Apartment Management Magazine SCOTUS weighs in on a case that is relevant to disputes that arise between landlords and resident managers

By Daniel Bornstein, Esq.

The US Supreme Court delivers a blow to PAGA, ruling that arbitration agreements governed by federal law may require arbitration of PAGA’s claims on an individual basis only.

Bornstein Law has said repeatedly and in many ways that if landlords don’t take care of their tenants or break the law, a six-figure lawsuit can follow. Most of the time, the defendants are not bad landlords or bad people, but simply have ignorance of the law. But what about the management of resident managers?

There’s no faster way to destroy a rental business than having a dispute with a resident manager and you’re out of compliance with a myriad of employment-related laws.

In the midst of the pandemic, we said owners were wearing many hats. More than housing providers, landlords have become de facto credit counselors and social workers by educating tenants about their rights and applying for housing assistance funds. Make no mistake, when a resident manager is hired, the owner wears the hat of an employer and must act as such.

As a refresher,

“A manager, concierge, housekeeper or other responsible person will reside on the premises and be responsible for each apartment building in which there are 16 or more apartments, and each hotel in which there are 12 or more rooms , in the event that the owner of an apartment building or hotel does not reside there. A single caretaker would be required for all structures belonging to the same property and on an adjoining plot of land.

Cal. Code Reg. tit. 25 § 42

Under California employment laws, a Resident Manager is an employee who must be compensated for their services. Keep in mind that as an employer, landlords must comply with rules regarding minimum wage, the maximum rent that can be charged, and the amount of rent that can be credited for the minimum wage owed. Further complications arise when Resident Managers are then asked to do DIY work and as such, the Resident Manager works outside of their scope of work and works more hours than is compensated by the reduction in rent.

Resident managers who are asked to do handyman work and are not compensated properly may have a wage and hour claim against their landlord for minimum wage, overtime, meal and rest bonuses, detailed salary statements and sick leave.

Other problems abound.

Introduction to the Private Attorneys General Act (PAGA)

Passed in 2004, PAGA allows aggrieved employees to sue for civil penalties for Labor Code violations, not only for themselves, but on behalf of other employees and the State of California. That’s right – workers can sue civilly as if they were a state agency. The law was written because the besieged Workforce Development Agency(LWDA) lacked the resources to enforce many labor law violations. PAGA empowers individual employees, such as resident managers, to act as agents or mandataries for the enforcement of state labor laws.

Let’s say an aggrieved Resident Director sues his employer to recover unpaid wages and penalties. It doesn’t stop there. They can also sue to recover civil penalties on behalf of all other resident managers in a similar situation who have been hired in other buildings.

Enterprising lawyers are all too willing to file these lawsuits.

Litigation does not have to meet class action requirements, which means it is much easier to proceed, and the monetary rewards that can be imposed on the employer can be staggering in amount. Many lawyers are salivating over the actions of PAGA because a lucrative salary awaits them.

Even if the employer has Professional Liability Insurance (EPLI), these types of policies may not cover the defense costs associated with wage and hour disputes, forcing the employer to pay legal fees and any compensation or out-of-pocket payment. These threatened penalties often force employers to choose between settling the case or risking six or even seven figures to argue the case.

The US Supreme Court delivers a blow to PAGA, ruling that arbitration agreements governed by federal law may require arbitration of PAGA’s claims on an individual basis only.

When a divided nation established its sites on Roe vs. WadeBornstein Law anticipated a decision in Viking River Cruises, Inc. vs. Morianaa deal that apparently resolves some issues that have irked homeowners all over California.

The law is always clearer on the page than it is in real life, and for nearly two decades, many questions about PAGA have had to come before the courts.

A question that has come all the way to the U.S. Supreme Court: Does the Federal Arbitration Act (FAA) require enforcement of a bilateral arbitration agreement with respect to a individual claim under PAGA? The answer of the high court was yes.

This is a victory for California employers that will likely lead to the enforcement of arbitration agreements, forcing individual PAGA claims into arbitration. The court reasoned in Iskanian vs. CLS Transportation Los Angeles that the FAA prevails over California State law, which required joining non-individual PAGA claims with individual PAGA claims, resulting in inconsistency with the FAA.

The court’s analysis, however, suggests that whether courts mandate arbitration of individual PAGA claims may depend on the specific wording of the arbitration agreement at issue. There can be no global waiver of PAGA claims.

If the Owner provides a sweeping arbitration clause that waives the Resident Director’s right to bring representative PAGA claims on behalf of the State and all other similarly aggrieved employees, this provision is invalid if construed as a comprehensive waiver of PAGA claims.

We hasten to say that if there is a severability clause in the agreement which provides that if the waiver provision is invalid in some respect, any “portion” of the waiver that remains valid shall still be enforceable in arbitration – the employer has the right to enforce the agreement to the extent that it required arbitration of the employee’s individual PAGA claim. Indeed, the United States Supreme Court has ruled that federal law prevails over the state rule that PAGA actions cannot be divided into individual and non-individual claims.

It would follow that the owner could enforce the arbitration agreement to the extent that it mandates the arbitration of a Resident Manager’s individual PAGA claim, but the employee would not have standing to pursue their PAGA claims. not individual before the courts. Why? Because their individual PAGA claims would have already been adjudicated in separate proceedings.

Put another way by the Moriana court, “Where an employee’s own dispute is excluded from the PAGA action, the employee is no different from a member of the general public, and PAGA does not permit such persons to ‘sue’.

Our recommendations for owners with resident managers

Above all, you must take care of your resident managers and familiarize yourself with the obligations of being an employer. We want to avoid any disputes down the road, but if they do occur, we want to rely on ironclad written agreements with all of your resident managers.

In light of recent case law, carefully review your arbitration clause, paying particular attention to a severance clause.

A recurring theme in our practice is that landlords use outdated documents or templates from the Internet that do not reflect changing laws. Please review all existing agreements you have with your resident directors with a competent attorney.

Keep a meticulous account of the hours worked by the manager, and it is prudent to ask the employee to add up the total number of hours worked during a month and submit a written certification to the owner. This will prevent disgruntled Resident Directors from claiming that they have worked more hours than they actually did.

Finally, contact Bornstein Law, a firm that manages disputes between landlords and tenants on a daily basis. If the case is a little more complicated, we can refer you to a qualified lawyer who specializes in the nuances of employment law.


More than a landlord-tenant legal practitioner, Daniel Bornstein is the broker of record for Bay Property Group, a property management company that protects and optimizes landlord investments. He is also renowned for his training seminars and is called as an expert witness in complex real estate disputes. To avoid or resolve friction within rental units and cauterize risk, Daniel is happy to provide expert advice to landlords, property managers and other real estate professionals looking to survive and thrive in the tough market and rental housing dispute today. Call 415-409-7611 or email [email protected]

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