Court Affirms Brokers' Ability to Classify Agents as Independent Contractors

June 4, 2015

The top court in Massachusetts yesterday affirmed a lower court decision that real estate practitioners may be classified as independent contractors, not employees, handing the real estate industry an important win on an issue that has come under challenge in recent years.

"We are pleased that the State Supreme Judicial Court affirmed the pro-consumer choice by real estate professionals to affiliate as either independent contractors or employees," Massachusetts Association of REALTORS® President Corinne Fitzgerald says. "This relationship has worked for generations and it is what consumers have come to expect regarding agent entrepreneurship and availability."

In the case, sales associates affiliated with Boston Pads LLC a real estate brokerage company, challenged their status as independent contractors on the grounds that they were subject to supervision by their broker, among other things, and therefore should be considered employees based on a three-pronged test under the state's independent contractor status. The case had earlier been heard by the Superior Court of the Commonwealth of Massachusetts, which had found in favor of the brokerage. In that earlier case, the court ruled that the state's real estate license law, and not the state's independent contractor law, applies to real estate practitioners.

The sales associates appealed the decision, and in yesterday's ruling, the state's top court affirmed the lower court decision, holding that real estate license law controls and not the more general independent contractor statute.

Michael McDonagh, General Counsel and Director of Government Affairs for the Massachusetts Association of REALTORS®, says the win is a victory for both real estate professionals and consumers. "Had all licensees in the Commonwealth been considered employees, then it would have made them less accessible to consumers that they serve," he says. "As you know, real estate professionals work on weekends and at night, and bend their schedules to meet the needs of their customers and clients. And, so, working a nine-to-five type of job just wouldn't work in the industry."

Two other challenges to practitioners' independent contractor status are still pending, both in California. As in Massachusetts, those cases are looking at the conflict between the state's independent contractor laws and its real estate license laws. Those two cases are still in preliminary stages.

Having the Massachusetts case decided in favor of the industry could provide important information to these other cases. "Had the court ruled the other way, we feel that could have had some precedential value for other states and other courts," McDonagh says.  

—Rob Freedman, REALTOR® Magazine