{3:06 minutes to read} Real estate agents have generally been classified as independent contractors by brokers, but agents, unlike independent contractors in other industries, are subject to supervision by the brokers. This level of supervision is mandated by state statutes that require brokers to exercise reasonable supervision over the activities of his or her salespersons. The statutes also require the establishment of policies, rules, procedures and systems to review, oversee, inspect and manage such areas as document management and retention, the handling of trust funds, and reports of salesperson activity.

This mandated level of supervision is at odds with the concept of an independent contractor being free of control. However, states have recognized the conflict between the standard test of an independent contractor classification and the regulations of the real estate industry and have created statutory “carve outs” exempting a real estate agent as an employee.

In New York State, a real estate agent will not be deemed an employee provided that:

(a) substantially all of the remuneration (whether or not paid in cash) for the services performed by such broker or sales associate is directly related to sales or other output (including the performance of services) rather than to the number of hours worked;

(b) the services performed by the broker or sales associate are performed pursuant to a written contract executed between such broker or sales associate and the person for whom the services are performed within the past twelve to fifteen months; and

(c) the written contract provided for in paragraph (b) herein was not executed under duress and contains provisions stating that the sales associate is engaged as an independent contractor, is paid a commission on gross sales without deduction of taxes, is not paid for hours worked, is permitted to work any hours he or she chooses; that the sales associate bears his own expenses (although the broker may provide office facilities and supplies) and the contract between the agent and broker is terminable at will upon notice given to the other.

The only states that do not have statutory “carve outs” are Mississippi, Ohio and West Virginia.

Based on the above, it would appear that one can assume real estate agents are generally subject to a different standard of independent classification test than that governing other workers. But that assumption has come under legal challenges in recent years.

In my next blog, I will review two such challenges.

Alan Krystal

Alan H. Krystal, P.C.
631 780 6555
Alan@AlanKrystalLaw.com