Jack Gaughen LLC d/b/a Jack Gaughen ERA v. Unemployment Comp. Bd. Of Review: Salesperson Awarded Unemployment Compensation

A broker has appealed an award of unemployment compensation to a former independent contractor salesperson that had been associated with his firm.

Kirk Stine (“Salesperson”) worked as a part-time independent contractor salesperson for real estate brokerage Jack Gaughen LLC (“Brokerage”). During his time with the Brokerage, the Salesperson was paid on a commission basis and received Form 1099 from the Brokerage for tax purposes. The Brokerage eventually terminated its relationship with the Salesperson for lack of work.

Following termination, the Salesperson filed an application for unemployment compensation. The Salesperson argued that even though he was categorized as an independent contractor, he should be considered an employee and eligible for unemployment compensation. The administrative hearing officer awarded the Salesperson unemployment compensation, and the Brokerage appealed.

The Commonwealth Court of Pennsylvania affirmed the lower court rulings. Normally, independent contractors are not eligible for unemployment compensation because they are not considered employees but rather self-employed contractors. However, if it is determined that an independent contractor should be classified as an employee after a court weighs a variety of factors such as control exercised over the independent contractor, then the individual may become eligible for unemployment compensation. Many states and the federal government have enacted statutes classifying real estate salespeople as independent contractors so long as certain criteria is met.

First, the court considered whether a Pennsylvania state statute barred the award of unemployment compensation. The statute provides that the services of a real estate salesperson do not qualify as “employment” for unemployment compensation purposes if the salesperson is paid by commission for his/her services. While the state conceded that the Salesperson would not normally qualify for an award of unemployment compensation because of the statute, the Brokerage had failed to raise this argument during the hearing process and so this argument was now waived. The court agreed that the Brokerage’s argument was not properly before the court and so it was too late for the Brokerage to rely on this argument now.

Second, the Brokerage argued that it did not exercise the required control over the Salesperson to allow the Salesperson to be considered an employee of the Brokerage. An individual who is receiving compensation is generally presumed to be an employee, unless the individual can be shown to be free from direction and control over the services provided and also the individual is engaged in an individual trade or business.

The court determined that the brokerage could not overcome the presumption that the Salesperson was an employee because the license laws require salespeople to work for a licensed broker. The license law also only allows commissions to be paid to the broker and also requires the broker to supervise his/her licensed salespeople. The court ruled that the Salesperson was not working in an independent trade or business and so could not be considered an independent contractor absent the state statute, and so the court affirmed the determination of the hearing officer.

Jack Gaughen LLC d/b/a Jack Gaughen ERA v. Unemployment Comp. Bd. Of Review, No. 1884 C.D. 2010 (Pa. Commw. Ct. Feb. 18, 2011). [Note: This opinion is not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]

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