Real Estate Agents as Independent Contractors – Part 2

Real Estate Agents as Independent Contractors – Part 2 by Alan Krystal

{3:06 minutes to read} In recent years, there have been court challenges to the real estate independent contractor relationship, and to date, the real estate industry has prevailed. In Part 1 of this series, we discussed how state statutes mandate that real estate brokers exercise reasonable supervision over the activities of their salespersons, even though those agents are considered “independent contractors.”  Below are two recent court challenges to the existing status quo assumption that real agent agents are independent contractors.

Monnell vs. Boston Pads LLC

In the 2015 case of Monell vs. Boston Pads LLC, a group of real estate agents brought a class action suit alleging that they should have been classified as employees under the Massachusetts Independent Contractor statute. In its decision, the Massachusetts Supreme Judicial court recognized a conflict between the statutory test for an independent contractor and the supervision requirements of the real estate licensing laws. However, the court dismissed the action, holding that the provision in real estate licensing laws that expressly allows independent contractor status should take precedence over the Independent Contractor statute.

Bararsani v. Coldwell Banker

The case of Bararsani v. Coldwell Banker involved a class action suit filed by agents in California in the Los Angeles Superior Court. The plaintiffs alleged that they were misclassified as independent contractors although the brokers were exerting significant control over their work, including requiring them to work at a designated physical location, requiring them to attend training meetings, and precluding them from working for any other company or broker.

The class consisted of agents who worked for Coldwell Banker in California from November 2008 to May 2014 and were classified as independent contractors. Counsel for Coldwell filed a demurrer alleging that agents should be classified as independent contractors provided they possess a real estate license; derive substantially all of their compensation for services performed as a real estate agent rather than the number of hours worked; and perform their services pursuant to a written contract that identifies that they will not be treated as an employee for tax purposes.

The trial court, in a decision that was upheld on appeal, rejected that argument and held that the independent contractor status would be subject to a more comprehensive test set forth by the IRS, which addresses such issues as:

  • Degrees of behavioral control;
  • Whether the business has a right to control the business aspects of the worker’s job;
  • The existence of a written contract;
  • Duration of the relationship; and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company.

In January 2016, the parties reached a settlement whereby Coldwell paid the $4.5 million, $1.5 of which will go to lawyers and the rest of which will be distributed to 5,600 known members of the class action lawsuit. Recovery was limited to those agents who did not have an agreement containing mandatory arbitration and class action waiver provisions.

Although the settlement avoided the possibility of a judicial determination that would have had an extremely adverse impact on the defendants and created a dangerous precedent in future cases, it seems likely that future legal challenges are in the offing. In the meantime, brokers would be well advised to have agreements in place that are in compliance with state laws, clearly, delineate the independent contractor relationship, and contain mandatory arbitration and class action waiver provisions.  

Alan Krystal


Alan Krystal

Alan H. Krystal, P.C.
631 780 6555