that the free or reduced rent is to be used to offset the wages otherwise owed for the hours the manager works, is void. That means that not only will the manager be allowed to sue the employer for the unpaid wages (and win), the owner will not even be allowed to recoup from the employee the previously reduced or free rent.
Further, the employer may be additionally responsible for interest which will accrue at 10% per annum.
The bottom line is that all owners and management companies should have their newly hired managers sign a written employment agreement at the time of the hiring. For managers who are already employed with no written contract or a deficient written agreement, employers should prepare (or have their counsel prepare) a superseding replacement agreement consistent with current law.
2. Require the Manager to Submit a Log of the Hours Worked
The second most important suggestion I can make is that the employer requires his resident manager to submit a time log showing the hours that the manager worked. California law mandates that the employer maintain time records of total daily hours worked and when the employee began and ended each work period for each day. (IWC Order 5-2001, section 7)
Surprisingly, California law does not require that the employee maintain time records for his work. Nevertheless, just about the only way that the employer can comply with the employer’s obligation to maintain time records is to require the manager to submit them to the employer on a regular basis.
I realize that it is problematic and incredibly inconvenient for a manager to record his/her hours on a daily basis. That is true because the manager’s work may stop and start numerous times each day, unlike employees in most other fields who work continuously throughout the day (except for lunch and rest periods) and who can easily log in and out on a time clock.
While filling out a daily timesheet (or electronically logging in and out) will satisfy that aspect of the law, managers frequently fail to do it because it is impractical or too time-consuming. Daily logs showing when the manager begins and ends each work period are frequently inaccurate because managers forget to record all of their time.
Nevertheless, it is the employer’s obligation to keep accurate records of the manager’s hours worked on a daily basis. If the manager refuses to turn in such records, the employer has the choice of firing the manager or alternatively risking a potential loss at trial or at a hearing before the Labor Commissioner.
In any event, even if daily logs are not kept, the employer should obtain a signed certification promptly following the end of each month from the manager which sets forth the total monthly hours he or she worked during the preceding month.
Such reporting of hours to the employer (even if it is just a monthly certification) will help cap the manager’s recovery in any future lawsuit or hearing before the Labor Commissioner.
For a detailed discussion of reporting of hours, please see my November 2016 article in AOA Magazine entitled “What Time Records Must a Resident Manager Keep?” By the way, some AOA members may have recognized that it was a trick title. The answer would be “None.” Only the employer is required to keep the time records.
3. Limit the Amount of Lodging Credit
If a manager is required to live on site as a condition of employment, then the maximum credit under California law that the employer (who has less than 26 employees) may apply to the resident manager’s monthly wages is $564.81 for a single manager and $835.49 where a couple is employed. Effective January 1, 2018, those amounts raise to $593.05 and $877.26 respectively.
If the employer employs 26 or more employees, then the maximum monthly credit under California law will be $621.29 and $919.04 respectively.
Any lodging credit above those amounts is unlawful under IWC Order 5-2001.
If the employer offsets the wages owed to the manager in excess of the preceding amounts, the manager will be entitled to recover the minimum wage (presently $10.00/ hour or $10.50/ hour, or more depending on the City and number of employees) for each additional hour the manager worked. That reimbursement of unpaid wages may be for as long as the previous four years of employment, depending on the applicable statute of limitations.
In addition, there may be a penalty, denominated as “liquidated damages,” assessed against the employer equal to the unpaid minimum wages. In other words, whatever amount the employer fails to pay the manager, state law may then double that amount, affording the manager an incredible windfall. (Lawyers reading this article should review Labor Code Section 1194.2 for the law that doubles the wages.)
4. Be Certain That the Written Agreement is Voluntarily Signed
Your resident manager agreement will only be lawful if it was voluntarily signed by the manager. In order to enhance the likelihood that a judge or a jury will find that the manager’s signature on the contract was voluntary, I recommend that the agreement be left with the manager overnight before he or she signs it. That means that the owner or management company should not present the agreement to the manager and expect the employee applicant to read it, understand it, and execute it while the employer waits.
Unlike lease agreements which tenants immediately sign in the presence of a landlord, the employer’s downside risk is huge for a manager later contending that his or her assent to the agreement was involuntary because he or she wasn’t given sufficient time to read and understand the document (such as where the owner sits in the same room with the manager, twiddles his thumbs, and stares at the new manager until he or she signs it). Even though a lawsuit may not be filed until years later, the manager will never forget the intimidation and pressure he or she was under to sign the contract while the employer impatiently waited for the autograph.
Thus, to maximize the likelihood the manager voluntarily signed the agreement and minimize the probability that the employee will contend that he or she had insufficient time to read and understand the document, I recommend that the agreement be left with the manager overnight (or longer) so that the employee may review it at his or her leisure. By that procedure, the employer can best counter any later assertion that the manager executed it under duress.
5. Include a Provision Addressing the New California Sick Leave Law
Every California employer must provide his, her or its manager who works 30 days or more per year with paid sick leave time. Management companies and owners would be wise to include appropriate provisions in their manager contracts which comport with the sick leave law. Failure to do so might, years later, cause the manager to seek legal advice, which then expands into a serious claim for medical wage violations.
6. Include a Provision Concerning Reimbursement for the Manager’s Cell Phone Usage
The California Court of Appeal recently ruled that all employers (which would include apartment owners and management companies) must reimburse their employees for the “reasonable percentage” of the employee’s cell phone bill if the employee’s use of the phone is required in the performance of his duties. (Cochran v. Schwan, 228 C.A.4th 1137) In that regard, I recommend that every employer of a California resident manager include a provision in the manager’s contract addressing the issue of reimbursement.
7. Do Not Charge a Manager Rent in Excess of the Maximum Amounts Allowable
If a manager is required to live in the apartment building as a condition of his employment, the maximum amount of rent that may be charged to a single manager is $564.81 per month ($593.05 if 26 or more employees). The maximum monthly rent which can be imposed on a couple is $835.49 per month ($877.27 if 26 or more employees). Those amounts increase to $593.05 (or $621.29) and $877.26 (or $919.04) respectively beginning January 1, 2018.
With buildings having 16 or more units, state law requires a responsible person live on the premises. If the resident manager is the responsible person and is required to live on site, then rent may not be charged in excess of the preceding amounts. (For the “check exchange” exception to this rule, please see my column in the January 2015 issue of this AOA Magazine.)
On the other hand, if the building has less than 16 units, state law does not require any representative of the owner or management company to live on the premises. In that event, any rent may be charged (which does not otherwise violate applicable rent control regulations) provided that the manager is not required by the employer to live in the complex. Accordingly, if the employer does not require the manager in an under 16 unit building to reside on site (which would be primarily for the reason that the employer could then charge more than the rental amounts stated above), the agreement should specifically provide that residency is not a condition of employment.
Failure to insert that provision in the agreement of an under 16 unit building may later lead to the manager to claim that his rent was overcharged because he was, after all, the “resident” manager. The manager is likely to prevail on that contention and thereby be allowed to recover his overpayments in a Superior Court lawsuit.
8. Do Not Use Preprinted Form Agreements for Resident Managers
Unlike a preprinted form lease agreement which can be used with just about every new tenant applicant, there are so many variations in the nature of the employment of a resident manager that a single form generally will not suffice and will likely violate law in various aspects. For example, the laws applicable to resident managers are different if it is a 16 or more unit complex as compared with an under 16 unit building, if one manager is employed versus two managers, if free or reduced rent is given as a credit against the manager’s wages versus no credit being given, if salary or wages are paid by the employer versus no compensation being paid, if a “check exchange” procedure is used to increase the maximum amount above the limitations discussed previously in this article, if the manager’s unit is rent controlled versus non rent controlled, if the building is located in a city that has its own minimum wage laws (such as Los Angeles, San Francisco, Santa Monica, Oakland, San Diego, etc.), if the manager is to have fixed office hours (as in West Hollywood) versus floating hours, if benefits are provided to the manager versus no benefits, if the manager must vacate his unit upon termination of employment versus being able to then remain as a tenant, etc.
With all those variables (and numerous others) and the different possible combinations thereof, a preprinted form agreement generally will not comply with law and probably should not be used at all.
Qualified counsel should draft an employment agreement which is tailored specifically for the owner or management company and their specific rules, procedures and terms of employment. Nevertheless, as I stated at the outset this article, just about any written agreement (including a pre-printed form) is better than no written agreement.
Employment of a resident manager can no longer just be based on a handshake and verbal agreement. The terms of hiring must be in writing and voluntarily signed by both parties.
Because the owner’s or management company’s liability may be so large, with hundreds of thousands dollars potentially at risk, a written employment agreement is a necessity. Careful planning and analysis need to be given in connection with the employment of a resident manager and the drafting of the agreement.
In addition, it is imperative that the employer obtain accurate time records from the manager.
As Benjamin Franklin once commented, “An ounce of prevention is worth a pound of cure.”
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. You may Google “Dale S. Alberstone” for further background.
The foregoing article was authored in July 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.
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.