With more than 1,000 Inman posts, Bernice Ross is a long-time contributor whose weekly column on real estate trends, luxury, marketing and other best practices publishes every Monday.
The California Supreme Court’s Dynamex decision virtually insured that independent contractor (IC) status for real estate agents would be challenged in court. There are at least three other cases currently pending before the California Labor Commissioner (Department of Labor Standards Enforcement or DLSE) that offer a simultaneous threat to IC status. Don’t despair yet — there might be sunshine on the horizon.
The real estate industry is facing a series of legal attacks that seek to overturn how we conduct our business. The Moerhl suit that seeks to eliminate the commission sharing structure upon which the multiple listing service (MLS) system is built and the recent Purplebricks lawsuit based upon the Dynamex decision are only two of the most recent cases.
There are also three agent complaints before the California DLSE against Owners.com that have the potential to set precedent regarding IC status for California real estate agents.
How the mess on IC status came about
The confusion over IC status exists for a simple reason: The IC laws state that independent contractors cannot be supervised, but the real estate laws require real estate brokers to supervise their agents.
Until this conflict is resolved, our industry (and numerous others) will continue to struggle with how to navigate between these two conflicting sets of laws.
Unraveling the confusion about what constitutes independent contractor status
Many agents and brokers believe that if the IRS considers them to be independent contractors and/or if an agent signs an independent contractor agreement that determines the agent’s status as an IC.
Those are only two parts of a much more complicated puzzle. Both the real estate and IC laws have provisions for real estate agents to be ICs or employees. The most important factor in making this determination is how the brokerage treats those agents.
In other words, no matter what the agent’s IC agreement might say, if the brokerage treats agents as employees, they must be compensated as an employee.
The most notable example is what happened to ZipRealty. Four ZipRealty agents filed a complaint with the California DLSE alleging that they had been treated as employees rather than ICs. Zip settled the case for $600,000 ($150,000 per agent).
The CA DLSE then came back to Zip and demanded an additional $9 million in a settlement for “systemic violations of the independent contractor laws.” Zip settled for approximately $5 million plus payment of back taxes and other penalties. In a second case in Arizona, they settled for an additional $1.7 million.
The case against Owners.com
At least three agents have filed an action against Owners.com with the California Labor Commissioner. I discussed the original complaint filed by Michael Lissack last July.
The CA DLSE will be combining Lissack’s complaint with two additional complaints against Owners.com when it gets to the final hearing stage.
According to Lissack, his California counsel asked if he was going to file a worker’s compensation complaint. He has no plans at this time to do so. His counsel informed him that the two other agents in the case had already been awarded a worker’s compensation settlement. (In California, brokerages must provide this coverage whether or not their agents are ICs or employees.)
The matter moves to the full hearing stage
On Friday, April 5, 2019, a telephone settlement conference was held and failed to settle the dispute. This means the case will now move to a hearing phase where the Labor Commissioner will decide whether the three Owners.com agents were employees or independent contractors.
A case study on what not to do if you’re a broker with ICs
It strikes me that given the document below, there could not be a stronger case for arguing that Owners.com is treating its agents as employees. (See what the agent is expected to agree to in the second half of the document, items 1-13.)
Each of the 13 statements of what Owners.com agents are expected to do crosses the line into supervising its agents as if they are employees. If there were ever a list of what not to do, this is it.
We reached out to Owners.com for comment, but did not hear back in time for publication.
The risk at the hearing
Here’s the issue: If the CA DLSE decides that Owners.com did cross the line on supervising its agents as employees, will they limit their decision to that company only or will they use this most egregious of cases to make a much broader ruling that could make all California real estate agents employees?
Sunshine on the horizon?
California Assembly Member Lorena Gonzalez Fletcher introduced Assembly Bill 5 to codify the California Supreme Court’s Dynamex decision.
On April 1, 2018, an article on Capital Public Radio’s site by Scott Rodd and Ben Adler reported on a coalition formed by the California Chamber of Commerce, the California Retailers Association and the California Building Industry Association, “among others.” These groups agreed to support AB 5 if it was amended.
According to the article:
The coalition also seeks a broader exemption for workers “who prefer to control their own schedule,” including consultants, travel agents, and truck, taxi and “gig economy” drivers; and exempting short-term projects and business-to-business contracts.
The groups’ new position drew cautious praise from the bill’s author and supporters.
“It’s a step forward,” said the bill’s author, Asm. Lorena Gonzalez (D-San Diego). “I’m glad they’re not opposing it.”
But Gonzalez called the proposed amendments “too broad.”
“They can’t actually think I would agree to those things,” she said, adding that she will continue “to work industry-by-industry to find appropriate situations” for additional amendments and exemptions.
Gonzalez named hairdressers and real estate agents as industries she’s open to including and added that she is “interested but not sold on short-term projects.” [Bolding added.]
If the California Assembly does a carve out for real estate from the Dynamex decision, this would be a huge relief. Nevertheless, even if there is a carve out, when a company crosses the line as ZipRealty did and in all likelihood Owners.com has done, they will still be subject to coming under fire from the CA DLSE.
According to Lissack, the hearing for the Owners.com case will be scheduled in the next 10-12 months. In the meantime, keep your eye on California AB5, and if you’re in favor of a carveout for real estate from the Dynamex decision, get busy letting your assembly members know exactly how you feel.
Editor’s note: Inman reached out to Owners.com for comment on this report and did not hear back in time for this article’s publication.
Bernice Ross, President and CEO of BrokerageUP (brokerageup.com) and RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles. Learn about her broker/manager training programs designed for women, by women, at BrokerageUp.com and her new agent sales training at RealEstateCoach.com/newagent.