UNDER FIRE: INDEPENDENT CONTRACTOR STATUS FOR R.E. AGENTS

By
Real Estate Agent with Randy Hilman Homes NH# 067519

DANGER A4 - Under Fire: the Independent Contractor Status of Real Estate Agents. Pending litigation seeks to overturn the legal work status of licensed real estate agents from independent contractors to employees.

If successful, the reclassification of agents from independent contractors to employees would be devastating to brokers and likely force the exit of many licensees from the business, says the National Association of REALTORS® in its recently released D.A.N.G.E.R. Report, a major review of 50 mounting threats and challenges likely to have a significant, even game changing impact on how we REALTORS® conduct business over the course of the next five years.

The D.A.N.G.E.R. Report  is based on more than 200 reports, surveys, research, focus groups, white papers and confidential interviews with real estate industry leaders..  It was developed by  Swanepoel | T3,  the real estate management-consultant firm commissioned by NAR's Strategic Advisory Committee. The acronym stands for "definitive analysis of negative game changers emerging in real estate".  Download the full report here.

At the heart of the current threat issue is the inherent conflict between  real estate and labor law.

"Real estate law, which in most states requires brokers to supervise their agents, often conflicts with labor laws" that look to freedom from supervision for justification of independent contractor status," the NAR report says.

Further, NAR continues, differences at the federal level in the interpretation legal work status by the Internal Revenue Service and the National Labor Relations Board present challenges which have "opened the door for attorneys to bring suit"  against several major brokerages, arguing that "these organizations have misclassified their agents as  independent contractors rather than employees."

These suits essentially claim that labor laws governing independent contractor status should take precedence over real estate law, meaning that brokers who supervise their agents as required under the real estate statutes undermine their agents' independence as contractors and must treat them, therefore, as employees.

And while this disharmony between real estate and labor laws has been interpreted at state and federal levels in favor of the real estate industry,  pending litigation could wind its way to the U.S. Supreme Court, which applies its own standard to the question of legal work status, the report says.

"A decision by the Supreme Court going against the status quo, although unlikely, could have a far-reaching, industry-wide impact, including the transformation of the brokerage revenue model and a significant shift in the operational model,"  the report's author writes.  "A scenario in which agents are considered employees would initiate a complete reorganization of the existing revenue model.  Most brokerage companies would be unwilling to hire agents that will not generate enough business to cover
their costs."

Such a shift in legal work status would leave agents with three options, Swanepoel adds: "work as an employee for a large company under its operational guidelines, become a broker and work as a sole practitioner, or leave the industry altogether.    What would you do, if your status was changed from independent contractor to employee?

For an excellent special NAR "White Paper" on the subject, please select Independent Contractor Status in Real Estate.

Meanwhile, dear reader, be on the lookout for my next installment of the D.A.N.G.E.R. Report: 

DANGER A5 - A Decline in the Relevancy of Agents.

 

 

 

 

Comments (6)

Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West - Carlsbad, CA
Presence, Persistence & Perseverance

Randy Hilman, Associate Broker, GRI, CBR The Danger Report is certainly a shock when read carefully. I think the 'window' for many of the changes mentioned may be wider. Regarding the classification of agents as employees, I think that is a stretch, since agents still set their own hours and are not under the full control of the broker. We are both Brokers, so we really have no care.

Jun 30, 2015 10:25 PM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Hi Sandy Padula and Norm Padula, JD, GRI .  I, too, think it is not likely to happen, but it is not an impossibility.  The brokerage community, present company excepted, is concerned about the pending litigation against Redfin, Coldwell Banker and others.  No one wants  SCOTUS to weigh in.  On the bright side, the Massachusetts Supreme Court has ruled in favor of Boston Pads, another brokerage that had been targeted in a lawsuit which argued that the brokerage operated in violation of labor laws because its agents did not meet the definition of independent contractors.    Most think that even SCOTUS, if called upon to review lower court decisions, will defend the independent work status of real estate agents, thus rescuing our beleagered industry from certain doom.

Jun 30, 2015 10:52 PM
David Barr
Berkshire Hathaway HomeServices Florida Realty - Sarasota, FL

This is an area of particular interest to me.  One of the benefits of being a Realtor is the "independent" part of the term "independent contractor".  If I'm going to become an employee I expect benefits and a salary and performance bonuses, just like any other sales position in any other industry.

Jul 01, 2015 12:25 AM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Hello David Barr .  I'm right behind you, bro...

Jul 01, 2015 09:02 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

A relatively easy fix.  Hand your license as a PC or PLLC - the brokerage pays the entity, the entity pays you.

Sep 08, 2015 01:47 AM
Randy Hilman REALTOR® Associate Broker
Randy Hilman Homes - Moultonborough, NH
Guide & Mentor to Home Buyers & Sellers

Independent contractor status is not an issue, as a practical matter, as real estate agents are already exempt from IRS rules.  A few enterprising lawyers are trying to argue that state real estate laws requiring supervision of agents makes agents employees.  The IRS exempts the real estate industry from this distinction.  If the suits are successful, there may be an issue.   There may be an opportunity for brokers to pay agents indirectly, but I don't know of any state whose RE laws would permit this.

Sep 08, 2015 07:16 AM