Hello everybody. Most everyone hopes that 2019 will bring about a strong economy, lower taxes, world peace, and other important things like that. As the legal writer for the Apartment Owners Association, my hope and 2019 New Year’s Resolution wish for AOA members is more modest, but nonetheless extremely important. In fact, it is the same Resolution I have proposed to members for the past 19 years: Prepare and sign a written employment contract with each of your resident managers.
Failure to comply with the new 2019 California statewide wage, hour, and rent laws can be financially devastating as it is commonplace for lawyers representing resident managers to sue for, or at least threaten, damages ranging from $175,000 to $250,000 for unpaid wages, excessive rent, penalties, attorneys’ fees and other related amounts.
In light of claims such as those, not to mention complaints managers themselves may file with the California State Labor Commissioner, it is important that AOA members understand the new labor laws and sign written contracts with their managers consistent with those laws so as to avoid liability.
Overview of the 2019 Laws
Beginning January 1, 2019, the California statewide minimum wage is increased to $11.00/hour for employers with fewer than 26 employees. It is $12.00 per hour for employers with 26 or more employees. Certain cities, such as San Francisco, Oakland, Berkeley, Santa Monica, Santa Clara, San Diego, Malibu and Cupertino, among many others, have even higher minimum wages that employers must pay to employees.
For example, the minimum wage for resident managers in the City of Los Angeles if the employer employs less than 26 individuals will be $12.00 per hour through June 2019, and then increase to $13.25/hour on July 1, 2019. If the Los Angeles employer employs 26 or more persons, then the minimum wage will be $13.25/hour through June and then jump to $14.25/hour on July 1, 2019.
If a city has a wage requirement higher than California’s minimum wage, employers must comply with the city’s more onerous ordinance.
Also, throughout 2019, the maximum allowable rent reduction that can be credited toward the wages owed will be approximately $621.29 per month for a single manager and approximately $919.04 per month where a couple is employed if the employer has fewer than 26 employees. I say “approximately” because the exact amount will not be published by the California Department of Industrial Relations (i.e., the Labor Commissioner) until late December 2108, which is after the publication cutoff date for this column. However, the actual amounts, if they differ at all, will not vary by more than a few cents from my projected amounts of $621.29 and $919.04.
Further, the maximum rent in 2019 which can be charged to a manager whose residence in the apartment complex is required as a condition of employment is approximately $621.29 per month for a single manager and $919.04 per month for a couple (living in the same unit) if the employer has less than 26 employees. Once again I say “approximately” because the actual amounts had not yet been announced as of the cutoff date for this article. Still, the actual amounts will be within a few cents of my estimates if they differ at all.
The remainder of this article will assume that the employer has less than 26 employees. If the employer has 26 or more, legal counsel should be sought to discuss the applicable laws because they are different.
Also bear in mind: A resident manager is an employee, not an independent contractor, of the owner or management company who hired him, and therefore must be paid in accordance with applicable minimum wage laws.
Decades ago, the California Industrial Welfare Commission (IWC) first promulgated wage and hour laws for resident managers. The IWC provided that substantial sanctions could be imposed on an employer who did not pay a manager the proper minimum wage. Of those, one of the most oppressive sanctions (which still applies) is that if the owner or management company does not obtain the manager’s signature on a properly drafted agreement, the reduced or free rent the owner or management company gave the manager in lieu of wages could not be legally credited (i.e., offset) against the wages the manager otherwise earned during the Statute of Limitations periods of the preceding three to four years. That means that the employer would, and still does, have to write a check to the manager for what may amount to tens of thousands of dollars for back wages, plus penalties if the employment contract does not properly provide that the reduced or free rent can be credited against the minimum wage. Insurance will not cover that obligation.
Although the IWC is no longer operational, the California Division of Labor Standards Enforcement (i.e., the Labor Commissioner) and the courts now enforce the IWC’s wage orders against employers of resident managers.
The 2019 General Rules
Here are the two generalCaliforniastatewide rules for 2019:
Rule No. 1: Payment of Minimum Wage: Virtually all resident managers are governed byCalifornia’s minimum wage and hour laws which require that they be paid at least $11.00 per hour for each hour they work. 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” overtime pay at $16.50 for each excess hour. Double time payment may also be required in some circumstances. As noted previously, certain cities (and counties) impose a higher minimum wage than $11.00/hour.
Rule No. 2: Maximum Rent that May Be Charged: During 2019, if one or more managers are required to live at the property as a condition of employment, their rent may not exceed (approximately) $621.29 or $919.04 per month, depending whether one manager or a couple is hired. Once again, I say “approximately” because the exact amounts had not yet been published as of the cutoff date for this magazine.
Much of the remainder of this article will explain the exceptions and qualifications to the two General Rules under Californialaw. However, bear in mind that the exceptions and qualifications will not apply unless a properly drafted employment agreement is voluntarily signed by both the manager and the employer, regardless of whether the employer is the owner or the owner’s management company.
Also, preprinted form agreements are not recommended because they usually do not comport with all ofCalifornia’s applicable laws let alone the fact that they typically do not comply with the applicable local city ordinances. Additionally, because there are so many variations in the terms and conditions of employment of any individual manager, preprinted forms will almost never adequately cover them. That means that years later the manager may sue to recover unpaid wages plus monetary penalties against employers who use preprinted forms.
It is absolutely essential that every owner who employs a resident manager enter into a written employment contract which is voluntarily signed by both the employee and employer.
Exception to Having to Pay Minimum Wage:
There is an exception underCalifornialaw 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 wages to be paid in exchange for the employer providing the employee with free or reduced rent for the manager’s living quarters.
An owner may reduce the payment of the monthly wages owed by the lesser of (1) two thirds the ordinary rental value of the unit, and (2) $621.29 per month if one manager is employed, or $919.04 per month if a couple is employed, such as a husband and wife management team. Those amounts are approximate pending publication of the actual numbers. But the actual amounts will not ultimately differ by more than a few cents.
Stated in a slightly different manner, an owner may not credit more than $621.29 per month (1 manager) or $919.04 per month (couple), to the payment of the manager’s minimum wages even though the rental reduction of the apartment unit might be substantially more.
Here is an example: If the rental value for the unit is $1,800 per month but the manager is not charged any rent and the manager works 60 hours each month, underCalifornialaw he is entitled to receive $38.71 per month from the employer. This is computed as follows: 60 hours at $11.00 per hour = $660.00, which is the minimum wage due. A rent reduction lodging credit of $621.29 is proper as the lesser of $621.29 and two-thirds the ordinary rental value of the unit (which would be $1,200). Crediting $621.29 to the $660.00 leaves a balance due of $38.71 per month.
Californialaw is similar where a couple is employed to manage the building. In that case, the maximum wage offset is the lesser of $919.04 per month and two-thirds the rental value of the unit. Thus, if the ordinary rental value is $1,800 per month but the managers are not charged any rent and the couple collectively work 60 hours a month, the employer need not pay them any wages. This is determined as follows: 60 hours at $11.00 per hour = $660.00, which is the minimum wage due. A wage reduction therefrom of up to $919.04 is proper as the lesser of $919.04 and two-thirds the value of the unit.
Bear in mind that the above credit to payment of the minimum wage does not apply unless a legally sound contract is voluntarily signed by the parties.
Compensation for “On-Call” Hours, Waiting Time and Stand-By Time
After being terminated, disgruntled managers sometimes seek compensation from their former employer under a contention that because 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 constantly performing services throughout the day. In 2014 (as well as in earlier cases), the California Court of Appeal rejected that argument in Von Nothdurft v. Steck (227 C.A.4th 524) 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, reading, 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 sitting around all day during “open house” hours to exhibit a vacant unit to prospective tenants but no one shows up.
Accordingly, the employer does not need to pay a resident manager who is required to live on site for “on call,” “stand by” or “waiting” time if the manager is not actively working. However, the time the manager spends, for example, overseeing the repairman or actually showing a vacancy to potential applicants is compensable because the manager is actually carrying out an assigned duty.
Maximum Rent Qualifications
16 UNITS OR MORE: If an apartment building consists of 16 rental units or more, California law requires the owner to have a “responsible person” reside on the premises who has “charge of the apartment house.” Having “charge of the apartment house” is the only duty imposed byCaliforniaState law. Failure to have such responsible person live on site is a misdemeanor punishable by a $1,000.00 fine and/or 6 months imprisonment. (H&S Section 17995)
Usually the “responsible person” is a manager, but he or she could also be a school teacher, hair stylist, newspaper delivery man, professional ping pong player or any other responsible individual. Regardless of the title given, that person benefits from the same wage, hour and rent laws applicable to a manager. (For purposes of this article and unless the context indicates otherwise, I refer to all types of “responsible persons” as “managers.”)
State law notwithstanding, some cities require that an actual “manager,” not merely a responsible person, live on site. For example, West Hollywoodrequires that a resident manager in a rent controlled building having 16 or more units be physically present on the property 4 hours per day every Monday through Friday.
Under Californialaw, the maximum rent a landlord may charge to any responsible person required to live on site in a 16 or more unit building is limited by law. No matter how much of the minimum wage the owner pays the manager (even if the owner pays the full minimum wage), the rent may not exceed $621.29 (1 manager) or $919.04 (a couple) per month for the manager’s unit. (It is my opinion that there is a legal, but highly technical way to avoid those rent limitations in a 16 or more unit building. While I am uncomfortable publishing them, I am willing to discuss them privately with AOA members, management companies and attorneys.)
The reason for the rent caps is that long ago the IWC determined that if a manager is required to live on site, 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, a landlord will offer the manager a reduction in his or her monthly rent in exchange for managerial services. While a rent reduction is proper under California law, the maximum monthly rent which may be charged for the manager’s unit who must live on site still remains $621.29 (1 manager) or $919.04 (couple), or two-thirds the ordinary rental value of the unit if two-thirds the value is less than $621.29 or $919.04 respectively.
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 California Labor Code an employer may charge up to two-thirds of the fair market rental value (FMRV) of the unit without regard to the $621.29 and $919.04 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 (presently $11.00 per hour under California law for all hours worked) by one check and the manager must pay the landlord rent in an amount up to but not exceeding two-thirds the FMRV by a separate check. The theory is that payments for labor are absolutely required regardless of whether the manager pays the rent due.
UNDER 16 UNITS: If the apartment building has fewer than 16 units and the manager’s employment agreement is properly drafted so that the manager is not required to live on the premises as a condition of his employment, then the $621.29 and $919.04 maximum rent limitations discussed previously are not applicable. In such event, the employer may charge the manager any rent up to the full rental amount for the unit, provided that the employer 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 $1,800 and the manager (who happens to live on site but may move and still retain his job) works 50 hours a month, the owner may charge the full $1,800 as rent provided that he also pays the manager $550.00 for services rendered during the month. On the other hand, if the employment contract requires the manager to live on site in the “under 16 unit” building as a condition of employment, then the $621.29 and $919.04 rent limitations discussed previously do apply just as though the building contained 16 or more units.
Raisings 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 Angelesand wish specific information on that topic may review the City’s “Resident Managers as Tenants” publication. That promulgation may be found at the following website: “http://hcidla.lacity.org/resident-managers-tenants”. Attorneys reading this article will find a further discussion of raising a manager’s rent in 1300 N. Curson Investors v. Drumea. AOA members who are not lawyers should confer with legal counsel about the Curson 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. Thus, the effect of the liquidated damages assessment will be that the employer will owe the manager double the unpaid wages. (Labor Code Section 1194.2.) That means that if the unpaid wages during the preceding three years totaled, say, $60,000, the employer would then have to pay the manager $120,000. Numerous other penalties may apply to unpaid wages. Suffice it to say that AOA members do not want to have to defend against them.
Class Action Lawsuits by Resident Managers?
Not only may a resident manager sue his employer on his own behalf to recover unpaid wages and penalties, he may also sue to recover civil penalties on behalf of all the other managers who his employer has hired for other buildings. Although that is not technically a class action, it is similar in nature. Thus, if an investor owns five apartment buildings in which each has a resident manager, or a management company employs twenty managers in differently owned buildings, a resident manager in any one of the tenements who claims unpaid wages against the employer can expand the scope of his lawsuit against his employer so as to include civil penalties on behalf of all the managers residing in all the employer’s other properties. Once such a lawsuit is filed (commonly known as “PAGA”), the resident manager who filed the lawsuit cannot then settle on his own behalf with the employer and then simply dismiss the claims that he filed on behalf of the other managers. Such a dismissal is disallowed absent the court’s approval. In other words, the court, as well as the California Attorney General, wants to ensure that the rights of all the other resident managers are not compromised by the plaintiff resident manager’s selfish desire to abandon the case once he alone is paid what is owed.
Cell Phone Usage
Owners and management companies who require the resident manager to use his personal cell phone in the performance of his duties are required to reimburse the manager a “reasonable percentage” of the manager’s cell phone bill. If the employer does not require the manager to use a personal cell phone, then no reimbursement is required. For a full discussion of the 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.
California’s sick leave law applies to every employee in the State of California who works more than 30 hours per year (repeat: 30 hours per year, not 30 hours per month). In general, such sick leave time accrues at the rate of one hour for every 30 hours the employee works. However, the amount of paid sick leave may be reduced to as little as three days or 24 hours per year, but only if the manager signs a written agreement containing the proper legalese for that reduction. With proper verbiage, the unused sick leave can be prevented from rolling over to the next year. That legalese is technical and should be drafted by seasoned counsel. Some cities have enacted their own sick leave laws which are more onerous than theCaliforniastatewide law. For example, inLos Angeles, a resident manager is allowed as many as 48 hours of sick leave which, if not used, will be rolled over to the following year, for a total of 96 hours of sick leave. With a properly drafted employment agreement, those 96 hours can be reduced to and capped at 72 hours for each year after the first year of employment.
Santa Monica allows 40 hours of sick leave per year which, if not used, roll over to the next year and automatically get capped at 40 hours for that second year. The City of Oakland also allows for 40 hours of paid sick leave per year. The manager’s employment contract should specifically address the applicable sick leave law for the specific city in which the manager’s apartment building is located. Preprinted forms do not cover the variations among cities.
California’s labor laws are exacting. The failure of owners or management companies to comply may expose those employers to actual damages of $100,000 to $200,000 for back pay to their managers, including substantial civil penalties, criminal penalties, liquidated damages, statutory interest, attorney’s fees and court costs. Of course, the “claims” managers initially assert through counsel will likely be much higher.
In order to comply with the various laws, I recommend the following:
1. Sign an Employment Contract: It is absolutely essential that every owner and management company who employs a resident manager enter into a written employment contract which is voluntarily signed by both the employee and employer. The legalese to include in the contract is technical, but the general requirements concerning the wage, hour, and rent laws ofCalifornia are contained in this article.
Although just about any written agreement is better than no agreement, preprinted form agreements usually will not satisfy all the applicable California statutes, the statewide Wage Orders, and local City ordinances. It is best that each employer have their agreement drafted by an experienced attorney practicing in this field of law.
2. Review Your Existing Agreement: If you already have an employment agreement, review it for consistency with the wage, hour and rent laws for 2019 as I have discussed them. Many existing agreements will need to be modified. Also, be certain they address cell phone usage and the requirement for paid sick leave.
3. Keep Time Sheets: Keep time records signed by the manager documenting the days and hours he or she works. Remember, resident managers are employees, not independent contractors.
4. Management Certification: Require the manager to sum up the total hours that the manager worked during each month. Then require the manager to submit a written certification to the owner at the beginning of each following month setting forth those total hours worked during the preceding month. That is the key to deterring disgruntled managers from later claiming that they worked more time than they actually did.
Bear in mind that Californialaw requires the employer (not the employee) to maintain daily time records for his manager. It is important to do so. But it is also important to the employer’s defense to have the manager certify the total number of hours he/she worked each month of employment in the event that the manager ever sues the employer.
5. Obtain and Read a Copy of Minimum Wage Order No. 5: The current wage and hour regulations for apartment managers can be obtained by calling the California Department of Industrial Relations at 844-522-6734. For a copy of the complete wage and hour publication affecting resident managers, ask for: “Public Housekeeping Order No. 5.” It may also be found online by Googling that same name. Also, I anticipate that an abbreviated version of Order No. 5 will become available in 2019. Try Googling “CaliforniaMW-2019.”
The keys to complying with the 2019 wage, hour and rent laws when employing a manager is for the owner or management company to obtain a voluntarily signed, properly drafted written employment contract from the manager and thereafter having the employee deliver to the employer monthly certifications setting forth the total number of hours that he/she worked. By doing so, the employer may avoid tens of thousands of dollars of liability to the manager. Better still, the contract and certifications may dissuade the manager from filing litigation altogether. The manager’s attorney is not likely to sue if he does not expect to win the case in any substantial way.
A succinct “Cut-Out Summary” ofCalifornia’s 2019 resident manager laws immediately follows this article. Have a healthy and prosperous New Year!
Dale Alberstone is a prominent real estate attorney who has specialized in real property and resident manager law for 40+ years. He also serves as a mediator of real estate disputes and is a former arbitrator for the American Arbitration Association and a former Judge Pro Tem. He is also available to testify as an expert witness in his fields.
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 in December 2018 and effective as of January 1, 2019. It is intended as a general overview of only California 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, 269 S. Beverly Drive, Suite 1670, Beverly Hills, California 90212. Phone: (310) 277-7300.