Whether you’re a real estate newbie—or you have many years of experience under your belt—you’ve undoubtedly been entrenched in some way in the employee vs. independent contractor issue that’s garnered the attention of real estate professionals across the board over the past several years.
Addressing the topic during a networking breakfast sponsored by ERA Real Estate during RISMedia’s 2016 CEO Exchange at the Harvard Club of New York City, Katie Johnson—the National Association of REALTORS® general counsel—provided attendees with an in-depth look at some of the most significant independent contractor issue updates.
Diving right in, Johnson explained to the captive audience that the revolution taking place outside the confines of the real estate industry is not only affecting the industry as a whole, but it’s also championing increased scrutiny on independent contractor classification on tax laws.
“The gig economy is changing the world, and new companies are making it easier for independent contractors to find jobs and make money in ways they haven’t been able to before,” said Johnson. “In addition to affecting the relationship between brokers and salespeople, government agencies are interpreting existing laws in favor of employment status and against independent contractors, and plaintiffs and class-action attorneys are seizing on the uncertainty of the law.”
While most federal and state governments recognize the unique characteristics inherent in the real estate industry, Johnson noted that over the last several years, REALTOR® associations have been working hard to protect the independent contractor classification in real estate in order to avoid liability for misclassification.
To that end, a new category of worker was brought into the mix: the statutory non-employee. “These individuals get paid mostly on commission or sales output and have a written independent contractor agreement with their broker,” said Johnson. “If these criteria are met, they are treated as an independent contractor for all federal purposes.”
More recently, this same classification has been recognized by the Affordable Care Act, which has been very helpful to brokers in determining liability under ACA.
As far as the independent contractor issue on a state-by-state basis, Johnson noted that many states have very similar laws. “More than half have specific statutes that allow for independent contractor classification, despite the fact that brokers have the obligation to exercise control and supervision over their salespeople,” said Johnson. “Some states will presume independent contractor status, but many have carve-outs in their worker compensation laws.”
But what can real estate professionals do to avoid liability?
“Make sure you have strong independent contractor agreements,” said Johnson, who explained that mandatory arbitration and a class-action waver are two provisions that will help avoid liability. “Brokers must then review their independent contractor agreements with their salespeople. And remember, a written agreement is required for federal purposes.”
Another way to avoid liability is to treat salespeople as independent contractors under common law as best you can by giving them as much freedom as possible to control the way they do their job.
And last but not least, make training or staff meetings voluntary as opposed to mandatory. “Allow your salespeople to pick the technology they want to use to conduct their business, and don’t pay for it. Let them decide when/where/how they want to get the job done.
“While no other industry is facing the conflict associated with how you can treat salespeople as independent contractors while still having the legal duty to have control over them, know that NAR is taking this issue seriously, and watching it closely,” concluded Johnson.
“We will continue to fight to ensure the independent contractor classification remains an option for brokers should they want to continue as independent contractors.”