Seattle-based online real estate brokerage Redfin has been hit with a class-action lawsuit alleging the firm misclassified employees as independent contractors in order to avoid having to pay minimum and overtime wages, payroll taxes and other business-related expenses.
The suit comes not long after Redfin raised $50 million in a funding round that appears to be setting the company up for an initial public offering.
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Since the company’s debut in 2004, it has built a business model that has inspired a number of other tech-focused brokerages to follow in its footsteps. Unlike many traditional brokerages who pay their agents on commission, Redfin offers its agents salaries, benefits and leads, and covers computer equipment, a cellphone plan, mileage, continuing education, and multiple listing service dues.
It also pays its agents bonuses based on customer satisfaction and offers rebates to buyers who use Redfin agents.
But that compensation model does not apply to its associate, or field, agents who are hired as independent contractors and paid for conducting field events for salaried agents’ clients. A sample job ad for a Redfin associate agent reads: “You will be paid per event, including home tours and open houses. You own your own schedule and you can work as much or as little as you’d like, provided we’ve got the demand in your area.”
The job’s requirements include a “willingness” to join the local MLS, the California Association of Realtors and the National Association of Realtors, as well as a “smartphone, a laptop, and a GPS — or the willingness to get them.” Associate agents see 50-60 homes per week, according to Redfin’s website.
The complaint against Redfin and 50 other unnamed “Does” was filed on Dec. 24 in California’s Alameda County Superior Court by lawyers on behalf of former Redfin field agent Ivonneth Cruz, who worked for Redfin from February 2010 to May 2013. The suit seeks to represent all Redfin field agents in California who worked for the firm in the four years before the suit was filed.
“As a matter of company policy, practice and procedure, Redfin has unlawfully, unfairly, and/or deceptively classified every California Class Member as ‘independent contractors’ in order to unlawfully avoid compliance with all applicable and federal state laws that require payment for all hours at work, business expenses, and the employer’s share of payroll taxes and mandatory insurance,” the complaint said.
The complaint also alleged unfair competition: “Defendant cheated the competition by paying the California Class less than the amount competitors paid who complied with the law and cheated the California Class by not paying them in accordance with California law,” the filing said.
Redfin has yet to file a response and did not respond to a request for comment.
Penalties for “willful misclassification of employees” range from $5,000 to $15,000 per violation, unless the court finds a pattern of violations, in which case the penalty could go up to $25,000 for each violation. The suit also asks for an unspecified amount of damages, seeks to recover wages on behalf of all of Redfin’s California field agents, and asks for a jury trial.
According to the complaint, field agents were paid a $100 flat rate to conduct home inspections for Redfin and a $125 flat rate to perform an open house showing for Redfin. Field agents received a flat rate of $25 if they showed up for an appointment that was canceled.
The complaint alleges that, other than these flat rates for each specific job performed, agents were not compensated for all of the tasks required of them, which included driving to homes to conduct home inspections or home tours, preparing for and attending open house showings, attending various team meetings, and drafting “agent insights” describing homes for sale.
Moreover, the complaint alleges that “Redfin had the authority to exercise complete control over the work performed and the manner and means in which the work was performed. Redfin provided the customers and Redfin provided the instructions as to how to perform inspections and show the homes listed with Redfin.”
Redfin also did not allow field agents to market and sell their own real estate, the complaint said.
Whether an employer has control or the right to control the worker both as to the work done and the manner and means in which it is performed is the most significant factor in determining whether a worker is an employee or an independent contractor, according to California’s Department of Industrial Relations.
Another, similar case currently pending in the Los Angeles Superior Court has the potential to impact the real estate industry more broadly. According to a Realogy regulatory filing, on Nov. 15, 2012, an individual named Ali Bararsani filed a class-action suit against Coldwell Banker Residential Brokerage Company, alleging the Realogy subsidiary had misclassified current and former affiliated sales associates as independent contractors when they were actually employees.
“The Company believes that CBRBC has properly classified the sales associates as independent contractors and that it has and continues to operate in a manner consistent with widespread industry practice for many decades,” Realogy said, adding that it intends to vigorously defend this action.
Nonetheless, the real estate brokerage and franchise giant said the case “raises significant classification claims that potentially apply to the real estate industry in general and for which there is no California case authority.”
Real estate brokerage and referral network ZipRealty faced a spate of class-action lawsuits after it began converting its California employee agents to independent contractor status in the latter half of 2010. The suits alleged the company had failed to pay minimum and overtime wages as required by law. ZipRealty denied the allegations, saying its agents were classified as “outside salespersons” exempt from overtime wage requirements. The firm settled its final compensation-related class-action suit for $1.7 million last month.
Redfin is facing litigation on other fronts as well. Last month, Property Disclosure Technologies, a nonpracticing entity that does not maintain a website or offer any products or services, filed lawsuits against Redfin and a dozen other real estate companies, alleging patent infringement.
And Redfin is still embroiled in a patent infringement suit brought by real estate information and technology company CoreLogic in May 2012. Two weeks ago, a patent review board invalidated key claims in the patent at issue in that case, but the case remains unresolved.