By Gary Ganchrow
I never have actually counted them, but the California Labor Code contains what feels like a gazillion laws governing the employer- employee relationship, and the California Government Code contains several more. Most seem intended to protect the employee’s rights.
Despite this fact, my experience – as someone who frequently represents property owners and management companies in connection with resident manager employment claims – is that many property owners do not think of themselves as employers (or of their resident managers as employees).
In a way, this is unsurprising. After all, resident managers frequently also are tenants, do not necessarily engage in activities we traditionally think of as “work,” and may or may not receive a paycheck or payment beyond some type of rent credit or free lodging.
It is a mistake, however, to not recognize that your resident manager possesses the same employee protections that would, say, an office worker – potentially a very costly one if your relationship with your resident manager sours. I have written extensively in the past about these issues and how to avoid them; they are not the subject of this article.
But there exists another, often overlooked, implication to the fact that the law views your resident manager as your employee. Specifically, no matter how much (or little) work your resident manager performs, and regardless of whether you consider him to be legally mandated space- filler or someone who plays an important role in managing your property, that resident manager is your legal agent. In other words, for all intents and legal purposes, he or she is you.1 This can be a dangerous proposition when your resident manager serves as your chief point of contact with your sometimes-cantankerous tenants. After all, there exists a reason companies hire polished public relations experts with years of schooling and advanced degrees to serve as spokesmen.
In fact, that is the entire premise behind 25 CCR §42, which may require an owner to place a manager on site in the first place.
Please turn to page CS-45
Just as an employer can be held vicariously liable for its employees’ conduct, you may be liable for your resident manager’s conduct. For example, if your resident manager sexually harasses a tenant, you – the property owner – may be liable. If your resident manager discriminates against a tenant, you may be liable. If your resident manager is a gossip and discusses one tenant’s private information with another, you could be liable. The nature of the claims you could face are limited only by the legal creativity of the tenant’s lawyer. I have seen claims asserted for housing discrimination, Unruly Act violations, breach of contract, breach of the covenant of quiet enjoyment, defamation, invasion of privacy, public disclosure of private facts, intentional infliction of emotional distress, retaliatory eviction and constructive eviction. It also is worth mentioning that your insurance likely does not provide coverage for several of these claims.
Absentee or very-hands-off owners may be particularly vulnerable because they likely provide resident managers with even greater responsibility and latitude. But what if you hire a property management company to manage your multi-unit property? Surely then you have insulated yourself from these types of claims, right? Right? Not so fast.
Many property management contracts designate the resident manager to be the owner’s employee. As an aside – and I don’t want to make any property management companies mad at me, least of all those I represent – I have never fully understood the point of doing this. At the very least, the law will consider the property management company to be the resident manager’s joint employer along with the owner. A joint-employer relationship exists when two or more employers exert significant control over the same employees. Such a relationship exists if an entity, i.e., the property management company in this case, retains the right to direct the activities of the worker or the manner and method in which he performs the work – which clearly is true with respect to a management company and resident manager.
In addition to asserting the resident manager is the owner’s employee, a property management company is likely to point to an indemnity provision in its property management contract in which the owner agreed to indemnify the management company for claims arising from its property management. Therefore, a property management company will turn around and tender to the owner any tenant claim made against the resident manager. As a result, even if the owner does not have direct liability, he will end up financially responsibility for any liability anyway.
Now that I have articulated the potential issues, what can you do about them? For one thing, choose your resident managers carefully and run background checks on them. Should problems arise, you do not want to learn after-the-fact that a simple background check would have exposed a history of prior problems. And if you are an owner that is contractually responsible for the resident manager’s conduct, do not allow your property management company to hire him or her without your approval.
Second, take seriously tenant complaints about the manager. That does not mean you must give credence to every kvetch of every disgruntled tenant, but if a tenant complains about mistreatment at the hands of your property manager, look into it. You must do this because if a similar problem recurs, either with the same tenant or a different one, you will be deemed to have been on notice.
Furthermore, document (in writing) the steps you have taken to investigate, what follow-up steps you have taken to address the complaint, if any, and why you took no action if you decide to do nothing. This will be particularly important if a tenant makes a legal claim and seeks punitive damages against you, as employer, on the basis that you “ratified” the manager’s misconduct. “Ratification” does not necessarily require you to stamp “approved.” Cases find ratification when an employer fails to intercede in a known pattern of misconduct or fails to investigate or discipline an errant employee once the misconduct becomes known.
Lastly, if the circumstances suggest you need to terminate your resident manager, then do so. I have witnessed way too many examples of owners and employers whose kindness towards their resident managers was not in the end reciprocated, and the result was costly – emotionally and financially. As I sometimes tell clients, “no good deed goes unpunished.” Do what you need to in order to avoid learning this lesson the hard way.