Compass is facing its fourth lawsuit since going public — this time for claims the brokerage lied about commission splits, deductions for marketing and other expenses, and its agent-equity plans.
Former Compass team leaders Lisa Sheppard and Todd Sheppard filed a class-action suit on April 29 with the Sonoma County Superior Court seeking redress for California employment and labor law violations, according to a report from HousingWire.
“Employers like Compass violate California employment and labor law every day to make it appear to investors and the general public alike that the company is doing well financially and increasing market share,” the complaint reads.
The Sheppards, who are currently with Sotheby’s International Realty, said their 2018 contract with Compass included a 90/10 commission split, a signing bonus, marketing budget and office space. However, the Sheppards said the one-and-a-half page contract didn’t mention several, major deductions that came from their split.
The duo said Compass deducted marketing and other expenses from their split and engaged in price-fixing. When their team earned a commission of less than 5 percent for a home sale Compass made another deduction, which the duo said is “unique and unprecedented in the real estate profession.”
Furthermore, the Sheppards said Compass misled agents to believe their agent-equity plan would include access to common stock. “Compass failed to disclose to plaintiffs and class members that they would receive an inferior level of stock, not the company’s shares of common stock,” the complaint read.
In a January explainer of Compass’ agent-equity program, a company spokesperson explained the process for accessing restricted stock units, which requires agents to vest a portion of their commission.
“The number of [restricted stock units] awarded to each agent is determined by taking the total amount of commission income they have contributed voluntarily to the program and dividing it by the price per share of the preferred shares at the time of the grant,” the explainer read. “When the company announced the plan in November 2019, that price was $154.27.”
“Let’s say an agent put $10,000 towards Compass’ equity program. With the company’s 10 percent match, that agent would have 71 RSUs,” it continued. “Each one of those RSUs can be redeemed for one share of Compass common stock.”
When agents purchase stocks at the preferred price, they’ll receive “additional benefits like more cash flow protection like preference in cash flow distribution in exchange for giving up voting rights,” an industry source with first-hand knowledge of the inner workings of the IPO process told Inman.
The Sheppard’s legal team was unavailable for comment, but a Compass spokesperson provided this written statement: “Compass intends to vigorously defend itself against these claims, which are completely without merit.”
The Sheppards aren’t the only California-based agents to make these claims against Compass. In January, former agent Greg Maffei filed a class-action suit against the company for unduly deducting expenses, engaging in price-fixing, misleading agents about its equity program, and “exercising a level of control” appropriate for W-2 employees, not independent contractors.
“This class action challenges Compass’ unfair, unlawful and fraudulent business practices that were designed to gain market share by luring top real estate agents with promises of high commissions and compensation packages that include bonuses, covered business expenses and stock options to hire them from Compass’ competitors,” Maffei’s complaint read.
“Compass has leveraged more than $1 billion in funding from venture capitalists to support its ‘bait-and-switch’ tactics and to account for the losses Compass has incurred by overpaying and poaching its competitors’ real estate agents.” it added.
Compass is dealing with a flurry of lawsuits from agents and competitors, including Realogy, Howard Hanna, and The Agency.
In April, The Agency said Compass illegally blocked former Compass agent and current The Agency President Rainy Hake Austin from recruiting Compass agents. The same month, Howard Hanna said Compass stole “agents and trade secrets” leading up to its April 1 initial public offering.