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.