The video edition of the quarterly report analyzes legal trends in risk management areas that effect real estate professionals: Agency, Property Condition Disclosure, RESPA, and Employment.
Welcome to the Legal Pulse risk management report for the first quarter of 2018. In this quarter, we will discuss three cases discussing the classification of real estate professionals. I am Finley Maxson, NAR Senior Counsel.
The Legal Pulse is a quarterly report that explores litigation, statutes, and regulations affecting real estate professionals on a variety of issues. Every edition covers agency, property condition disclosure, and RESPA, and each quarter explores different topics annually- this quarter covers Employment related topics. There is also an Executive Summary that provides a one-page review of this quarter’s research. The Legal Pulse and Executive Summary are available for download on nar.realtor.
The research turned up three cases involving challenges to the classification of real estate salespeople. The real estate industry is in a unique situation with worker classification, since many salespeople are classified as independent contractors yet real estate license laws require brokers to supervise salespeople. Many states have addressed this apparent incongruity by exempting real estate licensees from certain laws or allowing brokers to classify salespeople as independent contractors. When not addressed by statute, court will conduct a factual examination of the relationship that focuses on the amount of control that the principal exerts over the individual to determine whether an employment or independent contractor relationship exists.
Two of the cases were appeals from the New York’s unemployment insurance appeals board. The first case involved an office leasing broker who was awarded unemployment compensation. The broker appealed, arguing that the salesperson was an independent contractor. The court rejected the broker’s argument and affirmed the award of unemployment compensation. The court determined that the factual record supported the board’s award, finding that the broker exercised extensive control over the salesperson and the supervision required by the state’s license law. Factors supporting the finding of an employee/employer relationship included: an extensive paid training program; providing the salespeople office equipment and supplies; required employees to be in the office at a certain time; prohibiting salespeople from providing services outside the brokerage; and providing a business.
In the second case, the court found that a salesperson for a real estate brokerage that provided sales and rental services for multi-unit apartment buildings qualified as an employee for unemployment compensation services. The factors supporting the finding included: the broker set the salesperson’s rate of compensation; broker determined the salesperson’s work schedule; and the salesperson received critiques of his presentation style from the broker. Thus, the court affirmed the board’s award to the salesperson.
Finally, a Texas federal court considered whether a lawsuit suit brought by a brokerage’s salespeople against the firm for violations of the Fair Labor Standards Act, alleging that the salespeople worked more than 40 hours per week but did not receive overtime pay. The brokerage argued that the salespeople were independent contractors and, alternatively, were covered by the outside salesperson exemption. Both parties filed motions for judgment in their favor but the court denied these motions, ruling that there were factual disputes and so the matter should proceed to trial. The salespeople presented evidence that the brokerage exerted control over how they performed their work, while the brokerage argued that the salespeople make their own decisions over what properties to show and could also represent homes from other sellers. Since there was a disagreement over the facts, the case continued on to trial.
As you can see in all of the above cases, the factual relationship between the salespeople and the brokerage is examined closely in making the determination of whether a salesperson qualifies as an independent contractor or not, if there isn’t a statute creating the parameters of the relationship. NAR has worker classification resources available to help brokers properly structure their relationship with independent contractor salespeople to avoid these types of actions- here is a list of those resources.
For more insights on current litigation involving for real estate professionals, check out the Legal Pulse on nar.realtor. Thank you.