Hello everybody. Most everyone hopes that 2020 will bring about the election of great president, low taxes, world peace, and other important things like that. As the legal writer for the Apartment Owners Association, my hope and 2020 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 20 years: Prepare and sign a written employment contract with each of your resident managers.
Failure to comply with the new 2020 California statewide wage, hour, and rent laws can harm members financially as it is commonplace for lawyers representing resident managers to sue for, or at least threaten, damages ranging from $200,000 to $300,000 for unpaid wages, excessive rent charges, penalties, attorneys’ fees, etc., and actually recover $100K to $150K.
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 2020 labor laws and sign written contracts with their managers so as to avoid liability.
Overview of the 2020 Laws
Wages: Beginning January 1, 2020, the California statewide minimum wage increased to $12.00/hour for employers with fewer than 26 employees. It is $13.00 per hour for employers with 26 or more employees. Certain cities (in fact there are 32 of them) such as San Francisco, Oakland, Berkeley, Santa Monica, Santa Clara, San Diego, Malibu and Cupertino, 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 is $13.25/hour through June 2020 if the employer employs less than 26 individuals. It then increases to $14.25/hour on July 1, 2020. If the Los Angeles employer employs 26 or more persons, then the minimum wage will be $14.25/hour through June and then jump to $15.00/hour starting July 1, 2020.
The city of Mountain View has the highest minimum wage in the state at $16.05/hour as of January 1, 2020.
If a city has a wage requirement higher than California’s minimum wage, employers must comply with the city’s more onerous ordinance.
Rent reduction credit toward wages: Throughout 2020 under California state law, the maximum allowable reduction in rent that can be credited toward the minimum wages owed is $677.75 per month for a single manager and $1,002.56 per month where a couple is employed if the employer has fewer than 26 employees. Employers with 26 or more employees may credit a rent reduction against the managers’ minimum wages owed by up to $734.21 for a single manager and $1,086.07 for a couple.
Maximum Rent: The maximum rent in 2020 which can be charged to a manager who must reside in the apartment complex as a condition of employment is $677.75 per month for a single manager and $1,002.56 per month for a couple (living in the same unit) if the employer has less than 26 employees. Employers with 26 or more employees may charge rent up to $734.21 (single manager) and $1,086.07 (couple).
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.
Employee, not Independent Contractor. Bear in mind that a resident manager is an employee, not an independent contractor, of the owner or management company who hired the manager. As such, the manager must be paid in accordance with applicable minimum wage laws.
The IWC
Decades ago, the California Industrial Welfare Commission (IWC) promulgated wage, hour and rent 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 cannot be legally credited (i.e., offset) against the wages the manager otherwise earned. That means that the employer will have to write a check to the manager for what may amount to tens of thousands of dollars for back wages, plus penalties if a written employment contract does not properly provide that the reduced or free rent will be credited against the minimum wage. Insurance will not cover that indebtedness.
Although the IWC is no longer operational, the courts and the California Division of Labor Standards Enforcement (i.e., the Labor Commissioner) now enforce the IWC’s wage orders against employers of resident managers.
The 2020 General Rules
Here are the two general California statewide rules for 2020:
Rule No. 1: Payment of Minimum Wage:
Virtually all resident managers are governed by California’s minimum wage and hour laws which require that they be paid at least $12.00 per hour for each hour they work. Managers who work more than 8 hours per day, 40 hours per week, or more than 6 consecutive days in a row, are entitled to receive “time and one-half” overtime pay at $18.00 for each excess hour. Double time payment may also be required in some circumstances. As noted previously, certain cities impose a higher minimum wage than $12.00/hour.
Rule No. 2: Maximum Rent that May Be Charged:
During 2020, if one or more managers are required to live at the property as a condition of employment, their rent may not exceed $677.75 or $1,002.56 per month, depending whether one manager or a couple is hired.
Much of the remainder of this article will explain the exceptions and qualifications to the two General Rules under California law. However, bear in mind that the exceptions and qualifications will not apply unless a legally sufficient employment contract is voluntarily signed by both the manager and the employer.
Also, preprinted form agreements are not recommended because they usually do not comport with all of California’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 deficient preprinted forms.
Exception to Having to Pay Minimum Wage:
There is an exception under California law to the general rule that a manager must actually be paid wages for the hours he or she works. The exception involves a credit against the wages due in exchange for the employer providing the employee with free or reduced rent for the manager’s on-site apartment.
An employer 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) $677.75 per month if one manager is employed, and $1,002.56 per month if a couple is employed, such as a husband and wife management team.
Stated in a slightly different manner, the credit to the payment of wages is capped at $677.75 per month for one manager and $1,002.56 per month for a couple even though the rent reduction of the apartment unit might be substantially more than either of those amounts.
Here is an example: If the rental value of a unit is $1,800 per month but the manager is not charged any rent and the manager works 60 hours each month, under California law he is entitled to receive $42.25 per month from the employer. This is computed as follows: 60 hours at $12.00 per hour = $720.00, which is the minimum wage due. A rent reduction credit of $677.75 is proper as the lesser of $677.75 and two-thirds the ordinary rental value of the unit (which would be $1,200). Crediting $677.75 to the $720.00 leaves a balance due of $42.25 per month.
California law is similar where a couple (living together in one unit) is employed to manage the building. In that case, the maximum wage offset is the lesser of $1,002.56 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 $12.00 per hour = $720.00, which is the minimum wage due. A wage reduction therefrom of up to $1,002.56 is proper as the lesser of $1,002.56 and two-thirds the value of the unit.
Bear in mind that the above rent reduction credit to payment of the minimum wage does not apply unless a legally sound contract is signed by the parties.
No Compensation For “On-Call” Hours, Waiting Time or 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. However, thankfully the California Court of Appeal recently rejected managers’ “on-call” contention in Von Nothdurft v. Steck (227 C.A.4th 524). The appellate court ruled that the owner or management company need only pay the manager for the “time spent carrying out assigned duties.” That means that employer must only pay for the time the manager is actually working.
Thus, hours spent sewing, cooking, eating, sleeping, socializing, reading, watching television, playing computer games, lounging around, sitting outside in the sun, and engaging in other personal activities are not compensable even though during that time the manager may be “waiting” for a repairman to arrive or “waiting” all day during “open house” hours to show a vacant units 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 assigned duties.
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 by California state law. Failure to have such responsible person live on site is a misdemeanor punishable by a $1,000.00 fine and/or six 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, nurse, tailor, tennis pro, newspaper delivery man, caretaker, janitor, professional ping pong player or any other responsible individual who is 18 years or older. Regardless of the occupation of that person, that person benefits from the same wage, hour and rent laws applicable to an actual “manager.” (For simplicity in 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 Hollywood requires that an on-site resident manager be physically present on the property four hours per day every Monday through Friday if the building is rent controlled and has 16 or more units in it.
Under California law, the maximum rent a landlord may charge to any responsible person who is required to live on site in a 16 or more unit building is capped. That is, no matter what amount of wages the owner pays the manager, the monthly rent may not exceed $677.75 (one manager) or $1,002.56 (a couple) for the manager’s unit. (It is my opinion that there is a legal, but highly technical way to avoid those two rent limitations in a 16 or more unit building. While I am uncomfortable publishing them, I will 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.
There is one recognized exception to the maximum rent cap for a manger who must live on site. 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 $677.75 or $1,002.56 caps 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 employer must pay the manager the full minimum wage due (presently $12.00 per hour under California law, $13.25 for Los Angeles, etc.) 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 underlying the law that requires separate checks is that payments for labor are absolutely required regardless of whether the manager pays the rent.
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 $677.75 or $1,002.56 maximum rent caps discussed previously are not applicable. In such event, the employer may charge the manager any rent up to (end even more than) the full rental amount for the unit.
For example, if the value of the unit is $1,800 and the manager (who happens to live on site but may move away 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 $600.00 for services rendered during the month (i.e., 50 hrs. x $12/hr. = $600.00).
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 $677.75 or $1,002.56 rent caps 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 rent increases of apartment managers residing in rent controlled units. Owners having rent controlled buildings in Los Angeles and 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) who does not pay the wages owed may be liable for “liquidated damages” to the resident manager in an amount equal to the unpaid minimum wages. The effect of the liquidated damages assessment is that the employer will be penalized by having to pay 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 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 of 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. That is because the court, as well as the California Attorney General, want 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 or her personal cell phone in the performance of the manager’s 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’s monthly magazine.
Sick Leave
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 3 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. The legalese is technical and should be drafted by seasoned counsel.
Some cities have enacted their own sick leave laws which are more onerous than the California statewide law. For example, in Los 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.
RECOMMENDATIONS
California’s labor laws are exacting. The failure of owners and management companies to comply may expose those employers to actual damages of $100,000 to $150,000 or more for back pay to their managers, including substantial civil 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. Also, violations of certain state labor laws and local ordinances might be criminal in nature and might expose the employer to fines and incarceration.
So here is what 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 of California are contained in this article.
Although just about any written contract is better than no written contract, 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 2020 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, so time logs are essential.
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.
As I discussed I detail in my December 2019 article in AOA’s monthly magazine, California law 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.” That publication may also be found online by Googling that same name. An abbreviated one page version of Order No. 5 can be found on-line by Googling “California MW-2019.”
Concluding Remarks
The keys to complying with the 2020 wage and hour laws when employing a manager are (1) for the owner or management company to have the manager voluntarily sign a (properly drafted) written employment contract, and (2) thereafter have 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 “Tear-Out Summary” of California’s 2020 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.
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 2019 and effective as of January 1, 2020. 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.