United States: California Court Rejects Verbal Rent Credit Agreement, Finds Building Managers Are Not Exempt From Check Stub Law

On December 1, 2016, a California Court of Appeal, in an unpublished decision, issued a ruling addressing the scope of both California Industrial Welfare Commission Wage Order 5-2001's minimum wage rent credit and California Labor Code Section 226's wage statement exemption for household employees. Rolfes v. Mei (No. B266929).

Factual Background

Ronald Mei owned a 33-unit apartment building and hired Andrew Rolfes as an assistant manager in 2000. As compensation for his assistant manager duties, Rolfes received a $200 rent credit against his $675 monthly rent. The only memorialization of that agreement was a one-page standard lease agreement with a handwritten and initialed notation that said "$200.00 off for Assit manager duties. Making it $475.00." In mid-2005, Mei asked Rolfes to become the complex's manager. In exchange, Mei no longer charged Rolfes rent. However, this agreement was never reduced to writing, nor did the parties ever amend the prior one-page lease agreement. In mid-2013, Rolfes resigned and moved out. Mei did not refund Rolfes's security deposit and failed to provide a basis for doing so.

Procedural Background

Rolfes filed a lawsuit against Mei in 2013 alleging, among other things, (1) that his employer failed to pay him the minimum wage, for which he was seeking actual and liquidated damages, and (2) that his employer failed to provide compliant pay stubs, for which he was seeking statutory penalties. The defendant, Mei, filed a cross-claim against Rolfes for breach of contract, seeking back rent from 2005 through 2013. Following a bench trial, the trial court issued a statement of decision concluding that Mei violated the minimum wage law and California's check stub law. It awarded Rolfes unpaid wages for the time remaining within the statute of limitations and ruled against Mei on his cross-claim for back rent, finding that no reasonable landlord or business owner would allow a tenant to remain for more than eight years without paying rent if the rent was truly owed. Mei appealed the trial court's ruling. He asserted that the trial court erred in finding that he violated the minimum wage and check stub laws.

The Building Owner's Arguments

Mei contested Rolfes's claims for minimum wage and pay stub violations. In doing so, he relied on Wage Order 5-2001, governing minimum wage and rent credit, and Section 226's household employee exemption. Under Wage Order 5-2001, employees must be paid minimum wage for all hours worked, but in instances where employers provide lodging to an employee, credit for lodging may be used to meet part of the employer's minimum wage obligation. However, under the wage order, lodging may not be credited against the minimum wage without a voluntary written agreement between the employer and employee.

Pursuant to California Labor Code Section 226, an employer must provide to employees an accurate itemized wage statement in writing showing (1) gross wages earned, (2) the total hours worked by the employee, (3) the number of piece-rate units earned and any applicable piece rate, (4) all deductions, (5) net wages, (6) inclusive dates of the period for which the employee is being paid, (7) the name of the employee and the last four digits of his or her Social Security number or other identification number, (8) the name and address of the employer, and (9) all applicable hourly rates in effect during that pay period. This requirement, however, does not apply to "any employer of any person employed by the owner or occupant of a residential dwelling whose duties are incidental to the ownership, maintenance, or use of the dwelling, including the case and supervision of children, or whose duties are personal and not in the course of the trade, business, profession, or occupation of the owner or occupant."

Mei asserted that he did not violate the minimum wage law because he properly credited Rolfes's rent against the minimum wage. Additionally, Mei claimed that since Rolfes was a household employee, he was not required to provide him with itemized wage statements pursuant to the household employee exception to Section 226 articulated in subsection d.

The Court of Appeal's Ruling

The California Court of Appeal affirmed the trial court's ruling. In its opinion, the Court of Appeal made clear that the trial court correctly determined that there was no "voluntary written agreement" authorizing the owner to apply rent as a credit against its minimum wage obligation. Specifically, the court confirmed that there was nothing in the one document submitted that referenced a full rent credit. Since there was no voluntary written agreement, the owner could not credit rent against his minimum wage obligation. The Court of Appeal further opined that a voluntary written agreement cannot be established by using portions of other agreements. Instead, a rent credit agreement must stand alone.

Furthermore, in addressing Mei's argument that Rolfes implicitly waived the protections of the wage order at issue, the court reaffirmed the long-standing principle that workers cannot waive wage and hour protections because these laws serve a public purpose.

Then, in rejecting Mei's argument that Rolfes was not entitled to wage statements, the court opined that Section 226's household employee exemption was inapplicable because Rolfes's apartment manager duties were in Mei's course of trade, business, profession, or occupation. Put differently, the court determined that Mei's business was operating apartment complexes and Section 226's household employee exception applies only to casual laborers hired by individual homeowners or renters.

The court reached this conclusion based on three reasons. First, the court focused on the plain language examples of duties "incidental to the ownership" in Section 226's text (i.e., the care of children). With this in mind, the court relied on the long-standing cannon of statutory construction, which dictates that if a statute identifies examples, then the applicability of that statute is limited to items similar to those examples. As a result, the court found that the exception should apply only to duties akin to babysitting. Second, the court reviewed Section 226's legislative history and determined that the legislature intended only to exempt household employees and casual labor. Third, the court pointed to identical language in California Labor Code Section 3351(d) that prior courts interpreted as applying only to casual household employees. The court used this language as an interpretive guidepost and found that Section 226's household employee exemption applies only to casual laborers hired by individual homeowners or renters.

Practical Impact

The Rolfes case may serve as a reminder to employers that:

  1. employees may not waive California Labor Code protections, including the right to receive the minimum wage;
  2. meal and lodging credits against the minimum wage must be contained in a stand-alone voluntary written agreement; and
  3. Section 226's household employee wage statement exemption applies only to casual laborers or babysitters retained by individuals.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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