The Supreme Judicial Court has recently affirmed in Monell v. Boston Pads, LLC, 471 Mass. 566 (2015) that real estate brokerage companies can continue to classify real estate salespersons as independent contractors and are not subject to the Massachusetts independent contractor statute.
The Massachusetts real estate licensing laws set forth a statutory scheme which defines real estate brokers as individuals who can represent buyers, sellers, lessors and lessees and perform all relevant tasks up to and including closing of a transaction. M.G.L. c. 112, § 87PP. A real estate salesperson "is an individual who performs any act or engages in any transaction included in the . . . definition of a broker, except the completing of the negotiation of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, renting or leasing of any real estate." Id. Further, Massachusetts law provides that the licensing examination for a real estate salesperson "shall be based upon the same general subject matter as for a broker's license, but shall be more elementary in nature." M.G.L. c. 112, § 87SS. Salespersons are required to conduct business with or be affiliated with a licensed broker, and the statute expressly provides that a salesperson "may be affiliated with a broker either as an employee or as an independent contractor." M.G.L. c. 112, § 87RR.
Plaintiffs in Monell were licensed real estate salespersons who argued that the Massachusetts independent contractor statute forced their brokerage house employers to treat them as employees rather than as independent contractors because the salespersons were expressly required under the real estate licensing act to conduct business directly under the supervision of a real estate broker. 471 Mass. at 567. The independent contractor statute, embedded within the Wage Act, provides that "an individual . . . shall be considered to be an employee . . . unless: (1) 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 (2) the service is performed outside the usual course of the business of the employer; and, (3) 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." M.G.L. c. 149, § 148B. Further, M.G.L. c. 149, § 148B provides that it is a violation of the statute subject to civil and criminal penalties to fail "to properly classify an individual as an employee."
The SJC reasoned that it was difficult to construe the independent contractor statute "in harmony with the real estate licensing statute [because] the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status, all of which must be satisfied to defeat the presumption of employee status." Id. at 575. For instance, the Court explained, "under the express language of § 87RR, a salesperson is prohibited from performing any services other than as the broker's representative and as part of the broker's business," in direct contrast with the requirement in M.G.L. c. 149, § 148B that an independent contractor perform her service "outside the usual course of the business of the employer." Id.
The SJC relied on "the familiar canon of construction providing that a specific statute, in this case § 87RR, controls over the provisions of a general statute, such as the independent contract statute," and held that "it is § 87RR that controls in this instance, not the more general independent contractor statute. Were we to conclude otherwise, we would be subjecting real estate brokerage firms to potential criminal penalties for misclassifying its real estate salespersons in a manner expressly authorized by the real estate licensing statute." Id. at 577.
In the wake of Monell, real estate brokers and brokerage houses can continue to utilize the widespread practice of classifying affiliated real estate salespersons as independent contractors. However, the Court expressly noted the limited reach of the decision, and emphasized that it was not expressing an opinion on whether the individual brokerage houses in Monell had properly established independent contractor relationships with the plaintiff salespersons, and remanded to the Superior Court for further proceedings. Id. at 578. Whether on remand in Monell, or in separate litigations, there may be further challenges to categorizations of real estate salespersons are independent contractors when those salespersons are subject to requirements by their affiliated brokerage houses which are similar to typical employer/employee relationships.
Fitch Law Partners LLP will continue to monitor developments in this area of the law.