Hello everybody. In case you have not heard, on July 1, 2014, the minimum wage in California increased from $8.00 to $9.00 per hour. Other important changes were also implemented, such as raising the cap on the amount of rent a landlord can charge a resident manager for his/her unit, and increasing the ceiling on the amount of reduced rent an employer may apply toward the manager’s monthly wages.
These new laws are applicable to all owners and management companies which engage a resident manager or any other responsible person, such as a resident caretaker or janitor.
Failure to comply with the new laws can be financially devastating. For example, in one matter I recently handled for an owner, the husband and wife resident managers filed litigation against my client to recover in excess of $250,000 as unpaid wages, penalties and other related amounts even though they were employed by owner for just two years.
In light of cases such as that, it is important that AOA members understand the new labor laws and sign written agreements consistent with the laws so as to avoid liability.
MAJOR CHANGES FOR 2014 and 2015
From January 1 through June 30, 2014 the statewide California minimum wage for managers was $8.00 per hour. Commencing July 1, 2014, that minimum wage increased to $9.00 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 ordinance.
Also, during all of 2013 and the first six months of 2014, the maximum allowable rental offset from wages owed in exchange for reduced or free rent was $451.89 per month for a single manager, and $668.46 per month where a couple is employed. Starting July 1, 2014, those amounts increased to $508.38 and $752.02 per month.
Further, for all of 2013 and the first half of 2014, the maximum rent which could be charged to a manager whose residence in the apartment complex was required as a condition of employment was $451.89 per month for a single manager and $668.46 per month for a couple. Commencing July 1, 2014, the maximum monthly rent which may be charged is $508.38 and $752.02 if the manager(s) must live in the building.
One law did not change on July 1: A resident manager is an employee, not an independent contractor, of the owner or management company who hired him/her.
Incidentally, on January 1, 2016, the wage amounts, credits, and rent will again change. Please check back with me then for those new numbers.
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 preceding Statute of Limitations periods of 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.
THE GENERAL RULES
Here are the General Rules for 2014 and 2015, beginning on July 1:
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, eight hours per day, or more than six 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 theory 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 contention in Isner v. Falkerberg (160 Cal.App. 4th 1393), 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 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.
The maximum rent that an owner may charge a manager who must live in an apartment in a 16+ 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 or other 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 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, or two-thirds the ordinary rental value of the unit.
There is one recognized exception to the “Maximum Rent” 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 unpaid 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 wishing information on that topic may review the City of Los Angeles’ “Resident Managers as Tenants” publication which may be found at the web site: www.lahd.lacity.org. Then click on “Forms and Publications” under the bottom box entitled “Resources.” 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 December 2012, but remains applicable as of the present.
For a further up-to-date discussion of how much a manager’s rent may be raised under the Los Angeles City Rent Stabilization Ordinance, please read my column in the June 2014 issue of this AOA Magazine.
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 a total of 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.
California’s labor laws are exacting. The failure of an owner or management company to comply will expose them to tens of thousands of dollars as back compensation to the manager, as well as substantial civil penalties and 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 highly 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 2014 and 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.
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 that preceding month. That is the key to deterring a disgruntled manager from later claiming that he/she worked more time than they actually did. (Such claims could expose the owner to a demand well over $50,000 per year at $9.00 per hour. The figure will be much higher if overtime pay and penalties are taken into account.) The law requires the employer to maintain time records. It is important to do so.
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 California Labor Commissioner’s office at 415-703-4810. For a copy of the complete wage and hour publications affecting resident managers, ask for: “Public Housekeeping Order No. 5” and “MW-2014.” MW-2014 modifies several of the provisions in Order No. 5. Both of those publications are necessary and may also be found online at www.dir.ca.gov/iwc. Then click on “View or download wage orders.”
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 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.
Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 37 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 June 2, 2014 and effective as of July 1, 2014. 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.