Massachusetts’s highest court has considered a broker could classify salespeople as independent contractors pursuant to the state license law, rather than applying the state’s independent contractor statute.
A group of real estate salespeople (“Salespeople”) who were formerly associated with a group of collectively owned real estate brokerages (collectively, “Brokerages”) brought a class action lawsuit against the Brokerages for allegedly misclassifying the Salespeople as independent contractors instead of employees. Based on this alleged misclassification, the Salespeople claimed that there were violations of the state’s wage payment laws, including minimum wage and overtime requirements, and other penalties for the misclassification.
All of the Salespeople were involved in the sale or leasing of apartments while they were associated with the Brokerages. The Salespeople only received payment from commissions earned through successful transactions, and they had to pay a monthly desk fee to the Brokerage. They also had to spend a certain amount of time in the office answering the phone and showing prospective clients apartments. The Salespeople were also required to undergo specified training, adhere to a dress code, and could be subject to discipline if they failed to meet their productivity targets.
The trial court ruled that a provision in the state’s license law allowed the Brokerages to properly classify the Salespeople as employees, irrespective of the language in the state’s independent contractor statute. The Salespeople appealed this ruling.
The Superior Judicial Court of the Commonwealth of Massachusetts affirmed the ruling in favor of the Brokerages. The court first considered the differing requirements found in the state’s independent contractor classification statute and the real estate license laws.
The state’s independent contractor statute is designed to protect individuals from being classified as an independent contractor when they are in fact an employee. An individual is presumed to be an employee unless the following factors can be demonstrated: the individual is free from control and direction in connection with the service he/she is providing; the service provided is outside the usual course of business for the entity; and the individual is independently engaged in the trade or profession for the service provided. If an employer misclassifies an individual as an independent contractor, there are civil and criminal penalties that may be imposed, including fines.
The real estate license laws create two classes of licensees: brokers and salespeople. Brokers and salespeople both participate in the selling or leasing of property, but only brokers can receive a commission and salespeople are required to be affiliated with a broker. The license law provides that salespeople can be affiliated with brokers either as employees or as independent contractors, and brokers are required to maintain a degree of supervision over their salespeople.
Using the rules of statutory construction, the court found that the license law controlled the relationship between the broker and the salespeople and so affirmed the ruling in favor of the Brokerages. The two statutes were in conflict, since the license law required broker supervision of the salespeople yet allowed them to operate as independent contractors, while the independent contractor statute demands that the independent contractor not be involved in the usual business of the entity and also be individually established in the trade or business for which they are providing the service.
Since it would be impossible for a salesperson to satisfy both statutes, the court found that the real estate license law should control because that statute is specific to the real estate industry, whereas the other statute was more general. The court also found that it would be unfair to potentially subject brokers to criminal penalties when they are following the express language of the state’s license law allowing them the ability to classify their salespeople as independent contractors. Therefore, the court entered judgment in favor of the Brokerages because the Salespeople could not allege misclassification under the state’s independent contractor statute.
Monell v. Boston Pads, LLC, No. 11661 (Mass. June 3, 2015). [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].
Editor’s Note: Special thanks to Mike McDonagh, General Counsel for the Massachusetts Association of REALTORS®, for alerting NAR Legal Affairs to this decision.