Hot Topics in Broker Risk Reduction

Antitrust

Understanding the principles of antitrust law is critical for both brokers and agents, not only to protect the brokerage from costly antitrust claims, but to best serve consumers in their homeownership journey. Keep in mind that brokers may be held liable for the anticompetitive behavior of their salespeople and staff, so having an antitrust compliance program in place to educate and train staff is important. Business decisions should always be made unilaterally and independently, and never as a result of an agreement, understanding or conspiracy among competitors. Any agreement to fix prices is prohibited, and real estate professionals should never agree, expressly or implicitly, with their competitors about matters such as the commission rate charged to consumers or the cooperative compensation they will offer to MLS participants. Similarly, brokers should never agree with other competitors to refuse to deal–or to only deal on certain terms–with another competitor or business. Avoid discussions with competitors about how to do business with other competitors altogether.

Copyright Infringement

It is easier than ever for unauthorized uses of third-party works to be discovered. To avoid costly copyright infringement demands, real estate professionals should be sure to obtain permission to use any third-party work and comply with any license terms to avoid copyright infringement. Be sure to maintain records to easily confirm rights, if challenged. Be sure to confirm that any rights received align with the current and planned use of photographs or other third-party work before using it, including on a website, in the MLS, and marketing materials. Real estate professionals should also ensure proper rights to any music used at live events, such as an open house, and before incorporating into recordings. Keep in mind that specific types of licenses must be obtained before incorporating music into a video recording. In addition, real estate professionals should comply with the Digital Millennium Copyright Act safe harbor to reduce risk when third-parties post on their websites, including photos and music that appear through an IDX display.

Disclosures & Misrepresentation

Misrepresentation of a property’s condition is consistently among the top claims against real estate professionals. To reduce the risk of a costly misrepresentation claim, it’s critical that real estate professionals are familiar with applicable disclosure laws. Real estate professionals generally owe a duty to disclose any known material fact under state law and, pursuant to Article 2 of the REALTOR® Code of Ethics, REALTORS® must disclose material facts, which are facts that a reasonable buyer would consider important in deciding whether and on what terms to purchase a property. Failure to properly disclose can lead to misrepresentation claims, ranging from fraud to negligence and in some states, innocent misrepresentation.

Independent Contractor Status

The ability to work as an independent contractor is recognized and protected under many state and some federal laws. The risk of misclassification poses a challenge for brokerages, particularly with the proliferation of teams, where team leads may want to dictate how team members manage their tasks and time. While there is often an inherent conflict between common law independent contractor status and the traditional classification of real estate salespeople as independent contractors, some state statutes expressly address the unique status of real estate agents, permitting classification as independent contractors despite the required control and supervision the broker has over the licensees. For example, in 2022, New Jersey amended its real estate brokerage law to retroactively exclude real estate salespersons from the state wage law, which uses the “ABC test” to classify workers. In addition, a recent California appellate decision affirmed a salesperson’s ability to choose to be an independent contractor, citing a 3-part test found in the state business licensing code.

However, litigation and new federal and state legislation continue to threaten workers’ ability to be classified as independent contractors, including many real estate professionals. In October 2022, the U.S. Department of Labor (DOL) issued a proposed rule to update the test for determining whether a worked is an employee or independent contractor under the Fair Labor Standards Act. The proposed rule does not impact real estate professionals’ explicit protection in the Internal Revenue Code (IRC), but NAR has advocated that the DOL incorporate the IRC provision, and made other suggested changes for the DOL’s consideration that would better recognize the real estate broker-agent relationship and state laws to ward off litigation or similar state measures.

TCPA & DNC: Texting and Calling

Plaintiff lawyers have created a lucrative business model filing class action lawsuits alleging real estate professionals have violated the Telephone Consumer Protection Act (TCPA) and Do Not Call (DNC) laws by sending text messages and placing phone calls without the recipient’s consent. Specifically, the TCPA requires prior express written consent before using an automatic telephone dialing system (ATDS) to place telemarketing calls or texts to wireless numbers.

The United States Supreme Court recently overturned the Ninth Circuit Court of Appeals and narrowly defined the TCPA’s ATDS definition to require that the call technology not only store or dial numbers, bust actually use a random or sequential number generator to place the calls. Thus, calls using random or sequential number generators still require prior express written consent, which involves a signed agreement clearly and conspicuously disclosing the text recipient’s permission to receive call and text messages from the sender. Now it is clear that calls generated individually - not using a random or sequential number generator - need not obtain prior consent at all, even if the device has the ability to store and dial call lists. Keep in mind that DNC laws should always be followed, which prohibits individuals from contacting phone numbers contained in the DNC registry.

In response to the U.S. Supreme Court’s decision, several states have enacted so-called “mini-TCPA” laws which change the ATDS definition and provide additional restrictions on telemarketing calls and texts. In some states, the requirement for express written consent has been expanded to include any calls made using an automated dialing device or artificial voice message, not just random or sequential numbers. States have also adopted additional restrictions on the times in which such calls can be made as well as specifying the content and timing of required disclosures during a telemarketing call. These mini-TCPA laws apply to calls made within and to consumers located within the applicable states, and could provide the setting for the next wave of litigation on this issue as state courts tend to be more consumer-friendly.