Monell v. Boston Pads LLC

Agents Can Remain Independent Contractors, SJC Rules, But Questions Remain

by Rich Vetstein on June 3, 2015

in Commercial Real Estate, Massachusetts Real Estate Law, Real Estate Marketing, Realtors

Tax-Information-about-Employees-and-Contractors-3SJC Issues Long Awaited Ruling That Agents Can Be Classified as Both Independent Contractors and Employees, But Leaves Questions

The Supreme Judicial Court has just released its long awaited opinion in Monell, et al. v. Boston Pads, LLC, (link here), ruling that Massachusetts real estate and rental agents can remain classified as independent contractors under the state’s real estate licensing and independent contractor law. The ruling keeps the traditional commission-only independent contractor brokerage office model in place, with brokers allowed to classify agents as 1099 independent contractors, without facing liability for not paying them salary, overtime or providing employee benefits. A collective deep breath should be heard throughout the entire Mass. real estate industry this morning.

Although the ruling determined that real estate agents are exempted from Massachusetts’s independent contractor law, the Court left open whether future plaintiff employees could build a case on other legal theories, and the Court deferred to the Legislature to enact a bill to address any murkiness which remains with the law.

Despite the question left behind by the justices, Gregory Vasil, CEO of the Greater Boston Real Estate Board told Banker and Tradesman said that, “We’re pleased with the outcome.” “It preserves the right of choice for our members. It doesn’t change the industry, it doesn’t change the status quo. It’s pretty clear you can have both independent contractors and employees.”

Corrine Fitzgerald, 2015 president of the Massachusetts Association of Realtors and broker-owner of Fitzgerald Real Estate in Greenfield, agreed, calling it a “good decision.”

Rental Agents Sue Jacob Realty For Overtime Wages

This lawsuit was brought by a group of disgruntled rental agents at Jacob Realty seeking to recoup lost overtime and minimum wages. 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, however, 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 — requirements typically reserved for employees, not independent contractors.

Court Holds That Agents Can Be Classified Either as Independent Contractors or Employees

The SJC was tasked with balancing the independent contractor laws and the real estate licensing law — which in many critical aspects the Legislature left directly in conflict with each other. Justice Hines, writing for the Court, noted the difficulty in construing the two laws, stating that “the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status, all of which must be satisfied to defeat the presumption of employee status.”

The Court ultimately concluded that a real estate agent could be classified as either an independent contractor or an employee, but that the agents at Jacob Realty were unable to demonstrate they were employees in this particular case. The Court, however left open for another case the ultimate questions as to whether all real estate agents should be classified as independent contractors. The justices said that “in light of the potential impact of that issue on the real estate industry as a whole and its significant ramifications for real estate salespersons’ access to the rights and benefits of employment, we think it prudent to leave that issue’s resolution to another day, when it has been fully briefed and argued. Should the Legislature be so inclined, it may wish to clarify how a real estate salesperson may gain employee status under the real estate licensing statute.”

This ruling is somewhat frustrating. The SJC punted on the major question that everyone in the industry has been waiting on for a year now. I love when that happens (insert sarcasm here). Whether the Legislature takes up this issue remains to be seen. In the meantime, brokers and office managers can sleep a little better tonight knowing that the chances they will be sued over employee classification has gone down considerably, but they still may be awoken someday with a nightmare in the hands of a creative plaintiff’s wage and hour attorney.

 

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Stakes Raised In Real Estate Agent Independent Contractor Case

by Rich Vetstein on October 10, 2014

in Leasing, Massachusetts Real Estate Law, Realtors

Tax-Information-about-Employees-and-Contractors

Update 6/3/15: SJC Rules In Favor Of Brokerage Office, Agents Can Remain Independent Contractors 

SJC To Hear Important Employment Classification Case

The critical question of whether real estate agents are governed by the state’s strict independent contractor law is now headed to the Supreme Judicial Court, the highest appellate court in Massachusetts. The SJC will hear arguments in December, and a decision is expected in the Spring of 2015.

Hanging in the balance is the fate of the historically independent, commission based real estate brokerage office model. An unfavorable result at the SJC would essentially turn this model upside-down, requiring brokerages 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 today would likely cease to exist.

The case is Monell v. Boston Pads, LLC, a class action brought by a group of disgruntled real estate agents at Jacob Realty, one of the largest real estate offices in Boston. As I wrote about in this post, Judge Robert Cosgrove ruled last year that the agents should be considered independent contractors and not employees. Given the importance of the case, the SJC granted direct appellate review.

The Massachusetts Association of Realtors has filed a friend of the court brief, in support of classifying agents as independent contractors. I agree with the MAR that real estate agents should be classified as independent contractors given its unique and historically independent business model.

However, this is a very difficult case to handicap. 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.

Also likely to play a large role is that in 2008 the Legislature tried — and failed — to amend the law to make real estate agents exempt from the independent contractor law. Governor Patrick vetoed the legislation. This legislative history hurts the brokers.

There is a decent chance this case could go against the industry. In that event, I hope the MAR has legislation ready to preserve the existing office model so there will be no adverse effect on Realtors. And by then, Gov. Patrick — who’s been no friend of the real estate and title business — will be long gone from office.

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

by Rich Vetstein on September 5, 2013

in Massachusetts Real Estate Law, Real Estate Marketing, Realtors

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

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