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Real estate statute trumps independent contractor law

A Massachusetts Superior Court judge’s finding that real estate agents are governed by the commonwealth’s real estate statute, G.L. c.112, §87RR, and not the state’s independent contractor law, is headed to the Appeals Court, according to lawyers on both sides of the suit.

“This is the first case in Massachusetts where the concept of employment misclassification and the real estate industry have ever been dealt with in the same opinion,” said Hillary Schwab, counsel to a group of real estate agents who filed a complaint in Suffolk Superior Court in Boston.

“The fact that an entire industry might be violating the law is no reason that the law should not be enforced,” Schwab added. “Notwithstanding Judge [Robert C.] Cosgrove’s decision or the arguments of [the defendant brokers], the facts of this case make clear that they were exploiting their agents by avoiding the wage laws, and that’s one of the reasons we are taking it up on appeal.”

But Stephen M. Perry of Boston’s Casner & Edwards, who represents the brokers, said the real estate statute and the independent contractor law, G.L.c. 149, §148B, are completely inconsistent when read together.

“The real estate industry has traditionally been operated with real estate agents engaged on an independent contractor basis,” he said. “The industry has always assumed that this practice was lawful. If this case were to ever get reversed, it would unfairly open people up to wide-scale attacks and really wreak havoc on a lot of people.”

The 15-page decision is Monell, et al. v. Boston Pads, LLC, et al.

Hallmarks of employment

Perry said the Legislature imposed requirements on real estate agents that ordinarily would trigger a violation under Chapter 149.

“That’s where there was a conflict,” he said. “The real estate licensing law, as it stood before the independent contractor statute was adopted, expressly included language that said you could be engaged either as an independent contractor or as an employee.”

A number of state and federal statutes authorize such a relationship, Perry said.

He added that the Legislature has always made sure, including when it amended the real estate law in 2010, to guarantee the right to classify agents as independent contractors. The independent contractor statute was last amended in 2004, he said.

“When it comes to statutory construction, the more specific statute overrides the more general, and we argued that the independent contractor authorization in the real estate laws is more specific,” he said. “The other statutory construction rule that was at play here was the concept that the more recent pronouncement by the Legislature overrides the older one. So the combination here helped lead to the judge’s decision.”

But Schwab said Perry and Judge Cosgrove’s claim that the statutes are in conflict is incorrect.

The Boston lawyer, who practices at Fair Work, conceded that there could be circumstances in which a broker forms a true independent contractor relationship with an agent.

“But if the broker is taking advantage of his position by requiring agents to do work that has nothing to do with their responsibilities as an agent and has everything to do with what the broker needs done around the office, then that has the hallmarks of an employment relationship,” she said. “That’s exactly what was happening here.”

The evidence before Cosgrove made clear that the brokers maintained a high degree of control over their agents, which is the hallmark of an employment relationship, Schwab said. The brokers governed every aspect of what the agents did, including what they could wear, what hours they had to keep, and how they interacted with clients.

“They also have mandatory shifts working in the office, taking out the garbage, cleaning the bathrooms and working on the phones,” Schwab said. “During those times, they were not allowed to be working on their own files and seeing their own clients and renting properties. That’s why the relationship was much more like an employment relationship.”

Defining the relationship

Defendants Demetrios Salpoglou and Yuan Huang own and operate several businesses that sell and lease real estate, including Jacob Realty in Boston. They employ between 130 and 300 agents.

Four of the six plaintiffs — Nesto Monell, Jonathan Gibson, Rachael Butcher and Lindsay Burnes — were licensed real estate salespeople at Jacob Realty. The other plaintiffs worked for two of the defendants’ other businesses.

The defendants classified them and other salespeople as independent contractors, paying them on a commission-only basis.

The plaintiffs signed agreements in which they expressly agreed to be commission-based independent contractors and “not be treated as an employee with respect to compensation for taxes or any other purpose.”

They also were responsible for payment

of their own taxes and had to pay monthly desk fees.

At the start of their employment, the plaintiffs signed non-disclosure, non-solicitation and non-compete agreements. They had to own day planners, obtain a cellphone with a “617” area code, adhere to a dress code, and submit to various disciplinary actions if they did not meet their productivity goals.

Conflict question

In granting summary judgment for the brokers, Cosgrove said it was difficult to read the two statutes consistently.

The real estate statute explicitly provides that an agent may either be an employee or an independent contractor, he noted. In the same sentence, the law reiterates that agents must remain under the auspices of a broker.

In contrast, the judge wrote, the independent contractor statute requires salespeople to be free from the control and direction of employers in order to be correctly classified as an independent contractor.

“This begs the question, how can a real estate salesperson be ‘free from control’ of the broker under the independent contractor statute, where the real estate statute requires that the salesperson ‘be under [the] supervision of [the] broker’?” he asked. “This conflict is compounded by the real estate statute’s explicit authorization that real estate salespeople may establish relationships with brokers as independent contractors.”

Cosgrove said it was instructive to note that the Legislature amended the real estate statute in 2010. The independent contractor law was enacted in 1990 and last amended in 2004.

“What is even more material, however, is that the real estate statute’s 2010 amendment added language indicating that brokers and salespersons could enter into agreements as independent contractors and pay the salespersons on a ‘commission-only basis,’” he wrote. “The legislature’s timing, in amending the real estate statute while leaving the independent contractor statute intact, is an indication that the legislature intended real estate salespersons to qualify as independent contractors despite the inherent level of control brokers must exercise over them.”

How to know if an ‘employee’ is an independent contractor

In deciding whether someone performing services for an employer qualifies as an independent contractor, the person is presumed to be an employee unless the following three factors exist:

1. The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and

2. The service is performed outside the usual course of the business of the employer; and

3. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

 

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