A decision on independent contractor status made by the California Supreme Court last year is hitting the real estate industry — and flat-fee brokerage Purplebricks might be the first to grapple with it.
A decision on independent contractor status made by the California Supreme Court last year is hitting the real estate industry — and flat-fee brokerage Purplebricks may be the first to grapple with it.
A former Purplebricks agent in Orange County, Shawna Olsen, has filed suit against the company, alleging she and Purplebricks’ other California agents were “willfully misclassified” as independent contractors when they should have been classified as employees. Olsen is now a broker associate with Nook Real Estate. The suit comes as Purplebricks is in turmoil over a falling stock price and the departure of two of its CEOs.
The Jan. 22, 2019 complaint uses an April 2018 decision made by the California Supreme Court in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County as the basis for its claims. The ruling instituted a three-factor “ABC” test in which a worker is considered an independent contractor only if the hiring entity establishes:
- (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
- (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
- (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
If the hiring entity cannot meet all three elements of this test, its workers are considered employees.
When the ruling came down, Inman contributor and real estate trainer Bernice Ross said the decision “would have devastating effects on existing brokerage models that are built on head count and low fees.” At the same time, real estate consultant Rob Hahn said, “Dynamex just might be a neutron bomb on the real estate industry, at least within California, which has 185,000 of the roughly 1.3 million Realtors in the United States.”
The complaint against Purplebricks alleges that, contrary to the first prong of the test, Purplebricks hired Olsen and “many similarly aggrieved employees” as independent contractors even though the brokerage “exercised complete control over Plaintiff’s job duties,” including over her work hours, work duties, and other details of her work.
In addition, contrary to the second prong of the test, Olsen and her fellow agents were engaged in the business of buying and selling real estate, which is Purplebricks’ regular business, and were “not in distinct occupations or businesses.” The complaint also alleges that Olsen’s manager, Damon Cohen, told Olsen was “basically an employee” or words to that effect.
According to the complaint, Purplebricks did not provide Olsen and other agents with the compensation due to them as employees, did not reimburse them for use of their personal cell phones and vehicles for work, did not provide required meal and rest breaks, did not provide wage statements, did not properly itemize all hours worked, and did not pay overtime or minimum wages earned, paying only commissions on listings and sales.
The eight-count complaint also alleges unfair competition and seeks a jury trial, compensatory damages (including unpaid wages plus interest), statutory penalties, and civil penalties under the state’s Private Attorney General Act (PAGA) on behalf of “all aggrieved employees.” The California Department of Real Estate currently lists 80 salespersons and 18 associate brokers under Purplebricks’ real estate license.
One of Olsen’s attorneys, Timothy Del Castillo of Castle Law: California Employment Counsel, told Inman in a phone interview that the suit was not a class action, but rather a PAGA representative action on behalf of all Purplebricks employees in California within a one-year time period from the time the claims were raised.
According to Del Castillo, a PAGA representative action is not necessarily certified as a class, seeks civil penalties on behalf of the state of California and all allegedly aggrieved employees, and is not necessarily subject to arbitration agreements any agents might have signed with Purplebricks.
In Del Castillo’s opinion, the California Supreme Court’s recent Dynamex case may result in “big change for the real estate industry” and there could be other similar cases filed.
“We have another case where agent classification is also an issue, but I can’t disclose the name of the company at this time,” he said.
Purplebricks did not respond to requests for comment for this story. But in a March 15, 2019 answer to the complaint, the brokerage denied every single allegation in the complaint and denied that the plaintiff or any alleged aggrieved employee had suffered any damage whatsoever.
“Plaintiff’s Complaint, and each purported cause of action contained therein, is barred because Plaintiffs and the purported aggrieved employees were not employed by Defendant,” attorneys for Purplebricks wrote.
“Plaintiff and the purported aggrieved employees were properly classified as independent contractors under state and federal law and were thus exempt from state and federal minimum wage and overtime pay requirements,” they added.