“Real Estate Salesperson in MA: Independent Contractor or Employee?”
The real estate brokerage community is abuzz about a case awaiting decision by the Massachusetts Supreme Judicial Court.
The real estate brokerage community is abuzz about a case awaiting decision by the Massachusetts Supreme Judicial Court. The case is Monell, et al. v. Boston Pads LLC, et al., SJC-11661, and is on Direct Appellate Review from a decision of the Suffolk County Superior Court, Monell et al. v. Boston Pads LLC, et al., 31 Mass.L.Rptr. 382 (2013), holding that the independent contractor statute does not apply to real estate salespersons.
So what is all the fuss about?
The plaintiffs are a group of former real estate salespersons who claim that the defendants, brokers for and under whom the plaintiffs formerly worked, violated the independent contractor statute by misclassifying the plaintiffs as independent contractors when they were actually employees. The classification of a person as an independent contractor or an employee is important because, among other things, employees receive the protection of minimum wage and overtime laws in Massachusetts but independent contractors do not. Real estate salespersons typically are treated as independent contractors and paid on a commission-only basis. If they had to be treated as employees, the consequence, many fear, would be a major, adverse change in the way real estate brokerage business is conducted in the Commonwealth.
The relevant statutes are the independent contractor statute, G.L.c. 149, Section 148B, enacted in 1990 and last amended in 2004, and the real estate statute, G.L.c. 112, Section 87RR, enacted in 1957 and last amended in 2010.
The Independent Contractor Statute
The independent contractor statute says that for the purpose of G.L.c. 149 (Labor and Industries) and G.L.c. 151 (Minimum Fair Wages), a person shall be considered to be an employee unless:
The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
The service is performed outside the usual course of the business of the employer; and
The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The Real Estate Statute
The real estate statute prohibits a salesman from conducting or operating his own real estate business or acting except as the representative of a real estate broker, who shall be responsible for the salesman and who must approve the negotiation and completion by the salesman of any transaction or agreement which results or is intended to result in the sale, exchange, purchase, renting or leasing of any real estate or in a loan secured or to be secured by mortgage or other encumbrance upon real estate. The statute prohibits a salesman from being affiliated with more than one broker at a time and says that a salesman shall not be entitled to any fee, commission or other valuable consideration and shall not solicit or accept the same from any person except his licensed broker in connection with any such agreement or transaction.
The real estate statute goes on to say that “[a] salesman may be affiliated with a broker either as an employee or as an independent contractor and may, by agreement, be paid as an outside salesperson on a commission-only basis but shall be under such supervision of said broker as to ensure compliance with this section [Section 87RR] and said broker shall be responsible with the salesman for any violation of section eighty-seven AAA committed by said salesman.” [Emphasis added.] (Section 87AAA of Chapter 112 relates to complaints against a broker or salesman and the investigation and punishment of real estate professionals for violation of an applicable law). The italicized words were added by the 2010 amendment.
The first question on the table in the Superior Court was whether the two statutes could be construed together so as to constitute a harmonious whole consistent with the legislative purpose. The court, noting that there was no way a real estate salesperson could achieve independent contractor status under any of the three prongs of the independent contractor statute and simultaneously comply with the real estate statute, given the broker-salesperson relationship required by latter, concluded that the two statutes could not be so construed.
And so the court turned to principles of statutory construction, under which, in the event of conflicting statutes, the more recent (here the real estate statute) controls over the less recent (the independent contractor statute), and the more specific (again, the real estate statute) applies.
Relying on those principles, and deeming the 2010 amendment of the real estate statute, made while leaving the independent contractor statute alone, an indication that the legislature intended that real estate salespersons qualify as independent contractors despite the level of control brokers must exercise over them, the court decided that the independent contractor statute was not applicable to real estate salespersons. It denied the plaintiffs’ motion for summary judgment on Count I of their complaint (violation of the independent contractor statute by misclassifying the plaintiffs as independent contractors instead of employees) and, on its own motion, granted summary judgment to the defendants on Count I of the plaintiffs’ complaint.
What the Court Did Not Do
It is important to note that the Superior Court did not decide whether the plaintiffs were independent contractors or employees for purposes of the labor and minimum wage laws. In a footnote the Court explains:
This court’s holding is limited in that it takes no position as to whether the plaintiffs are independent contractors or employees for purposes of the labor and minimum wage laws; the court holds, rather, that G.L.c. 149, § 148B is inapplicable to real estate salespersons and, therefore, the defendants could not have violated the statute itself. Even though this holding is inextricably related to the plaintiffs’ other counts (because the other counts rely upon the independent contractor statute), the plaintiffs moved for summary judgment on Count I only, and thus, no further action is warranted on Counts II [failure to pay wages owed under G.L.c. 149, § 148], III [failure to compensate in accordance with minimum wage laws pursuant to G.L.c. 151, § 20], and IV [failure to pay time and a half for all hours worked over forty hours per week in violation of G.L.c. 151, § 1A] at this time. Differently put, the court does not reach the question of whether the other counts are viable in light of the court’s ruling on Count I.
We look forward to word from the SJC. Stay tuned.