Hello everybody. AOA members who have been followers of this column over the years have seen how perplexing our laws are with respect to resident managers. Unfortunately, starting July 1, 2017, they become even more complicated.
July 1 is the date that a number of cities, such as San Francisco, Pasadena, San Jose, Los Angeles (and certain portions of Los Angeles County), among others, increase the minimum wage rate payable to resident managers.
New Minimum Wages
Fortunately, the minimum wage due to a resident manager under California law as of July 1, 2017 does not increase but remains at $10.00 per hour through the end of the year if the employer has 25 or fewer employees. Also fortunately, if the employer employs 26 or more employees, the minimum wage under California law does not increase but remains at $10.50 per hour through the balance of the year.
Unfortunately, the minimum wage for employees who work in certain select cities increases on July 1. For example, the minimum wage rate for the City of Los Angeles (and the unincorporated areas of the County of Los Angeles), increases to $10.50 per hour on July 1 if the employer has 25 or less employees, and $12.00 per hour if the employer has more than 25 employees.
The remainder of this article will only address employers who have fewer than 26 individuals working for them in a given municipality. Owners and management companies with 26 or more employees should confer with their own attorney for the specifics of the changes affecting them.
Also, if an AOA reader of this article missed the article I published on resident manager law in the January 2017 issue of AOA Magazine, I encourage him/her to first read it online before proceeding further. My January column can be found at www.aoausa.com under the “Magazine” tab. Perusing the January article will assist in understanding what now follows.
The General Rule Of Wages
Starting July 1, 2017, employers with less than 26 employees may have to pay their resident managers an increased minimum wage. For example, and as stated above, starting in July an employer with Los Angeles employees will have to pay resident managers $10.50 per hour for every hour worked.
The same law applies to employers with employees working in the unincorporated areas of Los Angeles County. “Unincorporated” mean all areas of Los Angeles County which are not part of an incorporated or chartered city. Examples of incorporated or chartered cities are Pasadena, Santa Monica, Lancaster, Burbank, Culver City, Beverly Hills, and West Hollywood.
That means for each hour worked in Los Angeles, the employer must then pay the manager $10.50 per hour. Pasadena will have the same new wage rate. San Francisco increases the rate to $14.00 per hour. For other cities (and counties), readers should confer with the municipality to determine whether the existing minimum wage will increase on July 1, 2017, and if so, to what amount.
Those are the general rules concerning the payment of the minimum wage to managers. Now for the exceptions, which become confusing, as you will see.
Offset to Wages
California law provides that if the employer reduces the rent charged to the manager for his unit, the employer may offset some or all of that reduction against the minimum wage otherwise owed to the manager for the hours worked.
Throughout 2017, the offset can go as high as $564.81 per month if an individual manager is employed and $835.49 per month if a “couple” in the same apartment unit is employed. In order to take advantage of the maximum amount of the above offsets, the ordinary rental value of the unit must be reduced by at least those same dollar amounts. Lesser rent reductions would only allow offsets up to the amount of the reduction.
Note, however, such offsets are allowed only if the resident manager voluntarily entered into a written agreement with the employer which provides that the lodging credits will be applied against wages earned. Verbal agreements, verbal understandings, and handshakes are insufficient. The contract must be in writing and must be signed by the resident manager and employer.
As a heads up to owners and management companies, effective January 1, 2018, the lodging offsets under California law increase from $564.81 to $593.05 per month for an individual and from $835.49 to $877.27 per month for a couple.
Offsets May or May Not Be Allowed
Under Local Municipality Laws
While California law specifically allows a lodging rent reduction of up to $564.81 or $835.49 to be credited toward the minimum wages owed (provided there is a signed written agreement), it is uncertain whether the local municipalities will allow for the same offsets as California.
For example, the Los Angeles Minimum Wage Ordinance mandates that all employees be paid at least $10.50 per hour beginning July 1, 2017. But there is no provision in the Ordinance which says that the offsets allowed under California law can be applied to the wages earned by employees who are protected by City of Los Angeles’ Minimum Wage Ordinance.
Being uneasy about that, on February 14, 2107 I wrote to the Los Angeles City Attorney’s office to inquire about the applicability of California’s offsets to Los Angeles’ minimum wage obligation. Specifically, I asked whether the City of Los Angeles would allow the California offsets to be credited to the City’s minimum wage amounts otherwise owed to the resident manager.
Bear in mind that the City of Los Angeles does not have to allow such offsets – nor does any other city. A city’s ordinance can be stricter than the State law.
In response to my Valentine’s Day letter, I received back a private opinion from an official agency of the City stating that the City’s Minimum Wage Ordinance does not prohibit an apartment building employer from applying the state lodging credit against wages earned by the resident manager so long as the wage rate is equal to or greater than the City’s applicable wage rate.
The private opinion also noted that the employer must still comply with all other provisions of the City’s minimum wage ordinance and any applicable State and Federal laws.
In this context, a “private opinion” is a written opinion of an agency of the City, which, while not confidential, is only issued to one individual, and not to anyone else. Nor is it publically disseminated.
With that private opinion in hand, I am now comfortable drafting resident manager employment contracts which apply the approved statewide California offsets to the Los Angeles minimum wage rates.
Unfortunately, the City’s private opinion is not binding on any other city or any county. For example, the City of Los Angeles’ opinion may be influential on the County of Los Angeles’ determination of the same question, but it would not be binding on the County.
The same problem occurs as to all other cities and counties throughout the State of California that have enacted their own minimum wage ordinances. Without a written opinion from each specific city or county in which resident managers are employed, one cannot be certain that those local municipalities will permit the State’s offset.
Further Complications of Allowable Offsets
Starting July 1, 2017, the offset issue becomes even more perplexing as to cities whose minimum wage then increases. That is because the maximum allowable offset under California law does not proportionately increase until January 1, 2018.
Prior to July 1, 2017, the maximum hours that a resident manager could work without the owner being obligated to pay any wages would be 56.4 for a single person and 83.5 for a couple. The former number is determined by dividing the allowable offset of $564.81 by $10.00 an hour. The latter number is obtained by dividing the allowable offset of $835.49 by $10.00 per hour.
Beginning July 1, 2017, if the employer divides $564.81 by, say, $10.50 per hour (the new wage rate in Los Angeles), the maximum allowable hours worked without issuing a paycheck would be 53.7. With a couple, dividing $835.49 by $10.50 per hour, the maximum allowable hours that could be worked without separate compensation (assuming a rent reduction of at least $835.49) would be 79.5 hours.
Beginning January 1, 2018, the maximum hours that can be worked without issuing a paycheck will return to 56.4 and 83.5 because that is the date California’s allowable offsets next increase. Starting July 1, 2018, the maximum allowable hours will again have to be reevaluated.
As you can see, lodging credits against wages are complex and confusing. In fact, for the 35 or so years that I have practiced in this specialized field of labor law (even though I am a real estate attorney), the maximum number of hours that resident managers could work without being entitled to receive additional compensation by a payroll check has always been 56.4 for a single manager and 83.5 for a couple.
With cities and counties raising the minimum wage at a faster rate and in higher amounts than the minimum wage of the State of California, the maximum number of hours that can be worked without a paycheck requires careful analysis on a case by case basis.
One matter is crystal clear however: Without a properly drafted employment agreement voluntarily signed by the resident manager and the employer, no lodging credit is allowed as an offset against wages under any circumstance. That is to say, the full wages would have to be paid based on the hourly rate without any lodging credit for the reduced rent.
Let me conclude with two general recommendations: (1) Above all else, be certain to obtain a signed written employment contract with your resident manager. Just about any written contract is better than no contract. (2) Obtain time records as well as monthly certifications from your manager which specify the total hours that he/she worked during the preceding 30 days.
I will be speaking about 2017 resident manager laws for AOA members at the Long Beach Convention Center on May 24, 2017 at 1:15 p.m. If you attend the seminar, please come up to the podium and introduce yourself following the presentation.
Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 40 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.
The foregoing article was authored April 2017. 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.
Questions of a general nature are warmly invited. Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067. Phone: (310) 277-7300.