It could be the end of the world as brokers know it, or it could give them the green light to rule over their agents with an iron fist: Either outcome is a possible depending on how the Supreme Judicial Court rules in a case it’s currently deliberating, Monell v. Boston Pads.
The plaintiffs in the case are a group of real estate agents working for a Boston rental agency. They claim that despite the fact that real estate agents are generally regarded as independent contractors, the broker-owners of the consortium of agencies they worked for exercised so much control over where, when and how they did their work that they were effectively employees, and ought to have been subject to the benefits and protections of the state’s employment laws, such as wages and paid overtime.
The crux of the issue is a direct conflict between the laws that govern real estate licensees and the laws that govern employees’ rights generally in Massachusetts. Legally, the burden of proof is on employers to show that a worker is independent and not due the benefits and protections of employment laws, by demonstrating that the conditions of their work meet three broad criteria: (1) that the business doesn’t control how the employee goes about their work; (2) that the work being done is not part of the firm’s normal business (e.g. a restaurateur hiring a designer to make him a website is contracting for work outside of his normal business; his hiring of a busboy is not); and (3) that the contractor is running a genuinely independent business and can freely provide their services to other firms as well.
The laws that govern real estate licensees clearly conflict with all these criteria, stating that agents are independent contractors, but nonetheless requiring brokers to “supervise” their work and stating that even if an agent only ever works for one broker, they remain “independent.”
Two Laws In Conflict
“This is a very unique case, because of the conflict of the two laws,” said John Tocci, a partner specializing in labor law at Tocci, Gross, & Lee PC and chairman of the Massachusetts Bar Association’s labor and employment section.
Both the independent contractor statutes and those governing licensees have been revised and amended several times since their passage, Tocci said, but the real estate licensee law was last updated in 2010, more recently than the independent contractor statute, which underwent a major revision in 2004. The laws governing brokers and real estate salespeople are also far more explicit about each one’s legal obligations than the broader employment laws.
For these reasons, the lower court ruled that the licensee statute should trump the independent contractor rules. Effectively, as it now stands, it means that if a broker and an agent have a contract which declares the agent to be an independent contractor, any specific restrictions or requirements on the broker’s part about how the agent performs their work cannot alter that independent status.
If the court simply upholds the existing lower court decision, that could allow brokers a much freer hand in their rules for agents. The rental brokerage at the center of the Monell case not only required its agents to adhere to a dress code, do desk time and cold calling, and attend training sessions, it also required agents to sign non-compete agreements which prevented them from working as rental agents in Boston if they quit the brokerage, and didn’t allow agents to work their own leads, retaining all listing information in a private in-office database from which agents were not allowed to copy information for their own use with clients.
If the SJC reverses the lower court, that would have even bigger implications for brokers. “If not for [the existing licensing statute, a broker] could never categorize any of his salespeople as independent contractors,” Tocci said. If the court rules that the real estate industry is not exempt from the broader employment laws, it would upend almost everything about the way brokers run their businesses.
Flying Blind
If brokers wanted to exercise any degree of control over their agents, or even their own brand and marketing, they might have to change their entire business model, opting to make their agents employees. Otherwise, even requiring something as simple as that their agents attend a training session or use the brokerage’s logo on their yard signs might put them at risk of huge legal liability – if a worker has been found to be wrongly misclassified as an independent contractor when they’re really an employee, they can go on to sue their employer for lost wages, including overtime, as well as damages and legal costs.
Given that either simply upholding or reversing the lower court in the case could have significant implications for the real estate industry, the court may choose to strike a middle course, attorneys say, ruling, for example, that real estate salespeople can be independent contractors – but only if they meet certain criteria, and offering guidance on how to determine that.
That’s left the industry in something of a pickle – without knowing the exact language of the ruling, it’s difficult to advise brokers on how to shield themselves. “We have no idea how the decision’s going to go,” said Greg Vasil, CEO of the Greater Boston Real Estate Board. “I would not be shocked if they reach a decision based on the particular facts of this case, and not necessarily affect the whole brokerage community. But we don’t really have a clue.”
Email: csullivan@thewarrengroup.com
