This article was posted on Monday, Sep 01, 2014

Hello everybody.  During the past year, I have authored multiple articles for AOA members concerning the employment of resident apartment managers.  The reason for so many discussions is that the law in that field has changed numerous times during those past twelve months, and it changed once again on June 26, 2014 when the California Court of Appeal issued its important decision of Von Nothdurft v. Steck.

In a nutshell, this new case upheld the validity of an owner or management company crediting a portion of the reduced (or free) rent against the minimum wages owed to the manager even if the written agreement does not specifically state that the credit will be applied against the minimum wage.

Until the issuance of the Von Nothdurft decision, a federal case (Brock, decided in 2004) held that a rent reduction credit may not be applied against the manager’s wages owed unless a written agreement expressly stated that the credit would be applied against the minimum wages.

Specifically, the federal court held that no credit could be taken without a written agreement that “explicitly references that such credits are being applied toward the minimum wage obligation of the employer.”  

Enter The Von Nothdurft Case

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In Von Nothdurft, John Steck hired Brenda Von Nothdurft to work as a resident manager of an apartment complex he owned.  The two of them signed a management agreement which provided that the manager would be compensated by “free rent of a three bedroom apartment during the term as manager.”

Later, believing that she had not been adequately paid, the manager sued to recover wages for all work she performed without deduction for her free apartment.  In one of those “well duh” moments, a bright light illuminated the justices’ minds when the appellate court commented “Von Nothdurft can’t have it both ways.”  In other words, the Court of Appeal determined that even though there was no specific reference that the free rent would be applied toward the minimum wage, Von Nothdurft in fact received a free apartment pursuant to a written agreement, and it would be unfair (and not consistent with law) to allow her to recover wages over the preceding years after having received free rent all that time.

In a favorable (and logical) ruling for owners and management companies, the justices rejected Brock’s ruling when it held:

“Under its plain terms, no express reference to a credit toward minimum wage, statement that the employee is entitled to minimum wage for every hour worked, or the precise amount to be credited, need be included as long as the parties understand and agreed – as they did here by entering into the management agreement – that lodging is to be credited toward the employee’s compensation.”

The appellate court went on to hold that all that is required is that the employer and the employee voluntarily agree in writing to credit the lodging against the employee’s wages.

The Court also rejected other contentions of the manager, such as that the management agreement was unconscionable and that it was an illegal contract of adhesion. 

The Current Law

In order for any rent credit to be applied to wages, there must be a voluntary written agreement between the employer and the manager.  In Von Nothdurft, that “voluntary” condition was satisfied when the owner presented the manager with the written agreement at the inception of the hiring, asked her to review it, and requested that she let him know if she wanted to make any changes.  The manager did not suggest any.

To satisfy the “voluntary” requirement of the law, my recommendation to owners and management companies is that they leave the employment agreement with the manager overnight so that the manager cannot later argue that he/she was compelled to read it and sign it immediately upon presentation.  By affording the manager an opportunity to review the document outside of the presence of the employer, the manager will be hard pressed to later contend that he/she did not sign it voluntarily.

In addition, bear in mind that the maximum rental credits which can be applied against the manager’s monthly wages are $508.38 per month for a single manager, and $752.02 per month for the employment of a couple.  Those two amounts went into effect on July 1, 2014, and remain applicable through the end of 2015.

Commencing January 1, 2016, the amounts increase to $564.81 and $835.49 per month, respectively.  Also, the minimum wage increases to $10.00 per hour as of 2016.

That means that even if the manager is given free rent of a $1,500 unit, for example, the maximum amount of a rent reduction that can be credited the wages owed to the manager are the numbers just stated.

With the present minimum wage being $9.00 an hour, and with a wage reduction of at least $508.38 a month for a single manager, or $752.02 a month for a couple, the owner does not need to pay the manager any wages for the first 56 hours or work (or for the first 83 hours for a couple).  For each additional hour that the employee works, the employer must pay minimum wage.

Incidentally, according to a California case decided in 2008, the “hours worked” by a manager do not include “on call” time, such as when the manager “slept, ate, talked on their personal telephone, used the internet, played computer games, read magazines or watched television in their apartment.”

Concluding Remarks

While the Von Nothdurft case is significant, bear in mind that its holding that a rent credit can offset the minimum wage even without using the magic words “applied to minimum wage,” it is completely inapplicable and of no help if the employer and manager have not signed a voluntary written agreement providing for the rent credit.

While there are multiple other traps in drafting a lawful and effective resident manager agreement, the Von Nothdurft case is certainly a breath of fresh air.

Reader Alert to Architects

On an unrelated topic, AOA members who are architects should be aware that on July 3, 2014, the California Court of Appeal held that an architect who designs condominium units has a duty of care to future purchasers of those condominiums and may be liable to those owners for a negligent design and defects even though the architect only had a contract with the original developer.  Lawyers representing architects should review Beacon Residential Community Association v. Skidmore.

Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 37 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. You may Google “Dale S. Alberstone” for further background.          

The foregoing article was authored on August 1, 2014.  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.

Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067.  Phone:  (310) 277-7300.

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