Lawsuits Challenge Independent Contractor Status

Real estate sales associates operating as independent contractors would seem to be a settled area of law, but three lawsuits were filed last year in which associates claimed they were employees and wanted to be compensated as such.

They argued that, based on the kinds of tasks they were required to do and the supervision they were subject to by their brokers, they were hardly working as independent contractors.

Two of the cases are in California and they’re pending. The third is in Massachusetts and late last year the state’s Superior Court ruled in favor of the brokers, saying state law gives the brokers a choice to classify their associates as either employees or independent contractors, and the brokers had properly classified them as the latter. The case is now in appeal, and the Massachusetts and Boston associations of REALTORS® are filing a friend-of-the-court brief in support of the brokers.

“We’re hopeful when considering the appeal that the state Supreme Judicial Court will reaffirm the lower court decision that real estate agents may affiliate with their broker as independent contractors and should not automatically be viewed as employees under Commonwealth law,” says John Dulczewski, executive director of the Greater Boston Association of REALTORS®.

Given the market’s tough conditions this past year or so, some sales associates might be attracted to the income stability that comes with a paycheck. After all, to succeed today you have to deal with inventory shortages, high home prices, tough financing conditions, and stagnant incomes among buyers.

With this as the backdrop, its helpful for brokers to take care in how they structure and maintain the independent contractor relationship they have with their sales associates.

First, know your state law. In Massachusetts, the lawsuit has exposed two areas of law that are in conflict. The state’s real estate law says sales associates can be either employees or independent contractors and it requires brokers to exercise supervisory authority over them, no matter what their status is. That conflicts with the state’s employment law, which defines independent contractors in such a way that such supervision can appear to undermine a contractor’s independence.

“It’s somewhat impossible to exercise supervision over your sales associate pursuant to the real estate license laws and also maintain the independent contractor relationship in compliance with the state labor and employment laws,” says Lesley Walker, NAR associate counsel.

Second, work with an attorney to draft an appropriate independent contractor contract and be sure your associates have signed it.

Third, be aware of what constitutes independent contractor status in your state. How much supervisory control is appropriate? If associates have to buy their own tools of the trade, including their phone, how much say do brokers have over what they can require? And can associates enter into relationships with other entities beyond the brokerage?

“Whether or not there’s an independent contractor relationship is determined not by the intent of the parties but the reality of how the relationship is playing out,” says Walker.

That means it’s not what you say, but what you do. In the five-minute video above, Walker talks about the cases and what to consider as you look at your own situation.

Watch the video.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at

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  1. MP Clark


    Why are agents forced to pay fees to the NAR when they do not wish to be members? If a broker chooses to be a member of the NAR and local boards, why don’t agents have any choice?

    As an experienced property manager, licensed in Ohio, I have found many brokers will not allow property manager to operate in the field. I have found that I have had to educate brokers about this field, free of charge. Property managers have to seek broker after broker and restart our own businesses every time, after we finally find a broker who will not attempt to force us to charge unnecessary fees and/or force us to abide by abusive contracts. Many brokers are unethical in Ohio. During all this time, I have paid all costs and have been kept from having income for 4 years. I am forced to pay NAR and local board fees against my will. In Ohio, fees are forcing agents out of business. Is the NAR even aware of this?

    BTW, if I wish to be a non-member, I was told that I can pay 10.00 less per year in dues. So, non-members have to pay anyway. What other industry group does this? Agents need representation and a choice regarding the outrageous fees charged by the NAR and local boards. We are held hostage by a broker’s personal choice.

    According to, Congress receives massive donations from real estate/financial services groups. The bulk goes to the GOP. Are mandated donations from agents being used to pay Congress members? Why are agents told which political actions to support by local NAR boards?

    Why are agents being marketed products from the NAR? What benefits do licensed property managers receive from their mandated fees to the NAR and local boards? I receive nothing from the NAR except bills. I did once discover the usual misinformation about property management in the NAR magazine. Usually, the NAR and local boards do their utmost to portray rentals and management as the least attractive option. The market says otherwise. Agents have come to feel that that NAR and lenders have a relationship based on an interest in selling loans. One agent online called this a “fixation”.

    Is the NAR aware that local boards do not know rules of membership? Local boards and boards in different states do not agree on membership rules either. The national NAR has said it has no interaction or influence on local boards. Yet, payment receipts state that the bulk of payments go the national NAR. Agents can’t find out the rules of membership, yet must pay anyway.

    As W2 status employees, taxes would be paid by the employer. As 1099 IRS status contractors, we pay all of our business costs and must respond to any changes demanded by the market and state law. We are forced to pay mandated fees to the NAR. Agents must pay MLS fees, as well. Brokers claim a split of our meager income from our own work as agents. The market has not recovered since the Bush meltdown of 2000-2008. There is a glut of unsold housing in many states. Prices are down. Commissions are down. This is widely known since it is fact.

    Is the NAR aware of the situation agents encounter in their 365-24-7 work? Agents are being forced to pay and then hand over their incomes and pay all taxes.

    If the NAR does not change in its demands that agents pay while we receive nothing in return, the NAR will lose more members. Agents can’t live without rent and food money while being told what to do by the NAR and local boards.

    It is time for agents to be treated as independent contractors who get paid for their work and who have a choice about industry groups they wish to join. This situation is why agents are treated as indentured servants and with impunity. As to ethics, the NAR obviously has no influence on the behaviors of its own members.

    State and federal law guides operations in real estate. Industry groups with mandated fees have an agenda. If agents are independent contractors, we need to be treated as such. We are not. The NAR needs to recognize this situation and change.

  2. Most of the time, sales associates don’t read the independent contractor agreement. Because of that, the broker will “encourage” the agents to do certain “optional” tasks, particularly desk duty and attending sales meetings. Its a tough position for the broker, but the objective is to lose the old model of smoke and mirrors, and shift toward one of transparency.

  3. Linda Lyons

    If paying $115 yearly to NAR is going to keep food off your table, then you’re in the wrong business. If you don’t know what NAR affords you, how about researching it and go on to their website and see what they are doing with your dues. Ignorance vs. educating yourself is no excuse.

  4. Agreed Linda Lyons. NAR dues are a bargain at the price. So are my state and local dues.

  5. My thought exactly. I’ve been a REALTOR for over 25 years and like everybody else I’ve had to access where my money goes. I am always amazed about how real estate agents whine about wanting to be independent but want the Broker to pay for their security. Real Estate is a profession where we have the luxury to decide what’s best for us and our family. One of the ways Professions maintain the integrity of the organization is to have guidelines. If an agent doesn’t like their chosen profession or broker…CHANGE. Get your own brokerage license or just get out of the business. Either way, stop whining.

  6. Tim in Fla

    Think about how appraisers are treated. Almost every part of the appraisers function is determined by a third party. What is done, how it is done, and when it is done, is all determined by an unrelated party. To the point of how appraisers must dress, act and talk. Appraisers pay all the same MLS Board dues and additional software costs along with a myriad number of other day to day costs. Yet the appraisers compensation is dictated by a for profit third entity who does not perform any valuation function. The level of management would appear to be more of an employee than a independent contractor.

    The current enviroment for both Realtors and appraisers is the people who we work for want more, and they want to pay less.(much less). In the end, for both cases, it is the consumer who is most damaged. Inappropriate compensation structures lead to poor performance and manipulation of the duties expected.

  7. Eugene Selger

    MP CLark

    It’s so simple……………you should become a broker. No split all of the responsibility.

    Whom would be responsible if not a broker?

  8. Why don’t you just e-mail or call NAR. I think NAR is essential. Do yourself a favor, don’t be “I am that I am” attitude. I’ve been a licensed california real estate broker for 22 years.

  9. MP Clark

    Ohio agents are fed up with this issue. Having called and emailed all sources already, I took the time to get the information. Licensed and experienced property managers want representation. We have none and pay anyway.

    Check with agents and managers. They are fed up with the fees of 285.00 NAR and anywhere from 100-200.00 a year for local fees which provide them nothing. Why not call the NAR and ask about the number of agents calling to protest fees?. Ask for Andrew in Membership. Then check all the local boards.

    NAR and local boards provide nothing for licensed property managers in Ohio. This may be true in other states as well. Experienced managers see misinformation from the NAR and local boards re the profession. We don’t have the time to write and correct it all. We pay all our own costs for business and receive nothing from the NAR.

    Having worked with a local experienced legal firm doing receivership, we heard about the NAR before 2003. We were told the NAR was a waste of money. It turns out that this advice was correct. For those with experience working in Ohio in management and in receivership, fees for the NAR and their various local boards are a waste of resources which can be prevented by allowing agents to have free choice. I respect real estate and the professionals who work in these fields.

    As to fees, check opensecrets: Agents need no instruction on who to vote for. Why are mandated fees being used? We don’t need a big daddy to interpret legislative actions in Congress and in our own states. We can read for ourselves.

    I don’t know one active agent who supports these fees. This is the reality for active agents who are working in real estate. I have spoken with brokers who also agree, too many times.

  10. MP Clark, I hear your frustration and anger. I understand that it appears that in Ohio, NAR is unresponsive and niggardly. But when you say you don’t know one active agent who supports these [NAR] fees, you are wrong; I am active, and appreciate what NAR does for me and do not resent thebdues.

  11. Rodney

    It seems that the NAR, TAR, MLS fees and mandatory membership and dues is tantamount to Racketeering. In order to have access to MLS, you as a Broker and all of your agents must join all three associations here in Texas. Now this might make sences if all of these affiliated associations were all owned by the associations/ Non-Profit, but what we see id these associations have sold off important aspects of our industry, i.e., MLS, and all of the other products that our association has or is in a marketing agreement with. The solicitation for the Real Estate PAC, that in my state contributes the most of the money to the GOP, and I have nothing to say about how my funds are used. It is time for the Real Estate interest to step back and realize that with out its’ members the NAR etc, have nothing…THEY SOLD IT ALL, and how much stock did the executives of our association receive for selling off OUR ASSETS?

  12. Marvin Shelley

    One thing is for sure, when banks can own brokerages the whole damned system is going to get turned on its head.

  13. Joe

    I hear you Saul. Who can we talk to about geting our NAR dues increased?

  14. Tammy Young

    There’s no whining in real estate! If this is the business you want to be in, find a situation that you feel good about, deal with the things you don’t like and get on about the business of helping people with their real estate needs. No matter what you do, there will be requirements you don’t like. It’s up to you how much time and energy you want to spend focused on those things vs all the great things about this profession. I’ll choose to spend my time and energy on those things that help grow my business.

  15. Frances Venable

    Rodney I agree. It makes me angry that we pay dearly for the tools of our trade such as the MLS (and all the information that goes with it) – these tools substantiate our position as licensed agents. Yet the MLS is sold to the dot com businesses who in turn, turn around & solicit Realtors to buy their “services” – our MLS! Then the MLS is offered FREE to the public. It’s a money deal that has gone crazy and Realtors should put their foot down to the selling of our industry that we pay dearly for – it won’t be long before banks and corporations like Zillow are in the residential real estate business with their own employees and we as independent contractors are no longer needed. Pay attention to where your money is going Realtors and don’t let apathy, arrogance or ignorance (or political correctness) lure you to “go along to get along”.

  16. Lee Cox

    As a new agent I was appalled at the “required”. $115 a yr? Where is that? Fantasy Island? In Walton County, FL, the fee is $577 a year & $30/month (Attn new agents, don’t forget the $250 application fee). Really? Didn’t the Teamsters pull something like this years ago? I don’t give a hoot on the benefits, don’t force me to buy anything until I determine it’s value! I found a broker that does NOT subscribe to this organization and I am happy to do so. – Oh and BECOME A BROKER? OK, give me years of required time under a broker (And in the mean time just “stop whining”? Oh, and I have heard from brokers telling me all their agents hate the MLS as well. “Years of experience” is a non-answer.