Minnesota Supreme Court Confirms Legality of ‘Rent Credits’ for Live-In Caretakers

On August 11, 2021, the Minnesota Supreme Court issued a decision of significance to any owner or manager of residential properties in Minnesota that employs live-in caretakers or property managers. The court confirmed that such businesses and their live-in employees may enter into agreements that include the payment of rent credits toward employees’ wages, as long as those agreements comply with certain legal requirements. A contrary decision could have had serious negative repercussions for numerous multi-unit property owners and management companies throughout the state, whose live-in employees receive reduced rent as part of their compensation.

Background

In Hagen v. Steven Scott Management, Inc., an on-site apartment complex caretaker sued her employer, the complex’s property management company. She claimed, among other things, that her agreement, entered into several years earlier to accept part of her wages by way of a credit toward her monthly rent, violated the Minnesota Fair Labor Standards Act (MFLSA). The employee argued that the MFLSA permits employers to pay wages only in certain specific ways and that rent credits are not among those authorized methods of payment. After the Hennepin County District Court dismissed that claim, and the Minnesota Court of Appeals affirmed, the case went before the Minnesota Supreme Court.

The Supreme Court’s Ruling

Agreeing with the lower courts, the supreme court ruled that under the “unambiguous” language of the MFLSA, “rent credits qualify as wages.” The supreme court nevertheless cautioned that such arrangements must comply with the Minnesota Department of Labor and Industry’s “lodging allowance” rule. That rule specifically authorizes the use of rent credits when an “employee must accept … lodging as a condition of employment.” Because the supreme court agreed with the management company that the caretaker in this case had to live on the premises as part of her job, the supreme court did not decide whether rent credits are acceptable when an employee has the option to live off premises. In addition, the supreme court noted that under the rule, an employee’s rent credits must not exceed the “fair market value of the lodging.” In this case, the supreme court held that the caretaker had failed to submit any evidence to rebut the company’s testimony that her rent credits reflected fair rental value. The supreme court also held that because “rent credits clearly qualify as wages,” they are not an unlawful deduction from wages.

Finally, the caretaker also claimed that her employer should have paid her for her on-call time. The supreme court declined to issue a final decision on that issue, returning that part of the case to the trial court for additional discovery as to the underlying facts.

Key Takeaways

Most members of Minnesota’s multi-housing community likely never considered that the use of rent credits could violate state labor laws. This new Minnesota Supreme Court decision makes it clear that employers and employees alike can continue to enjoy the mutual benefits of rent credits, as long as they comply with the legal requirements for such arrangements.

Based on this important decision, employers and live-in employees wishing to utilize rent credits may want to confirm, for now, that their written documentation makes clear that living on the premises is a requirement for the employee’s position and ensure that the amount of the rent credit does not exceed the fair rental value of the employee’s residence.

With regard to the issue of on-call time, Minnesota employers may want to keep in mind that state law generally requires employees to be paid for on-call time when they are required to remain on an employer’s premises or so close to the premises that they may not use the time effectively for their own purposes. Whether an employee’s on-call time meets that standard in a particular case generally depends on the specific facts of that case.

This article has been reprinted with permission of the Minnesota Multi Housing Association. A version of the article was previously published in Multi Housing Advocate magazine.

Andrew E. Tanick is a shareholder in the Minneapolis office of Ogletree Deakins. He is the lead attorney who represented the property management company in the Hagen case.