California lawmakers advanced a proposed law this week that has the potential to upend entire industries that rely on independent contractors. But now, the law has a key tweak: real estate professionals will now be exempt.
Assembly Bill 5 would make it harder for companies to define their workers as independent contractors, rather than employees. Much of the conversation around the bill has centered on drivers for ride-hailing companies such as Uber and Lyft, whose contractor status means they don’t get things like employee healthcare, unemployment insurance and other benefits.
However, the bill arguably had the potential to cause disruption in the real estate industry, where the traditional brokerage model has most agents in California and across the country working under independent contractor status.
Thankfully for brokerages, an amendment added to the bill about a week ago states that it will “exempt specified professions,” including real estate licensees.
California Assembly members approved the bill 59 to 15. It now needs approval from California’s Senate and a signature from Democratic Governor Gavin Newsom in order to become law. If that happens, it should allow business to continue as usual for California real estate agents and brokers.
The bill follows on the heels of what’s known as the Dynamex ruling handed down by the California Supreme Court in April 2018. The ruling determined that workers have to meet a handful of strict and specific criteria in order to be classified as independent contractors.
Some real estate professionals subsequently raised concerns that the ruling might be incompatible with the contractor-centric brokerage business model.
Assembly Bill 5 is meant to codify the Dynamex ruling, and without a specific carve-out for real estate, some worried it would cause problems for brokerages operating in California.
Alex Creel, chief lobbyist for the California Association of Realtors (CAR), told Inman Friday that his organization believed the Dynamex ruling did not actually apply to real estate, though that was a position that would have to be defended in court. But either way, he said real estate professionals were concerned about what Dynamex and Assembly Bill 5 meant.
“People were confused out there,” Creel added.
As a result, CAR pushed to have the bill amended so it specifically included an exemption for real estate licensees. Creel said the amendments to the bill should “allay any confusion” over the law, and allow the industry to continue using the business model it has relied on for decades.
It’s still unclear if Assembly Bill 5 will make it through the Senate and across the governor’s desk in its current form. However, Creel pointed to the overwhelming support it received Wednesday in the Assembly as evidence that lawmakers do support the bill.
Windermere agent Kirk Effinger also supports the bill in its current form. Effinger, who works in San Diego County, told Inman Friday that unlike in the ride-hailing industry, he hasn’t seen any push from agents to end or modify their independent contractor status. For the most part, he said, agents “chose this industry in no small part because of the freedom that independent contractor status gives us.”
“I’m really kind of tired of politicians assuming that they know better than we do what we want,” Effinger added.
Effinger hopes that the issue will eventually be put to rest for good, but in the short term he praised Assembly Bill 5’s amendments that exempt agents.
“It makes me feel good,” he added.