Are Mass. Real Estate Agents Independent Contractors Or Employees? Crucial Issue Heads To Appeals Court

MA real estate agent independent contractor law

Fate of Long-Standing Massachusetts Brokerage Model Hangs In Balance

As first reported by David Frank in Massachusetts Lawyers Weekly, the critical question of whether real estate agents are governed by the state’s strict independent contractor law, which would entitle agents to minimum wage, overtime and benefits, is headed to the Appeals Court. According to Hillary Schwab, the attorney to a group of real estate agents who filed suit against Jacob Realty in Boston, “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.” An unfavorable result at the Appeals Court would essentially turn the Massachusetts real estate brokerage model upside-down, as it has historically operated with agents considered independent contractors and paid on a commission-only basis. If brokerages were required to pay their agents minimum and overtime wages and provide all the statutory benefits afforded to employees, the real estate office as we know it would likely cease to exist.

Jacob Realty Agents Required To Adhere to Dress Code, Mandatory Office Hours

The Appeals Court will consider the case of Monell, et al. v. Boston Pads, LLC, (embedded below) brought by a group of disgruntled real estate agents at Jacob Realty. According to Curbed Boston, Jacob Realty is part of a larger network of Boston rental companies (Jacob Realty, NextGen Realty and Boardwalk Properties) with 150 rental agents, making them one of the largest rental offices in Boston.

As is customary in the industry, Jacob Realty classified the agents as independent contractors, paying them on a commission-only basis and making them responsible for payment of their own taxes and monthly desk fees. At the start of their employment, the agents 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, submit to mandatory office hours and to various disciplinary actions if they did not meet their productivity goals.

Lower Court Rules In Favor of Broker

Superior Court Judge Robert Cosgrove issued a ruling on July 15, 2013 that the agents should be considered independent contractors and not employees under the Massachusetts Real Estate Brokerage Act. But Cosgrove said it was difficult to read the brokerage law and independent contractor law 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.

The problem arises when brokerages, such as Jacob Realty, ask its agents to do many of the things traditional employees must adhere to, such as required office hours, dress code, and performance benchmarks. This is especially so where courts have, in the last few years, strictly interpreted the independent contractor and wage laws in other industries. The more requirements imposed on agent, the more likely they should be treated as employees and not independent contractors, the argument goes.

What’s Next?

The case now heads up to the Massachusetts Appeals Court, and perhaps even the SJC — where the stakes will be much higher. This case is very hard to handicap because, as I said before, the courts as well as state and federal labor agencies have really been cracking down with the independent contractor law in favor of employees. Rest assured, I’ll be monitoring this case. I expect the MAR and GBREB will file friend of the court briefs and take a further appeal if there’s an unfavorable result. There will surely be lobbying efforts at the Legislature to preserve the historical independent contractor brokerage model.

Monell v. Boston Pads

  • Bibi Moore

    Thank you for keeping us updated on this. Personally I prefer to work with a smaller firm because I can truly be an independent contractor as define by Federal law.

  • Beckola

    It’s a big deal but I don’t think it would be as huge as some make it out to be. Brokerages would probably just figure out what you cost them and that would be deducted off the top of the commission. Most of us are already paying ‘key/desk fees’ of X amount. Instead of those it would be worked out with all the other expenses they’d incure and an amount would be set. It wouldn’t require mandatory this or that because as we know companies can set whatever agreement they want with employees. I think it would weed out non-producers but it would also weed out discount brokerages… which isn’t all that bad when you think about it.

  • Michael Bray

    Seems like you could just go out and be on your own if you didn’t want to conform to some basic guidelines to be affiliated with a particular office.

    • mchan1

      Not if the person is a real estate salesperson who is required to work under a real estate broker until that RE salesperson becomes a RE broker.
      RE law Should ALSO conform to the general law that applies to other industries!
      What makes real estate immune from that general law of the “employee vs ind. contractor” issue?

  • TBD

    Brokerages should have oversight over agents, but when it comes to ensuring they are following real estate law. They should not dictate items outside of this tenet in stark violation of Federal IC statues. Why the court did not pick up on this in this case is beyond me. How does mandatory ‘desk time’ play into the fiduciary responsibilities of an agent?