Can Real Estate Agents Work as Independent Contractors?

The common practice of paying real estate agents as independent contractors and denying them the benefits of employment is under legal fire. A class action lawsuit now awaiting decision at the Massachusetts Court of Appeals tests whether the real estate industry can continue to ignore a law that effectively bans the use of contractors in Massachusetts.

In a rather surprising decision in July, a superior court judge decided that they can. He relied on a Massachusetts statute that permits brokers to employ their real estate agents “either as an employee or as an independent contractor.” Noting a conflict between this language and the terms of the Independent Contractor Statute (Mass. Gen. L. ch. 149, §148B ), the court opted to ignore the latter law. The state legislature, it concluded, intended that agents be contractors despite provisions to the contrary in the Independent Contractor Statute.

Mass. Gen. L. ch. 149, §148B effectively bans the use of contractors in Massachusetts by requiring that all workers who perform services in the usual course of an employer’s business be treated as employees. There are no exceptions, and the law punishes violators by automatically tripling the wages they deny to and the expenses they impose on workers by misclassifying them. The question whether the Independent Contractor Statute applies to real estate agents is thus one of great importance to the industry, which might be forced to pay agents minimum wages, overtime and benefits like workers’ compensation and unemployment insurance. Agents have long worked on a commission-only basis, an approach deemed appropriate by both the Internal Revenue Service and the Massachusetts Department of Revenue. If the Independent Contractor Statute applies to real estate agents, the industry’s financial structure will be turned on its head.

There is no set schedule for Appeals Court decisions, and the case could find its way to the Supreme Judicial Court. It is reasonable to expect a ruling from one court or the other sometime in 2014.