Employment Highlights: 2017 Yearly Update

A. Cases

All three of the cases discussed below deal with independent contractor issues. This past quarter, a case from Connecticut concluded that a licensee retained to assist in the resale of a foreclosed property was an independent contractor, and not an employee of the broker. In a California case decided late last year, the appellate court concluded that a provision in an independent contractor agreement stating that the broker was licensed in California imposed a duty on the broker to comply with the state’s regulatory requirements.

1.         Mendez v. J.P. Morgan Chase Bank, N.A., No. X04HHDCV146049524S, 2017 WL 9510321 (Conn. Super. Ct. Feb. 1, 2017)

Following foreclosure, the homeowner alleged that various defendants, including the real estate broker retained by Fannie Mae to list the property for resale and the licensee retained to assist the broker, wrongfully removed and disposed of the homeowner’s personal property. The homeowner brought claims for negligence, trespass, conversion, civil theft and violation of the Connecticut Unfair Trade Practices Act.

Independent contractor agreement stating that a broker was licensed by the state implied a promise to comply with the laws governing licensed real estate brokers in that state.

After trial, the jury returned a verdict in favor of the homeowner on its negligence claim against the lender, but otherwise entered verdicts in favor of the defendants, including the real estate broker and licensee. The homeowner moved to set aside the verdict on several grounds. The homeowner argued that the jury’s finding that the licensee was an independent contractor, not an employee, of Fannie Mae, was erroneous.

The court declined to set aside the jury’s finding that the licensee was an independent contractor. Although there was contradictory evidence regarding the extent to which Fannie Mae controlled the licensee’s work, the court found there was sufficient evidence to conclude that the licensee was an independent contractor, rather than an agent, of Fannie Mae. The court denied the plaintiff’s motion to set aside the verdict in its entirety.

2. Thompson v. Asimos, No. A140096, 2016 WL 7243521 (Cal. Ct. App. Dec. 15, 2016)

The plaintiff is the owner of a consulting firm that advises clients regarding colocation (a data center facility in which a business can rent space for servers or other computing hardware or infrastructure). Some of the services provided by the plaintiff’s business required his company to have a real estate broker license. Because the plaintiff did not have a broker license, he collaborated with the defendant who was licensed as a real estate broker in California, and the parties entered into an independent contractor agreement. After a dispute arose between the parties, the plaintiff sued the broker for unfair competition, trademark infringement, and breach of contract. Among other things, the plaintiff argued that the defendant failed to register the consulting business with the state real estate commission. Following a bench trial, the trial court found in favor of the plaintiff.

A real estate representative was an employee of real estate brokerage firm, even though her compensation was not paid directly to her, but to a corporation owned by the representative.

On appeal, the broker challenged several findings made by the trial court on the breach of contract claim. Specifically, the trial court had determined that a statement in the independent contractor agreement indicating that the defendant was licensed as a broker by the state of California implied a promise by the broker that he would comply with the regulations governing real estate brokers in the state. The broker argued that this statement merely required him to maintain his status as a licensed real estate broker, but did not imply any additional duties. The appellate court agreed with the trial court, finding that the broker’s interpretation of the contract would give him little to no contractual obligations. Although it found the contract terms to be ambiguous, the appellate court concluded that it was a reasonable interpretation to imply that the broker contractually committed to “comply with the statutes and regulations which regulate the activities of licensed real estate brokers.” The appellate court affirmed judgment in favor of the plaintiff, but remanded the case for a new determination of damages.

3. Kology v. MySpace NYC Corp., No. 15-CV-3061, 2016 WL 1402894 (E.D.N.Y. April 11, 2016)

The plaintiff was a real estate representative and manager at MySpace NYC, a real estate brokerage firm, for five years.   The plaintiff signed a contract detailing her salary, commission, holidays, vacation, and sick leave, and she also signed a non-compete agreement.  Two years after commencing employment at MySpace, the plaintiff formed Atlantis 94 Corp., a corporation of which she was the sole shareholder and employee, and which was created for the purpose of receiving payment for the plaintiff’s services to MySpace. After Atlantis was created, My Space paid Atlantis for the plaintiff’s services. The plaintiff later sued MySpace for employment discrimination. MySpace moved to dismiss the claim on the ground that the plaintiff was not an employee of MySpace because MySpace paid the plaintiff’s corporation rather than her.

In this decision, the court concluded that the plaintiff was an employee of MySpace. MySpace set her schedule, dictated her responsibilities, and controlled the manner in which she carried out her duties. When the plaintiff formed the Atlantis business two years into the employment relationship, these features of the relationship did not change; it was a change in form, not substance. The court denied MySpace’s motion to dismiss.

B. Statutes and Regulations

New Mexico

Under an amended regulation, a qualifying broker must maintain a written employment or independent contractor agreement with all persons affiliated with the brokerage, including brokers and brokerage owners.[1] Under a related rule, all business entities engaged in real estate brokerage in New Mexico (unless excepted by statute), must employ or enter into an independent contractor agreement with a qualifying broker in order to qualify the entity to engage in real estate brokerage in the state.[2]

Oregon

The Oregon Real Estate Agency issued Unlicensed Assistant Guidelines in 2016. Unlicensed assistants may provide information that is contained in advertisements, may follow up on completion of contingency requirements for transactions, check on the status of financing, check with the escrow company, schedule or confirm appointments, and prepare advertising copy for review.[3] Unlicensed assistants may not show houses, hold open houses, give instructions to inspectors, appraisers, or repair persons, engage in negotiations, or engage in marketing.[4]

Wisconsin

In Wisconsin, a licensee associated with a firm may personally employ or engage licensed persons as independent contractors only to serve as unlicensed personal assistants.[5]

C. Volume of Materials Retrieved

Employment issues were identified in one case in this quarter. Over the past twelve months, Employment issues were identified 4 times in 4 cases (see Table 4). No statutes or regulations regarding Employment issues were retrieved this quarter, but 2 statutes and 2 regulations regarding Employment issues were retrieved in the past twelve months (see Table 4).

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State Law Based Changes

NAR's State Law Based Changes is a compilation of new types of laws collected over the past few years. This resource is helpful to guide states that may want to adopt similar laws in their state.

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Read a summary of this quarter's additions to the State Law Based Changes.