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October 31, 2014

Independent Contractor Status: Caught in the Crosshairs

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Independent Contractor Status: Caught in the Crosshairs

Lawsuits focus on the conflicts between state labor laws and real estate license laws when assessing the broker-associate relationship.

When Nesto Monell hung his real estate license with Jacob Realty in the Boston area in 2012, he was required to attend training, share front-desk time with other associates, fulfill office-hours duty, own a day planner, obtain a cell phone with a 617 area code, and adhere to a dress code.  

As an independent contractor, he received a Form 1099 instead of a W-2 from his broker and was paid on a commission basis. But Monell, along with five colleagues at Jacob Realty and at three other companies owned by the brokers, filed suit in late 2012, claiming the requirements they had to meet and the supervision they received constituted an employee-employer relationship.

A Massachusetts Superior Court ruled in favor of the brokers last July. But this case and two others pending in California have caught the attention of the real estate industry because they involve what many have assumed to be a settled area of law: real estate sales associates as independent contractors.

“Many states have adopted statutes that explicitly provide for real estate agents to be deemed independent contractors despite challenges like these, so these cases might be aberrational as opposed to signifying a trend of things to come,” says Lesley Walker, NAR associate counsel. “Even so, because the independent contractor status of associates is so important to our industry, NAR is looking at this as a national issue. How these cases are resolved could send a message to other jurisdictions.”

A central issue in these cases is the conflict between how state employment and labor laws treat independent contractors and what brokers must do to comply with their responsibilities under real estate license laws.

More

Lesley Walker discusses the cases in a video interview on Speaking of Real Estate.

In Monell et al v. Boston Pads, Massachusetts law allows brokers to treat their sales associates as either employees or independent contractors. (Regardless of which path they choose, brokers must supervise their associates.) That sets up a conflict with state labor laws, which deem supervisory duties to be a factor in determining whether an independent contractor relationship exists.

“It’s difficult to exercise supervision over your sales associate in accordance with the real estate license laws and also maintain the independent contractor relationship in compliance with the state labor laws,” says Walker.

In its ruling last year in favor of the brokerage, the court said the real estate law prevailed for two reasons:

  • The real estate statute had been amended after the independent contractor statute came into effect, indicating that the legislature intended the real estate statute to control.
  • The real estate statute is the more specific statute.

Monell and the other plaintiffs are appealing the ruling in the state’s Supreme Judicial Court; the appeal is scheduled to be heard in the fall. The Massachusetts Association of REALTORS® and the Greater Boston Real Estate Board are preparing a brief in support of the brokers. “We will clearly explain why it would be unfair and inconsistent with the legislature’s intent to permit this type of misclassification claim to proceed in the real estate industry,” says William G. Mullen III, legal counsel and director of risk management for the Greater Boston Association of REALTORS®.

Peter Ruffini, president of the Massachusetts Association of REALTORS®, agrees with the necessity of keeping the status quo. “It’s vital to the real estate industry that brokers and agents continue to have the ability to affiliate as independent contractors or as employees,” he says.

The two California cases, Cruz v. Redfin Corp. in Alameda County Superior Court and Bararsani v. Coldwell Banker Residential Brokerage in Los Angeles Superior Court, have not yet gone to trial. They were both filed late last year and are seeking class certification. “If these cases are found in favor of the plaintiffs, in states where there are conflicts between real estate and employment laws, that could propel interest in lawsuits in other parts of the country,” Walker says. “Having an employer-employee relationship for a broker could be more expensive, more burdensome, and more time-consuming.”

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