Hello everybody.  These past two years have seen a dramatic rise in the number of Superior Court lawsuits and Labor Commissioner proceedings filed by resident managers claiming that they were not properly paid for their services.  One cause for the increase is aggressive marketing by lawyers who specialize in representing resident managers on wage and hour claims.  Another cause is that managers are becoming more and more knowledgeable about their own field of law. 

Whatever may be the genesis, their claims must be taken seriously.  That is because most litigation initiated by lawyers on behalf of their manager clients seek damages, penalties, fees, costs and other amounts ranging from $150,000 to $250,000. 

Grievances filed with the Labor Commissioner typically demand lesser sums, such as $50,000 or $75,000.  But even those amounts are significant nonetheless. 

My column this month discusses what the resident manager’s employer can do to protect against such claims and avoid being sued or taken before the Labor Commissioner.  This discussion applies to both the owner of the building and the off-site management company, depending on who is the employer. 

Bear in mind that a resident manager is an employee of the owner or management company.  The manager is not an independent contractor. So here are my recommendations.  They should be taken seriously: 

Sign a Written Agreement

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.  Although some preprinted form agreements are poorly prepared or contain provisions which are flat out contrary to California law, just about any employment agreement 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 without writing them a paycheck for their 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 credit is illegal and the manager must be retroactively paid for each hour he/she worked over the preceding three or four years.

In other words, a verbal agreement between the employer and the manager that the free or reduced rent is to be used to offset the wages otherwise owed to the manager for the hours he/she 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. 

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. 

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 his/her 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 punch in and out on a time clock. 

While filling out a daily timesheet may be required by law, managers frequently will not do it because it is impractical or too time-consuming.

Nevertheless, it is the employer’s obligation to keep records of the manager’s hours worked on a daily basis.  If the manager does not 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, if daily logs are not kept, the employer should at least obtain a signed monthly certification each month from the manager which sets forth the total monthly hours he worked during the preceding month. 

Such reporting of hours to the employer (even if it is just a monthly certification) will help put a lid on the manager’s claims in any future lawsuit or hearing before the State Labor Commissioner.  [Use AOA’s form 119A – Resident Manager Monthly Time Report.]

Limit the Credit of the Free or Reduced Rent Against Wages to the Maximum Amount Allowed by Law

If a manager is required to live on site as a condition of employment, then the maximum credit that the owner or management company may apply to the resident manager’s wages which would otherwise be due is $508.38 per month for a single manager and $752.02 per month where a couple is employed.  (Effective January 1, 2016, those amounts raise to $564.81 and $835.49 respectively per month.)  Any credit above those numbers is unlawful under Order 5-2001 of the California Industrial Welfare Commission.

If the employer offsets the wages owed to the manager in excess of those amounts, the manager will be entitled to recover the minimum wage (presently $9.00 per hour and raising to $10.00 per hour in 2016) for each additional hour the manager worked.  That reimbursement may be for as long as the preceding three or four years of employment depending on the applicable statute of limitations.

In addition, there will 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 then doubles that amount, affording the manager an incredible windfall.  Thus, the manager will then be paid $18.00 per hour ($20.00 per hour in 2016) for his/her hours worked.  (Lawyers reading this article should review Labor Code Section 1194.2 for the law that doubles the wages.) 

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 document was voluntary, I recommend that the agreement be left with the manager overnight before she signs it.  That means that the owner or management company should not present the agreement to the manager and expect her to read it, understand it, and execute it while the employer waits. 

Unlike most lease agreements which tenants immediately sign in the presence of a landlord, the employer’s downside risk for a manager later contending that her assent to the agreement was involuntary because 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 her until she signs it) is huge.  Even though a lawsuit may not be filed until years later, the manager will never forget the pressure she was under to sign the contract while the employer impatiently waited for her autograph.

Thus, to maximize the likelihood the manager voluntarily signed the agreement, and minimize the probability that she will contend that 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 she may review it at her leisure.  By that procedure, the employer can best counter any later assertion that the manager executed it under duress. 

Include a Provision Addressing the New California Sick Leave Law          

Beginning July 1, 2015, every employer must provide his, her or its employee who works in California for 30 days or more per year with paid sick leave.  Management companies and owners would be wise to include appropriate provisions in their resident manager agreements which address the new 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 wage and hour violations.

For a detailed discussion of California’s new sick leave law, please review my column in the March 2015 edition of this AOA Magazine. 

Include a Provision Concerning Reimbursement for the Manager’s Cell Phone Usage

In August 2014, the California Court of Appeal 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.  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.

For a detailed discussion of the new “cell phone” reimbursement requirement, please see my column in the October 2014 edition of this AOA Magazine. 

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 $508.38 per month and the maximum monthly rent which can be imposed on a couple is $752.02 per month.  Those amounts increase to $564.81 and $835.49 respectively beginning January 1, 2016.

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 edition 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 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 a building under 16 units 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.  As an aside, the California Labor Commissioner is not typically concerned about the amount of rent the manager paid.  The Commissioner’s focus is unpaid or underpaid wages based on hours worked. 

It is Best Not to Use the Same Preprinted Agreement For Each Resident Manager You Employ

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.  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 manager is to have fixed office hours 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 single preprinted form agreement generally will not suffice (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, generally any agreement (including a pre-printed form) is better than no agreement. 

CONCLUDING REMARKS

Employment of a resident manager can no longer just be based on a handshake and mutual verbal understanding of the terms.  The terms of engagement must be in writing and 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 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.  

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 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 May 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.

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.