I admit it. I want people to like me (and you thought lawyers don’t have feelings).
Don’t get me wrong. I don’t much care if my opposing counsel likes me. Their disapprobation is like a badge of honor, validating that I must be doing something right for my client. But I do want my clients to like me, besides satisfying my inner need for approval. Client approval seems like a pretty solid business model for a lawyer who hopes to get repeat business.
Which is why it troubles me that I often find myself needing to say “no” to property owner clients when discussing their resident managers. As in “no, that’s a really lousy idea.” I sometimes feel like a parent who must tell his kids to stop balancing on one leg on the third-floor staircase banister because they just might, at some point, fall and hurt themselves.
Which is why I have decided to list below (in no particular order) all the things that, should anyone ask (and even if they don’t), I will tell them not to do. Feel free to share this list with your less sophisticated friends who, unlike, the readers of my articles, may not realize the ideas listed below are bad. And take comfort in knowing that every item on the list was born from someone else’s misfortune.
1) NO, you should not characterize your resident manager as an independent contractor, i.e., you should give him a Form 1099. The law is clear that he is a W-2 employee and must be treated and paid accordingly. This means keeping time records, providing bi-monthly or bi-weekly payment and wage statements, affording meal breaks, etc.
2) NO, you should not pay your resident manager off the books merely because he does not want to show or report income (or you don’t want to withhold). Doing so will expose you to risk from the taxing authorities. It also will put you at risk to the resident manager (or his lawyer) should he ever decide you have not paid him properly or otherwise slighted him, as you will not have evidence of the payments and, even if you do, will have to admit you were assisting in tax fraud. Judges do not like tax fraud or people who commit it. In fact, I once witnessed a judge report a witness to the IRS in the middle of the trial. In fact, in the middle of her testimony. True story.
3) NO, you should not issue a check to only one member of a couple that you employ as on-site managers. There may be a variety of reasons why the managers may request this, but the law will view you as having not paid the manager who did not receive payment; it does not care that you may have overpaid the other manager. Make sure you also get time sheets from each of them.
4) NO, you should not hire a resident manager who cannot properly document his right to work in the U.S., even if you are doing it to be nice. Contrary to what many clients seem to think, this person’s lack of documentation will not give you an advantage should a payment dispute between you and him ever arise. In fact, I have been informed by experienced mediators and judges that not being documented may actually provide an employee an advantage in court and, like the employer who pays under the table in number 2 above, your credibility will be damaged. At the very least, the employee’s lawyer will try to make it appear as though you were trying to take advantage of someone who did not have documentation.
5) NO, if only one of two spouses is performing on-site manager work, you should not hire them as a “couple” anyway merely to obtain the use of a bigger rent credit. By way of background, California law typically allows you to charge more in rent – or to use a larger rent credit to pay wages – to on-site managers who are a couple. If makes sense to take advantage of this if you truly are employing both of them. But having two employees literally doubles your legal risk and requires you to obtain workers compensation for a second employee. The extra rent you can charge or rent credit you can use does not compensate for the extra expense and risk if, in fact, both individuals are not performing work.
6) NO, you should not pay a salary – meaning a flat monthly amount – to your resident manager. Paying the same amount each month may seem like a simple and straightforward thing to do. However, as a rule, salary-like payment structures should be reserved for employees whom the law considers to be “exempt”– typically professionals or other executive-level employees. On-site managers are not “exempt.” They are hourly employees. Paying an hourly employee with a flat monthly amount, i.e., a salary, raises many problems, and especially if they work overtime hours. It is a bad idea and should be avoided. Which leads me to my next point…
6) NO, you should not characterize your manager as an “exempt” employee, even if he manages other people – at least not without consulting with a lawyer. Only in very rare instances will he qualify as exempt and misclassifying him can have many unpleasant consequences. Doing so also is very much like waiving a red flag in front of a bull or, in this case, an easy lawsuit in front of a plaintiff’s lawyer.
7) NO, you should not tell your manager how many hours to put on her timecard or accept time records that obviously do not truly reflect the hours the resident manager worked. How can you tell? Why should you care? Because when that manager claims she really was working twice the number of hours reflected on her time records and that you knew her time records were inaccurate — but told her to not record additional time — that claim will have at least the scent of credibility if her time records are all identical. Identical times every day simply is not credible for most resident managers. In fact, I have seen where managers literally photocopied the same time sheet every month and simply changed the name of the month. This was problematic… for the employer, in the lawsuit that resulted.
Thank you for letting me get this all off my chest.
Gary Ganchrow chairs the Litigation Department at the 107-year-old downtown Los Angeles law firm of Parker Milliken Clark O’Hara and Samuelian, served as an Adjunct Professor at the USC School of Law, and is a frequent contributor to AOA Magazine. He regularly advises on, litigates and writes about a variety of employment, property management and business matters, and can be reached at 213-683-6535 and [email protected] This article is for informational purposes only and should not be considered legal advice or establishing an attorney-client relationship.