Free Rent as Wages Is Not Legal Pay: California Supreme Court Ruling Explained
If you’ve been working where you live – managing apartments, handling maintenance, or repairing property – in exchange for housing, your employer may tell you that free rent is your pay. Under California law, free rent as wages is not legal. Housing can be part of your compensation, but it cannot replace wages. You are still entitled to minimum wage for every hour you work, and if your employer claims otherwise, they are violating the law.
I’m Matt Ruggles, and I’ve been practicing employment law in California for more than 30 years. Over that time, I’ve seen every kind of trick employers use to avoid paying employees what they’ve earned. One of the most common is in housing situations: landlords who tell their managers or maintenance workers that free rent is their entire wage. That’s not how California law works. Housing can be part of compensation, but it can never replace wages. Employees in those roles are still owed pay for every hour they work.
Recently, the California Supreme Court issued a decision that made the law crystal clear for employees who manage and live on the properties where they work. The Court confirmed that free rent is not a substitute for wages and landlords must pay employees their earned wages in addition to any housing benefit. The case is Iloff v. LaPaille, and it puts to rest the common excuse landlords use when they try to avoid paying their workers.
Read the rest of this blog to understand how the Court explained the illegality of landlords who claim rent is “wages” and what this ruling means for California employees in similar situations.
Why Free Rent as Wages Matters for California Workers
If you live where you work i.e. managing apartments, repairing property, or handling maintenance in exchange for free rent, your employer may tell you that housing is your “wage.” California law says otherwise. Housing can be part of compensation, but it cannot replace wages. You are still owed minimum wage for every hour worked.
If you’re a California employee who has been told free rent is your pay, call Ruggles Law Firm today at 916-758-8058.”
Free Rent as Wages? California Supreme Court Clarifies Employee Rights in Iloff v. LaPaille
The California Supreme Court recently confronted this issue in Iloff v. LaPaille. The ruling sent a strong message: free rent is not a defense, ignorance of the law is not an excuse, and employees don’t lose their rights just because their employer appeals.
Case Review – Iloff v. LaPaille and the Free Rent as Wages Dispute
Laurance Iloff lived and worked on property in Humboldt County owned by Bridgeville Properties, Inc. and managed by Cynthia LaPaille. He kept the property functioning: repairing structures, maintaining the water system, and performing ongoing maintenance. Instead of wages, he was allowed to live rent-free in one of the homes.
When the arrangement ended, Iloff filed claims with the California Labor Commissioner through the Berman process.
- The Labor Commissioner determined Iloff was an employee, not an independent contractor.
- He was awarded unpaid wages, liquidated damages, penalties, and interest.
- His employers appealed to the superior court, where Iloff also raised a claim for paid sick leave under California’s Healthy Workplaces, Healthy Families Act.
The superior court agreed he was an employee but ruled for the employer on two key points:
- Liquidated Damages: The court excused the employer from paying double damages, reasoning they acted in “good faith.”
- Paid Sick Leave: The court said Iloff could not pursue this claim during the appeal.
The Court of Appeal upheld that decision. Iloff took his case to the California Supreme Court.
California Supreme Court Ruling on Free Rent as Wages
The California Supreme Court reversed the lower courts and clarified two critical points for employees:
Point #1: Ignorance of the law is not good faith.
-
- Under Labor Code section 1194.2, employees must be awarded liquidated damages (double unpaid wages) when minimum wage laws are violated.
- Employers can avoid this penalty only if they prove they made a reasonable attempt to understand and comply with the law.
- Simply believing that free rent counted as pay is not a defense.
Point #2: Paid sick leave claims can be raised in court appeals.
-
- When an employer appeals a Labor Commissioner decision, the employee can bring related claims, like paid sick leave violations, before the court.
- To block those claims would allow employers to erase employee rights by appealing, something the Court flatly rejected.
What This Means for California Employees Who Live Where They Work
The Supreme Court’s decision is a warning to landlords and property owners who try to disguise free rent as wages. California law requires that employees be paid wages on top of housing benefits.
It also strengthens protections for workers who file claims. Employers cannot erase your rights by appealing to a higher court. Your claims, including paid sick leave, follow you into court.
Key Takeaways: Free Rent Is Not Wages Under California Law
Takeaway #1: Free rent isn’t wages.
Living where you work does not cancel your right to minimum wage.
Takeaway #2: Liquidated damages are the rule.
You can recover double the unpaid wages unless your employer proves they actually tried to follow the law.
Takeaway #3: Your rights don’t vanish on appeal.
Paid sick leave claims remain valid even if your employer appeals a Labor Commissioner ruling.
Takeaway #4: California law favors employees.
Courts must interpret labor protections broadly to protect workers, not to provide loopholes for employers.
If you want a deeper dive on how to demand unpaid wages and force your employer to take you seriously, read my blog, How to Demand Unpaid Wages Like an Employment Lawyer.
What Should You Do if You’ve Been Paid Only in Free Rent?
If you’ve been working as a property manager, maintenance worker, or caretaker and your “pay” is just free rent, your landlord is doing something illegal. California law makes it clear: free rent cannot replace wages. You are owed back pay for every hour you worked, and in most cases, you’re also entitled to liquidated damages and penalties.
But here’s the reality: landlords and property owners almost never hand over back wages voluntarily. If you’ve been denied pay and told that rent was your “wage,” don’t expect your employer to suddenly make things right. You will need to take action to protect your rights.
Step 1: Document Your Work
Keep detailed records of the hours you worked, the type of work you performed, and any communications with your landlord or employer. Written agreements, emails, and texts can all be used as evidence to prove your claim.
Step 2: Contact an Employment Lawyer
Landlords rarely pay back wages without a fight. An experienced employment lawyer can calculate the wages you’re owed, add the damages and penalties California law provides, and file the claims needed to recover your money.
At the Ruggles Law Firm, we’ve seen this scam many times. We know the law, and we know how to hold landlords accountable when they try to cheat employees out of wages by disguising free rent as compensation.
FAQs About Free Rent as Wages in California
Can free rent replace wages in California?
No. California law requires employers to pay at least minimum wage for every hour worked. Free rent can be part of compensation, but it cannot be your only pay.
Is it legal to work only for free rent in California?
No. Even if you agreed to work in exchange for rent, that agreement is unlawful. Landlords and employers must still pay wages in addition to any housing benefit.
Do I get liquidated damages if I was only given free rent instead of wages?
Yes. Under California Labor Code section 1194.2, employees who are denied minimum wage can recover not only their unpaid wages but also an equal amount in liquidated damages. Liquidated damages are essentially a financial penalty designed to punish employers and make you whole i.e. they double the amount of wages owed. For example, if your landlord owes you $10,000 in unpaid wages, liquidated damages add another $10,000 on top of that, plus interest. Employers cannot avoid this penalty by claiming they “didn’t know” the law.
Does free rent count toward California minimum wage?
Free housing may count as part of wages, but only if it is properly valued and documented. It can never reduce your pay below California’s minimum wage, and it cannot replace wages entirely.
What happens if my employer appeals my Labor Commissioner case?
Your rights remain protected. Even if your employer appeals, you can still pursue related claims, such as violations of California’s Paid Sick Leave law, during the appeal process.
How do I know if I’m being paid legally when I live where I work?
Check whether your employer is paying wages in addition to providing housing. If your pay plus housing credit falls below minimum wage, or if you only receive free rent, your employer is likely violating California law.
What should I do if my landlord says free rent is my pay?
Document your work hours, keep copies of any agreements, and contact an employment attorney. California law is clear: free rent is not wages, and you may be entitled to back pay and penalties.
Final Word from Employment Lawyer Matt Ruggles
I’ve seen landlords and employers pull this “free rent as wages” scam countless times. The California Supreme Court has now made it plain: housing benefits don’t replace wages, ignorance of the law is no excuse, and employees’ rights travel with them into court.
If you’ve been denied wages because your employer claims rent was your “pay,” you may be owed more than you think. At Ruggles Law Firm, we fight these cases every day and we know how to make the law work for you.
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts. Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.
Contact the Ruggles Law Firm at 916-758-8058 for a free, no-obligation evaluation.
Blog posts are not legal advice and are for information purposes only. Contact the Ruggles Law Firm for consideration of your individual circumstances.
