Hello everybody.  On July 1, 2021, resident manager laws will change in many cities in California.  Fortunately, the resident manager laws promulgated by the state of California will not change again in any significant fashion until January 1, 2022.  My column this month will address a number of the 2021 changes of city laws and remind AOA members of other important aspects of California law pertaining to on-site managers.

New Minimum Wage Laws

All on-site managers in California are employees, not independent contractors.  That means they should receive W-2 forms for wages earned.  They should not receive 1099s.  

As employees, the minimum wage promulgated by California and various cities regulate the minimum compensation that employers must pay to resident managers.  The California minimum wage for resident managers is presently $13.00 per hour provided that the employer has less than 26 employees, and remains at that amount for the remainder of 2021.  It rises to 14.00/hr. on January 1, 2022, which brings it one step closer to California’s goal of $15.00 per hour starting January 1, 2023.

If the employer has 26 or more employees, the California minimum wage is $14.00 per hour throughout 2021.  It rises to $15.00/hr. goal on January 1, 2022.

The federal minimum wage is presently $7.25 per hour nationwide regardless of the number of the employees.  But since California’s wage rates are higher, we can ignore the federal wage rate unless and until the Biden administration or Congress raises it to $15.00 per hour, which they are now seriously contemplating.

Because most employers of resident managers have less than 26 total employees, the remainder of this article will be limited to apartment owners and management companies with less than 26 California employees.

While California requires a minimum wage payment of $13.00 per hour everywhere in the state throughout 2021, it does not prevent local municipalities from enacting their own ordinances imposing a higher minimum wage during 2021.  For example, on July 1, 2021, the minimum wage in the City of Los Angeles (presently $14.25) as well as in the unincorporated areas of the County of L.A. rises to $15.00 per hour.
Effective July 1, 2021, the minimum wage in the city of Berkeley will be $16.07/hour plus the applicable Consumer Price Index (“CPI”) increase, and San Francisco will be at least $16.32/hour.  (The City of South San Francisco will remain at $15.25/hour.)

As of July 1, 2021, Emeryville’s minimum wage will be $16.84/hour plus the applicable CPI and the city of Milpitas (Yes, Milpitas is a city in California!) will be $15.40/hour plus the CPI. 

Because there is so much variation among cities in California, it is important that employers independently verify with the cities in which their managers work the amount of the applicable minimum wage.  Also, bear in mind that wage rates may change at any time.

“On-Call” Time is Not Subject to the Minimum Wage

With respect to resident managers, California law only requires that the employee be paid the minimum wage for the time that he/she spends “carrying out assigned duties” while present on the property.  Conversely, if the manager is not actually performing work for the employer while present at the building, then the minimum wage need not be paid.  

In other words, under California’s statewide law, “on-call” time, “stand-by” time, and “waiting” time are not compensable because managers are not actually carrying out assigned duties during that time.  They are merely waiting to perform services during those periods.  (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 at the apartment building for, say, five hours on a Sunday to show a vacancy to prospective tenants is only required to be paid for the time he/she actually interacts with the applicants.  The time the manager is waiting after one applicant leaves and the next applicant arrives to view a unit is not compensable.  That is because the manager is only “waiting” to work but is not actually working (i.e., the employee is not “carrying out assigned duties”).  

The reason waiting time is not compensable is that the manager is considered to be at home (which is anywhere on the property), so he/she is free to engage in personal activities while not otherwise working.  

I am not aware of any California city that requires a manager to be paid wages for waiting, standby or on-call time while present on the property.

Allowable Offsets to the Minimum Wage

Under California law, certain offsets can be taken against payment of the minimum wage provided that a voluntary written agreement is signed by the manager agreeing to the offsets.  Throughout 2021, California law caps those offsets at $734.21 if only one manager is employed and $1,086.07 if a couple is employed in the apartment unit.  (Those wage caps will again increase on January 1, 2022.)

For example, if a manager pays no rent, the employer need not pay that manager any wages for the first 56.4 hours worked per month under California’s minimum wage law.  [$734.21 divided by $13.00/hr. = 56.4]   

If a couple is employed and if the managers pay no rent, then the first 83.5 hours of work need not be paid under California’s minimum wage law.  [$1,086.07 divided by $13.00/hr. = 83.5]  

If the required on-site manager expends more than 56.4 or 83.5 hours performing services, then he/she must be paid the minimum wage for those extra hours.  

One problematic issue to applying the rent reduction credit to the wages owed is whether individual cities that establish their own minimum wages will allow their wages owed to be offset by the same $734.21 and $1,086.07 offsets that California allows to be taken against the California minimum wage.

In other words, ordinances in many cities mandate that managers must be paid a higher minimum that what California requires.  But those ordinances are silent as to whether the employer can credit any portion of the reduced rent to the payment of the wages. 

Because California and cities are different governments, cities may enact 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 $734.21 and $1,086.07 offsets.  So, it remains an open question as to which cities, if any, would allow California’s offsets to be credited to a city’s minimum wage.  

One other comment about the minimum wage: if a manager works more than 8 hours a day (but less than 12 hours), more than 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, a portion of any discounted rent must also be added to the usual hourly rate to calculate the overtime rate, but that is too technical to cover 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 this 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 over the 12-month period.

If the employee does not take any sick leave time during the given 12 months, then under California law, the 24 hours will roll over to the next year and become 48 hours.

However, a correctly 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 employment contract properly 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.  In general, Los Angeles allows 48 hours per year of paid sick leave time.  Also, certain cities (such as Los Angeles), have different laws pertaining to the amount of time that rolls over if not used during the 12-month period.

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.  Also, bear in mind that the COVID-19 emergency orders of the federal government, California and various cities may mandate additional sick leave time.

Minimum and 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 2021 to a manager who is required to live on-site as a condition of employment.  The maximum rent is $734.21for a single manager and $1,086.07 when a couple is employed.  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 $734.21 or $1,086.07.  

There is one exception to those maximum rent limitations.  I call it the “Check Exchange” exception.

The Check Exchange Exception

The Check Exchange exception allows the owner or management company to charge a manager who is required to live on site an amount of rent up to, but not exceeding, 2/3 the fair market rental value of the unit (and not be limited to $734.21 or $1,086.07) 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 employer 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 no less frequently than semi-monthly although many owners improperly 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(s), and even though the payments are not concurrent, it is something like an exchange of checks.  For simplicity and to emphasize that the separate checks must be tendered between them, 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 manager live on site even if the building is 16 units or more.  Instead, the only requirement is that a “responsible person” lives on site.  That responsible person is usually a manager, but could be a roller coaster tester, a train conductor, swimming instructor, barber, school bus driver, janitor, housekeeper, caretaker, teacher, newspaper delivery man, dermatologist, waitress, professional ping pong player, or any other relatively normal person 18 years or older.  For simplicity, in this article I refer to all such responsible persons as “managers.”

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 5-word expression is not defined by the state of California.

Certain cities have their own, more onerous, laws concerning such on-site employees.  For example, West Hollywood requires that an actual “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 wants the hours be fixed from 8 a.m. to 5 p.m. every weekday.  However, the city allows the employer to establish different hours so long as the manager is physically present on-site 4 hours a day, 5 days a week, Monday through Friday.  West Hollywood also requires that the scheduled hours be posted at each public entrance to the apartment building.

Employers should check the local ordinances of their respective cities to see if their municipalities have a residency requirement more stringent than California’s requirement.

Employers, not Managers, Must Keep Time Records

Surprisingly, California does not require the 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 … [as well as] total hours worked in the payroll period.” (IWC Order 5-2001, as amended, Section 7)

Without time records, the employer is exposed to the manager, either in Court or before the California Labor Commissioner, claiming that he or she worked numerous hours more, if not hundreds of hours more, per year than the employer could ever imagine or accept.  Claims of that nature often exceed $150,000 over the applicable 3 or 4 years allowed by the Statute of Limitations.  Without the employer producing time records, the manager’s verbal testimony will be given the benefit of doubt in a formal proceeding against the employer.

Therefore, it is incumbent upon owners and management companies who employ managers to obtain from them accurate “hours worked” 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 or her own peril.  If the employer does not then terminate the employee and the manager later sues or files a Complaint in court or 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 while living in an apartment unit is a tenant.  (Some lawyers may take issue with that last statement, but I disagree.)

If the manager hired by the owner to perform services does not pay any rent, he is still 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 an employee as well.  

The One Question to Ask the Attorney Who You Will Hire to Draft Your Resident Manager Agreement

If you have in mind to hire an attorney to draft your resident manager employment contract, the one question you should ask is this: “What was the principal holding of the 1993 case of Brewer vs. Patel?  

If the lawyer cannot answer that question off the top of his/her head (and without researching it), you should definitely consider hiring a different attorney who can answer the question.  If the lawyer can answer the question, then chances are he/she knows enough about this rather specialized field of labor law to competently draft your contract.

CONCLUSION

The laws pertaining to resident managers are 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) have every new or existing resident manager sign a written employment contract, 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 and has been drafting resident manager employment agreements for owners and management companies for more than 35 years.  He is also a former arbitrator for the American Arbitration Association and has formerly served as a Judge pro tem for the Los Angeles Superior Court.  

Mr. Alberstone has been awarded a 5-Star AV rating from Martindale-Hubbell.  That is the highest possible rating and 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 June 2021.  It is intended as a general overview of California law only and may not apply to the reader’s particular case.  Readers are cautioned to consult a lawyer 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, Suite 1670; Beverly Hills, California 90212.  Phone: (310) 277-7300.