Massachusetts Makes a Ruling on the Independent Contractor / Employee Distinction for REALTORS(R)

On June 3, 2015, the Massachusetts Supreme Judicial Court ruled that real estate brokers and salespersons may affiliate as either an independent contractor or an employee. The decision, which favored the defendants in the case, stated that the independent contractor statute does not govern the relationship between real estate brokers and licensed agents.

The defendants Jacob Realty, LLC (Jacob Realty); NextGen Realty, Inc. (NextGen); and RentMyUnit.Com, Inc., doing business as Boardwalk Properties (Boardwalk Properties) (collectively, business entities), are licensed Massachusetts real estate brokerage firms that are in the business of renting and selling real estate in Massachusetts. Plaintiffs are licensed real estate salespersons who work for defendants under their real estate broker’s license. Throughout the course of their relationship, the defendant business entities classified the plaintiffs as independent contractors. Under the policy, salespersons were paid on a “commission-only basis” and would expressly not be treated as employees “with respect to compensation for taxes or any other purpose.”

In 2011, the plaintiffs filed a complaint against the defendants in the Superior Court. The plaintiffs alleged that the defendants violated the independent contractor statute by misclassifying them as independent contractors when they actually were employees who had signed nondisclosure, nonsolicitation, and noncompete agreements and were required to undergo a training program. . The Superior Court judge granted summary disposition to defendants.  Plaintiffs’ claim, if it had been successful, would essentially have converted all real estate agents into employees because the statute establishes a presumption that an individual performing any service is an employee. The statute lays out three factors that must be met before an individual can be considered an independent contractor.

The Massachusetts Supreme Judicial Court affirmed the decision of the Superior Court judge and held that the exclusion of real estate salespersons from independent contractor status clearly was not intended by the Legislature. While G.L.C. 112, § 87RR expressly authorizes a real estate salesperson to affiliate with a broker as an employee, it also expressly authorizes an association as an independent contractor. Since the independent contractor statute does not apply to real estate salespersons, plaintiffs cannot succeed under this argument.

Even though the Supreme Judicial Court’s ruling determined that real estate agents are exempted from Massachusetts’ independent contractor law, the court took no position on whether plaintiffs are in fact employees or independent contractors, only that the independent contractor statute does not apply to them. The court has urged the Massachusetts Legislature to clarify how a real estate salesperson may gain employee status under the real estate licensing statute.