While it may seem like more work up front, avoid costly lawsuits by classifying resident managers as employees (not independent contractors) and provide regular and proper harassment training.
Building owners and management companies have a myriad of laws governing rental units to follow. The laws governing the employment of resident managers may seem less important, but failing to understand and follow them can result in major headaches, not to mention liability to your employee and your tenants.
Employee or Independent Contractor?
Historically, many resident managers have been classified as independent contractors. A building owner may have only one or two resident managers and would prefer to avoid the headaches of tax withholding, making tax deposits, and all the other requirements placed upon California employers. The resident manager position is usually very part time. The manager often has another full time position. Other managers are retired, supplementing their fixed income with income from the resident manager work. Both the building owner and the resident manager are happy with an independent contractor arrangement and may even sign a contract documenting the relationship.
Not as Easy as “ABC”
In 2018, the California Supreme Court adopted a new test for determining whether a worker can properly be classified as an independent contractor. Building owners and apartment managers should take note of this decision, Dynamex Operations West, Inc. v. Superior Court, which means that all resident managers will need to be treated as employees.
In Dynamex, the California Supreme explained that all workers are presumed to be employees of the business that hires them. The business has the burden of proving that the worker is an independent contractor. Because there are three points that the business must prove, the test has become known as the “ABC test.” If the business cannot establish all three, the worker must be treated as an employee, not an independent contractor. The required proof points are:
A. The worker is free from control and direction over performance of the work, both under the contract and in fact;
B. The work provided is outside the usual course of the business for which the work is performed; and
C. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work
performed for the hiring entity.
A building owner probably does not want to give up control over the resident manager, particularly if the manager is responsible for critical events that could increase the cost of operating or lead to liability. The resident manager should be required to comply with Fair Housing standards if she is showing units, accepting applications, or responding to tenant concerns. Similarly, if the resident manager is doing any cleaning or repair, or selecting contractors to make repairs, he should have guidelines to assure that the work is done timely, correctly, and in a cost-effective manner. Unless the building owner or management company gives up control over the resident manager’s work, Part A of the test will not be met. That, however, is not the biggest problem.
A resident manager, by definition, will not be able to meet either Part B or Part C of the test. The building owner or management company is operating the apartment building for a profit. Under California Civil Code Section 42, if an apartment building has 16 or more rental units, the owner is required to have a “responsible person” reside on the premises who has “charge of the apartment house.” When a “responsible person” is required, any work performed by the resident manager is part of the usual course of operating an apartment building. Even if a “responsible person” is not required, it would be difficult to show that the resident manager’s work is outside the usual course of the building’s operations. The relationship cannot pass Part B of the test.
Part C is even more difficult. To be an independent contractor, the worker must have an independent business in which she performs the same type of work that she performs for the apartment building. Because a resident manager worker cannot truthfully say that he resides in multiple apartment buildings, he cannot have an independent business that provides resident manager services to more than one building. The relationship cannot pass Part C of the test.
Risks of Misclassification
Incorrectly classifying a worker as an independent contractor exposes the building owner to significant potential liability. The misclassified resident manager is probably not completing time cards. Because an employer has an obligation to keep records of the time worked, the resident manager can use any reasonable means to prove the hours worked. In a claim for wages, the employer will have little ability to defend the claim and may be liable for past wages, interest, penalties, and even attorney’s fees. The building owner may not have provided Workers’ Compensation insurance if the resident manager has been treated as an independent contractor. If the resident manager is injured while working, the building owner could be responsible for all damages, including medical expenses and any wage loss, including lost wages from the resident manager’s primary job. Claims for unemployment benefits may result in assessment of back contributions, interest, and penalties.
The Bottom Line
All resident managers should be hired as employees. In recent years, misclassification of employees as independent contractors has been a major focus of investigations by the California Labor Commissioner’s office. Misclassification claims may also arise when the resident manager is ill or injured and files for Workers’ Compensation or State Disability Benefits, when the resident manager is fired and seeks Unemployment Compensation, or when the resident manager wants additional compensation and files a wage claim. There are many ways in which the misclassification could come to light.
Hiring an employee imposes many obligations on the building owner, including tracking the employee’s hours, providing sick leave, completing additional paperwork, withholding taxes, and purchasing Workers’ Compensation insurance. It may seem like a huge headache. However, when compared to the significant risks arising from misclassification, the cost of having a relationship that complies with the applicable laws is really a minor inconvenience.
Focus on Preventing Harassment
Building owners and management companies must prevent harassment of both tenants and employees. With the #metoo and #timesup movements getting lots of publicity, victims of harassment are more likely to speak up. In addition, in response to recent highly publicized claims of sexual harassment and sexual assault, both the California and the federal laws have been made stricter.
What Constitutes Harassment of Employees
The law recognizes two types of unlawful harassment. The first, called quid pro quo, occurs when the employer threatens or demands that the employee submit to sexual requests or sexual advances as a condition of continued employment, or to avoid some other loss and offers of employment benefits in return for sexual favors. The Hollywood “casting couch” is a classic example of quid pro quo harassment; in order to land the part, the actor engages in sexual acts with the director.
The other, and more common, type of harassment is a hostile work environment. In this type of claim, sexual comments or behavior create a hostile, offensive, oppressive, or intimidating work environment. Behaviors that may create a hostile work environment include:
Verbal conduct such as epithets, derogatory jokes or comments, slurs or unwanted sexual advances, invitations, comments, posts or messages;
Visual displays such as derogatory
and/or sexually oriented posters,
photography, cartoons, drawings
Physical conduct including assault, unwanted touching, intentionally blocking normal movement or interfering with work because of sex; and
Threats and demands to submit to sexual requests or sexual advances.
Sexual harassment does not need to be motivated by sexual desire to be unlawful. Hostile acts toward an employee because of his/her gender can amount to sexual harassment, regardless of whether the treatment is motivated by sexual desire. Inappropriate conduct, comments, and displays based upon a person’s sexual orientation, gender identity, gender expression, pregnancy, childbirth, or a medical condition relating to pregnancy or childbirth are forms of sexual harassment.
The existence of a hostile work environment depends upon the totality of the circumstances. A single incident of harassing conduct is sufficient to create a triable issue regarding the existence of a hostile work environment if the harassing conduct has unreasonably interfered with the plaintiff’s work performance or created an intimidating, hostile, or offensive working environment.
In a lawsuit, an employee who proves unlawful harassment can recover damages for lost wages, lost benefits, and emotional distress. Punitive damages, attorney’s fees, and costs may also be awarded. For a small business, a sexual harassment lawsuit can easily be “bet the company” litigation.
What Constitutes Harassment of Tenants?
California law specifically protects tenants against harassment by a landlord or property manager. Civil Code Section 51.9 allows a tenant to recover damages suffered as the result of sexual harassment by proving the following:
There is a landlord or property manager relationship with the tenant;
The landlord or property manager has made sexual advances, solicitations, sexual requests, demands for sexual compliance by the tenant, or engaged in other verbal, visual, or physical conduct of a sexual nature or of a hostile nature based on gender, that were unwelcome and pervasive or severe;
The tenant is unable to easily terminate the relationship;
The plaintiff has suffered or will suffer economic loss or disadvantage or personal injury, including, but not limited to, emotional distress.
If the tenant proves each of these elements, in addition to recovering actual damages, the tenant is entitled to an award of up to $25,000 in penalties, plus attorney’s fees and costs.
Best Practices to Prevent Harassment
Employers should review their existing policies handbooks and training materials to make sure that they clearly explain what type of conduct is acceptable and what is not. Most employers adopt a zero tolerance policy, meaning that no conduct of a sexual nature will be permitted in the workplace.
Many building owners and management companies have not been required to provide harassment prevention training before. However, new laws in California require employers who have as few as five employees, including temporary and seasonal employees, to provide harassment prevention training. Supervisors are required to have two hours of harassment prevention training, while non-supervisory employees must receive at least one hour of training. Employees who have not previously been required to receive training are to complete their first training no later than January 1, 2020. Training must be provided to all employees every two years.
The training must cover several topics, including: information on the state and federal laws prohibiting harassment; practical guidance on preventing and correcting harassment; remedies available to harassment victims; practical examples aimed at instructing supervisors in the prevention of harassment, discrimination, and retaliation; practical discussion and examples of harassment based on gender identity, gender expression, and sexual orientation; and, prevention of abusive conduct. In addition, an employer may also provide bystander intervention training, which includes information and practical guidance on how to enable bystanders to recognize potentially problematic behaviors and to motivate bystanders to take action when they observe problematic behaviors. The training may include exercises to provide bystanders with the skills and confidence to intervene as appropriate.
The Department of Fair Employment and Housing (DFEH) is required to develop training programs that meet the minimum requirements. While employers should consult these programs and be sure to include all of the information contained in them, having employees sit through the DFEH training will not be sufficient. The law requires that the training be interactive and presented by trainers or educators with knowledge and expertise in the prevention of harassment, discrimination, and retaliation.
Margaret “Maggie” Grover, a partner in the Employment Practice at Oakland law firm Wendel, Rosen, Black & Dean LLP, has been practicing employment law for more than 30 years. She enjoys helping employers understand the complex rules that govern the employer-employee relationship and finding practical solutions to thorny workplace issues. She can be reached at (415) 596-9433 or firstname.lastname@example.org.