Hello everybody. On July 1, 2019, resident manager laws will change in many cities throughout California. Fortunately, the laws promulgated by the state of California will not change in any significant fashion until January 1, 2020. My column this month will address a number of the 2019 changes of city laws and other important aspects of California law pertaining to on-site managers.
New Minimum Wage Laws
All resident managers in California are employees, not independent contractors. The California minimum wage for resident managers is presently $11.00 per hour provided that the employer has less than 26 employees, and remains at that amount for the remainder of 2019.
If the employer has 26 or more employees, then the California minimum wage is $12.00 per hour throughout 2019.
Because most employers of managers have less than 26 total employees, the balance of this article will be limited to employers with less than 26 employees.
While California requires a minimum wage payment of $11.00 per hour everywhere in the state, it does not prevent local municipalities from enacting their own ordinances imposing a higher minimum wage. For example, the minimum wage in City of Los Angeles as well as the unincorporated areas of the County of L.A. rises from $12.00 per hour to $13.25 beginning July 1, 2019.
The minimum wage in the city of Berkeley rises from $15.00 per hour to $15.59 per hour on July 1. So too does the minimum wage increase to $15.59 per hour in San Francisco. (Why they could not have simplified the mathematics and just raised it to $15.60 per hour is beyond me.)
The minimum wage in Pasadena and Malibu increases to $13.25 per hour on July 1 of this year.
Employers should check with the respective cities in which their managers work to ascertain what minimum wage is applicable.
“On-Call” Time Is Not Subject to the Minimum Wage
Because a manager who lives on site as a condition of employment resides in the apartment building (i.e., which is their home), California law only requires that the employee be paid the minimum wage for the time that he/she spends “carrying out assigned duties.” Accordingly, under California’s statewide law, “on-call” time, “stand-by” time, and “waiting” time are not compensable because the manager is not actually performing services. (Lawyers wishing to research this issue in depth should read Brewer v. Patel 20 C.A.4th 1017; Isner v. Falkenberg 164 C.A.4th 1393; Van Nothdurft v. Streck 227 C.A.4th 524.)
Here is an example. A manager who waits around for, say, five hours on a Sunday to show a vacancy to prospective tenants is only required to be paid for the time he actually interacts with the applicants. The time the manager is waiting after one applicant leaves and the next applicant arrives to view the unit is not compensable. That is because the manager is only “waiting” to work but is not actually working (i.e., he is not carrying out assigned duties).
I am not aware of any local municipality that requires differently, i.e., that a manager has to be paid wages for waiting, standby or on-call time.
Allowable Offsets to the Minimum Wage
Under California law, certain offsets can be taken against the minimum wage provided that the manager’s rent is reduced below the market rent and a voluntary written agreement is signed by the manager agreeing to the offsets. Under California law, those offsets against wages are capped at $621.28 if only one manager is employed and $919.02 if a couple is employed.
Thus, if the rent is reduced by at least $621.28 (one manager) or $919.02 (a couple) the employer need not pay the single manager any wages for the first 56.4 hours worked under the California minimum wage law if the employment contract is properly drafted. ($621.28 divided by $11.00 = 56.4) If a couple is employed, then the first 83.5 hours need not be paid under the California minimum wage law if the agreement is correctly prepared. ($919.02 divided by $11.00 = 83.5)
Any work the manager performs in excess of those 56.4 or 83.5 hours must be paid by cash or check based on the applicable minimum wage.
A problematic issue and one that does not presently have a definite answer is whether individual municipalities that have their own higher minimum wages will allow their wages owed to be offset by the same $621.28 and 919.02 offsets that California allows to be taken against the California minimum wage.
In other words, the higher minimum wage ordinances passed by each municipality specify the minimum wage which must be paid to managers working in those cities. But those ordinances are silent as to whether each such city with a higher minimum wage will nevertheless allow the offsets California expressly allows to its minimum wage earnings to be applied to the wages in those cities.
Because California and cities are different governments, cities are typically allowed to pass laws that are more onerous than California laws, such as a higher minimum wage. But cities would not necessarily be required to follow California law as to the permissible $621.28 and $919.02 offsets. So it remains an open question as to which cities, if any, would accept California’s offsets.
By the way, if a manager works more than 8 hours a day, 40 hours a week, or more than 6 days in a row, then that extra time is overtime and compensable at 1-1/2 times the minimum wage. In some instances, the discounted rent might be factored into the hourly amount of the overtime, but that is too technical to explain in this article.
Sick Leave Time
In general, California provides that every manager who works more than 30 hours per year is entitled to paid sick leave time. That sick leave time is usually a minimum of 24 hours per 12 months of employment.
The meaning of that is that the employer may not reduce the wages that the manager is to receive for the first 24 hours the employee does not work due to an illness or takes off for a medical check-up. Also, the 24 hours of “sick” time need not be on consecutive days. The employee may divide it up over the year.
If the employee does not take any sick leave time during any given 12 months, then under California law, the 24 hours will roll over to the next year and become 48 hours.
However, a properly drafted resident manager agreement can prevent any rollover of unused time under California law. Basically, it is a “use it or lose it” concept if the agreement so provides.
Local cities often impose more stringent sick leave requirements. For example, the City of Santa Monica provides for a minimum of 40 hours of sick leave per year for companies having less than 26 employees.
Owners and management companies should check with the city in which they have on-site managers to ascertain the applicable sick leave requirements for their respective cities.
Maximum Rent Charges
Many AOA members have contacted me to ask “What is the minimum monthly rent that the employer must charge the manager?” There is no required minimum monthly rent. There is only a maximum rent which may be charged in 2019 to a resident manager who is required to live on-site as a condition of employment. The maximum rent is $621.28 for a single manager and $919.02 when a couple is employed in the same unit. That means that even if an apartment unit has a $3,000.00 monthly market rental value, rent may not be charged in excess of $621.28 or $919.02.
There is one exception to those two dollar amount limitations. I call it the “Check exchange.”
The Check Exchange Exception
The Check Exchange exception allows the owner or management company to charge a manager as rent up to, but not exceeding, 2/3 the fair market rental value of the unit (and not be limited to $621.28 or $919.02) provided that the employer pays the employee the full minimum wage for every hour the manager actually works without taking any credit against the wages for the reduced rent.
Here is the reason I call this the “Check Exchange” exception: Managers who are charged rent typically pay it on the first day of the month. Then, mid-month and following the end of the month, the owner is required to pay the manager the amount the manager earned based on the minimum wage for that month. (By law, wages are required to be paid semi-monthly although many owners pay them in a single payment at the end of each month.) Because the manager pays his rent by one check at the beginning of the month and the employer later pays the manager his wages by another check, and even though the payments are not concurrent, it is something like an exchange of checks. For simplicity, I call it a “check exchange.”
What Type of Work is a Resident Manager Required to Perform?
Surprisingly, California law does not require that a resident manager live on site even if the building is 16 units or more. Instead, the only requirement is that a “responsible” person live on site. That responsible person is usually a manager, but could be a janitor, housekeeper, caretaker, school teacher, newspaper delivery boy, dermatologist, waitress, barber, or any other relatively normal person 18 years or older.
With respect to the duties required, California law does not require that the manager perform any duties of any kind whatsoever. The only requirement is that the responsible person living on site have “charge of the apartment house.” That expression is not defined by the state of California.
Certain cities have their own, more onerous, laws concerning on-site employees. For example, West Hollywood requires that a “manager” in a rent-controlled building having 16 units or more be physically present on-site in the apartment complex 5 days a week, Monday through Friday, for a minimum of 4 business hours per day.
West Hollywood even suggests that the hours be fixed from 8:00 a.m. to noon every weekday. However, that City allows the employer to establish different hours, just so long as the manager is physically present on-site four hours a day, 5 days a week, Monday through Friday.
Employers should check the local ordinances of their respective cities to see if their municipalities have any residency requirement more stringent than California’s requirement.
Employers, Not Managers, Must Keep Time Records
Surprisingly, California does not require a resident manager to keep time records of any kind documenting the hours that he or she works. Instead, the State requires the employer to keep time logs. Specifically, California requires the employer to maintain the following: “Time records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded.”
Without time records, the employer is exposed to the manager, either in Court before the California Labor Commissioner, claiming that he or she worked numerous hours, and often hundreds of hours per year, more than the employer could ever imagine or accept. Claims of that nature often exceed $100,000 over the applicable 3 or 4 years allowed by the Statute of Limitations. Without time records, the manager is given the benefit of doubt in a formal proceeding against the employer.
It is therefore incumbent upon owners and management companies who employ managers to obtain from them accurate records on a frequent basis, but certainly no less than once per month. If a manager refuses to submit time reports, then the employer has two choices, namely: He can fire the manager (which is the wiser of the choices), or he can continue to employ the manager at his own peril. If the employer does not then terminate the employee and the manager later sues or files a Complaint with the Labor Commissioner for unpaid or underpaid wages, then the employer will have a high burden of proof to rebut the hours that the manager claims.
Can a Resident Manager be Both an Employee and a Tenant?
YES, a resident manager may be both an employee and a tenant. If the manager performs work for the owner, the manager is an employee (and not an independent contractor). If that person also pays rent to the owner, then the individual is also a tenant. By definition, a person who pays rent to live in an apartment unit is a tenant.
If the manager hired by the owner to perform services does not pay any rent, he is still definitely an employee. But he may or may not also be a tenant, depending on how the employment contract is drafted.
Bear in mind that one diagnostic to determine if a person is a tenant is whether the individual pays rent. If he does, he is a tenant. If he also works for the owner, he is also an employee.
The laws pertaining to resident managers have become quite technical and ridiculously complicated. The downside risk to owners and management companies who do not pay attention to the legal requirements are huge. Competent counsel in the field should be sought to assist employers with compliance.
All that being said, the two most important recommendations I can make to AOA members are (1) sign an employment contract with every manager hired, and (2), keep accurate time records of the hours that the manager works.
Dale Alberstone is a prominent real estate attorney who has specialized in real property law for the past 40+ years. He also serves as a mediator of real estate disputes 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.
The foregoing article was authored in June 2019. It is intended as a general overview of 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.
Questions of a general nature are warmly invited. Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 269 S. Beverly Drive, Beverly Hills, California 90212. Phone: (310) 277-7300.