ZipRealty Inc. violated California labor law during a four-year period by failing to pay hundreds of real estate agents the state’s minimum wage of $8 an hour and premiums for overtime, the state’s labor commissioner alleges in a lawsuit seeking more than $17 million in back wages, damages and penalties.
ZipRealty agents often "worked six or seven days a week, far in excess of 40 hours in a week, and frequently in excess of eight hours a day," the lawsuit alleges. But the agents "typically received no pay for a large majority of the pay periods they worked after 2005," when the housing market tanked, the suit claims.
Emeryville, Calif.-based ZipRealty denies the allegations, saying its agents were classified as "outside salespersons" exempt from overtime wage requirements.
ZipRealty agents were compensated "in full compliance with California law" during the period in question, Vice President and General Counsel Samantha Harnett said in a statement released by the company today.
ZipRealty "adamantly believes that this claim is without merit and intends to vigorously defend this lawsuit," Harnett said.
ZipRealty has paid settlements in three class-action lawsuits making similar claims, and on Sept. 1 a Kern County Superior Court Judge awarded $330,000 to four former ZipRealty agents who filed complaints with the labor commissioner last year.
California Labor Commissioner Julie Su said the Kern County case paved the way for a statewide lawsuit filed Monday in Alameda County Superior Court on behalf of hundreds of ZipRealty agents.
"We learned in the course of the Bakersfield case that ZipRealty real estate agents frequently received no pay at all," Su said in a statement. "As employees, these agents were entitled to payment of at least the minimum wage for all hours worked each pay period."
The lawsuit seeks more than $7.5 million in minimum wages, $1.25 million in overtime pay, and more than $9 million in damages and penalties.
Most real estate brokerages are unlikely to face similar claims because they hire real estate agents as independent contractors, rather than employees.
ZipRealty converted all of its California agents to independent contractor status last year, completing the transition on Sept. 1. By Jan. 31, all of the company’s agents nationwide were independent contractors.
Before converting its agents to independent contractors, ZipRealty paid them commissions, "customer satisfaction" bonuses, and benefits. During periods in which agents did not earn any commissions, they did not get paid at all — something that happened more often than not after 2005, the lawsuit claims.
ZipRealty claims that before it switched its agents to independent contractor status, they were still exempt from California’s hourly overtime wage requirements because they were classified as "outside salespersons."
The California labor code stipulates that only workers who spend more than half of their working time away from the employer’s place of business engaged in sales can be classified as "outside salespersons."
In the Kern County case, the four ZipRealty agents making wage claims all worked out of their homes in Bakersfield. The nearest ZipRealty regional office was 80 miles away, in Visalia.
California’s labor code doesn’t define an "employer’s place of business." ZipRealty argued that the time the agents spent working at their homes in Bakersfield counted as time away from their "employer’s place of business."
But the Kern County Superior Court disagreed, noting that federal regulations define "any fixed site, whether home or office" that’s used by salespersons to make phone calls or access the Internet "as one of the employer’s places of business."
After determining that the agents’ homes counted as their employer’s place of business, the Kern County court analyzed whether the four spent more than half of their time out in the field.
A review of computer records — including agents’ logins to ZipRealty’s "Zap" platform, the multiple listing service, and DocuSign accounts — established that none had spent more than half of their time in the field, the court ruled.
ZipRealty argued that company policy dictated that agents spend a minimum 60 percent of their time in the field, and that the four agents who filed the complaints were substandard performers.
But a ZipRealty district director testified that there were no criteria for the number of home showings to be made, or reports generated showing the number of hours an agent spent showing homes. None of the agents had been reprimanded for violating the directive that they spend 60 percent of their time in the field.
A ZipRealty team leader testified that responding to new leads was the agent’s top priority. The team leader testified that he set specific standards for how many calls and emails needed to be made each day, the response times for new contacts, and frequency of computer access.
Emails from the team leader to the agents introduced as evidence at trial included charts of the agents’ activities, including phone calls, emails, response times, visits and offers.
When they began working for ZipRealty, training sessions emphasized that new leads "required immediate attention," the Kern County court noted in its decision, and agents would receive company notifications if they did not meet response-time standards.
Given the emphasis on responding to leads, and a "corresponding lack of interest" by ZipRealty in enforcing the directive that agents spend 60 percent of their time in the field, the directive "was not a realistic expectation" for job performance, the court ruled.
The decision noted that the four agents testified that the leads they received from the ZipRealty website "contained a significant number of people with credit issues, were unemployed or were otherwise unlikely to qualify for a loan" to purchase a home.
"As a practical matter it was unrealistic to expect the agents to obtain enough quality leads . . . to generate home showings that would have them in the field more than 60 percent of their time and maintain the standards for responding to new lead and client requests," the court ruled.
The Kern County court awarded the agents more than $330,000 in damages — four times the amount previously awarded by the labor commission in November 2010.
Former ZipRealty agent Steven Kinney was awarded $112,916 in minimum wages, overtime pay, damages and penalties; Marilee Tomczak $84,045; Nadine Radovicz $109,965; and Patrice Parson-Adams $23,275.
In its most recent annual report to investors, ZipRealty said it paid $600,000 in 2008 to settle one class-action lawsuit filed by a former agent. The brokerage also reported that it recovered a $2 million settlement from a law firm that had "provided counseling in connection with certain employment matters in prior years."
A spokesman for the California Department of Industrial Relations, Dean Fryer, said any real estate business that uses employees who work primarily in the office "has to make sure they comply with the basic minimum standards of California labor law."
"This may not be unique to ZipRealty as we haven’t studied real estate businesses more broadly," Fryer said. "However, it’s fair to say that most real estate agents are characterized as independent contractors."
In a bid to slash $20 million a year in operating costs, ZipRealty began the year by closing offices in 12 of 35 markets, which left the company with 2,197 agents at the end of June, down from 3,403 at the start of the year. The downsizing contributed to a 37 percent year-over-year decline in second-quarter revenue.
ZipRealty announced in July that it was eliminating the buyer rebates that helped the company make a splash when it launched in 1999.
Ranked by Real Trends as the fifth-largest brokerage by closed transaction sides in 2010, ZipRealty this year announced it was expanding its "Powered by Zip" referral program and seeking partnerships with brokerages nationwide.