Massachusetts Supreme Judicial Court Issues Decision Affirming Superior Court Decision  

On Wednesday June 3rd, 2015 the Massachusetts Supreme Judicial Court upheld the Suffolk County Superior Court ruling in the case of Monell v. Boston Pads, LLC. This affirms that real estate brokers and salespersons have the ability to affiliate as either independent contractors or employees. MAR Attorneys have reviewed and analyzed the SJC's decision, and details on the case can be found below. Be sure to also check the MAR twitter, facebook, and blog for additional information on the decision and its implications.

To view the official press release, click here.

Monell v. Boston Pads, LLC was originally heard before the Suffolk County Superior Court and a decision was issued in July 2013. The case dealt with the issue of whether real estate salespersons, who agreed to be treated as independent contractors, should be treated as “employees” for purposes of Massachusetts wage and hours laws by virtue of the Massachusetts Independent Contractor Statute. Had the plaintiffs been successful in this claim,  this could have potentially converted all real estate agents into employees. The Superior Court held that the existing practice of brokers and salespersons affiliating as independent contractors is consistent with state law. Further, brokers and salespersons may affiliate as either an independent contractor or as an employee, and the Independent Contractor Statute does not govern the relationship between brokers and licensed real estate agents.

On June 3, 2015, the Supreme Judicial Court issued its decision in Monell v. Boston Pads, LLC.  The Court upheld the Suffolk County Superior Court ruling, affirming that real estate brokers and salespersons have the ability to affiliate as either independent contractors or employees.

Win for Consumers and Real Estate Industry:
This decision is a win for consumers and the entire real estate industry because real estate brokers and salespersons will still be able to work as independent contractors. Affiliating as an independent contractor  has been the backbone of the profession for more than 100 years.

“We are pleased that the Massachusetts Supreme Judicial Court affirmed the pro-consumer choice by real estate professionals to affiliate as either independent contractors or employees.” said 2015 MAR President Corinne Fitzgerald, broker-owner of FITZGERALD Real Estate in Greenfield. “This relationship has worked for generations and it is what consumers have come to expect regarding agent entrepreneurship and availability. We’re glad the choice will continue.” 

“I am proud of our Association's efforts to preserve this choice for real estate professionals, especially since it has served consumer expectations so well,” said MAR CEO Robert Authier. “From filing legislation in 2010 to providing a ‘friend of the court’ brief this past year, this has been a top priority for the Massachusetts Association of REALTORS®.”

What You Need to Know:
REALTORS® may continue to affiliate as either independent contractors or employees. Brokers and salespeople who engage their sales agents as independent contractors should continue to follow the advice that the Massachusetts Association of REALTORS® has been providing, including using and adhering to the provisions of a written Independent Contractor Agreement like the standard form published by MAR. 

Stephen Perry and Robert Kutner of Casner & Edwards, LLP represented the defendant-brokers.  The Massachusetts Association of REALTORS®, along with the Greater Boston Real Estate Board, filed an amicus brief (“friend of the court brief”) in support of the defendant-brokers. The brief, authored by Philip S. Lapatin of Holland & Knight LLP, clearly explained why the Court should uphold the Superior Court’s ruling. Specifically, the brief argued that overturning this decision would be inconsistent with the legislature’s intent to allow for brokers and salespersons to affiliate as independent contractors and that it is important for practitioners and consumers that brokers and agents continue to have the ability to choose to affiliate as independent contractors or as employees.

Q & A:
Monell vs. Boston Pads LLC

Classification Of Affiliated Licensees As
Independent Contractors Or Employees

On June 3, 2015, the Supreme Judicial Court issued its long-awaited decision in Monell v. Boston Pads LLC.  The Court affirmed the lower court ruling and held that the provisions of the so-called Independent Contractor Statute, M.G.L. c. 149 § 148B, have no application to licensed real estate agents in determining whether they are employees or independent contractors  for purposes of Massachusetts’ wage laws.   This was a big win for the real estate industry.  The questions and answers below reflect MAR’s views on the implication of the case, but you should be guided by the advice of your own professional advisers, including attorneys and accountants.

Q.1:      What exactly did the Supreme Judicial Court hold in Monell?
The Court in Monell recognized that it would be impossible for any licensed real estate agent to satisfy the three-prong test for independent contractor status set forth in the Independent Contractor Statute.  .This is because the  requirements of the real estate licensing laws, specifically that brokers supervise their agents, that the agents work only as part of the broker’s business, and that agents can be affiliated with only one broker at a time, are in direct conflict with the requirements for independent contractor status in the Independent Contractor statute.  The Court recognized that the licensing statute, under which real estate brokers are ultimately responsible for their salespersons,  serves to protect the public, including sellers, buyers, tenants and landlords.  The Court held that the provision in the real estate licensing laws that expressly allows independent contractor status trumps the Independent Contractor statute, and that the three-prong test set forth in the Independent Contractor statute does not apply at all to real estate licensees. 

Q.2:     Why was Monell important for the industry?
Had the Court sided with the plaintiffs in Monell and applied the Independent Contractor statute to real estate licensees, every real estate licensee in Massachusetts would have been deemed to be an employee for purposes of the Wage Laws.  The Court’s ruling preserves the right of brokers and salespersons to affiliate as either independent contractors or employees.

Q.3:     What issues did the Court leave open in Monell?
A:  The only issue that was before the Court was whether the Independent Contractor statute is applicable to real estate brokers and salespeople. Because the plaintiffs had not preserved any other claims before the SJC, it was not within the Court's purview to decide whether the plaintiffs could prove they were employees under some other legal theory.  The Court made it clear that it would only answer the question before it.

Q.4:     Does this mean the Court merely “kicked the can down the road”?
No.  The only issue before the Court was whether the Independent Contractor status applied to real estate brokers and salespeople. The Court not only decided in the industry’s favor on this specific issue, but also acknowledged that the legislature expressly intended to permit independent contractor.  Despite what you may read from other commentators, the truth of the matter is that it will now be much harder for an individual classified as an independent contractor to claim employee status.  For example, under the Court’s reasoning, the mere fact that a broker closely supervises agents to ensure that they comply with legal and regulatory requirements should no longer be a risk to the agent's independent contractor status, nor should the fact that the agent represents the broker and “wears the broker’s hat” for the agent’s transactions make the agent an employee. These are requirements of the licensing law and can no longer properly be used as arguments against independent contractor status.

Q.5:      Under what circumstances could an agent working as an independent contractor be deemed an employee?
. Although the Court did not rule this issue, it is advisable that brokers refrain from exercising unnecessary control over their agents above and beyond what is required to supervise their conduct under the licensing statute and other laws.

Q.6:     What effect does Monell have on tax treatment of Sales Agents who work as independent contractors?
Monell has no effect on the state or federal tax treatment of licensed agents who agree in writing to be paid as independent contractors.  The federal safe harbor permits a licensed agent who is paid wholly or substantially through commissions to be treated as an independent contractor for tax purposes, if this tax treatment is set forth in a written contract.  The state follows this same rule.  It therefore remains critical that brokers who engage their agents as independent contractors on a commission basis do so pursuant to a written agreement that provides for them to be taxed as independent contractors.

Q.7:     Are there any obligations to pay minimum wages or overtime to Sales Agents?
In most cases brokerage firms have protection against these claims under both federal and state law.   Under federal law, there is a broad definition of “employee” for wage and hour purposes, but no minimum wages or overtime have to be paid to employees who fall within the “outside sales” exemption. The definition of "outside sales" is addressed below in Q.8.

Under Massachusetts law, overtime and minimum wage payments do not have to be made to those properly classified under state law as independent contractors, and Monell confirmed that such independent contractor status is lawful.  Moreover, even if an individual is held to have been misclassified and is deemed to be an employee under state law, no minimum wages or overtime are due to licensed agents who fall within the outside sales exemption.  The state overtime laws expressly exempt outside salespeople from overtime, and the real estate licensing law, as amended with MAR’s support in 2010, make it clear that it is permissible to pay real estate agents who are outside salespeople on a commission-only basis.  

Q.8:      What is the definition of “Outside Sales?”
A. The federal wage laws define "outside sales" to mean that the employee’s primary duty is making sales or contracts for services for which consideration will be paid by the client or customer. It also requires the employee to be customarily and regularly engaged away from the employer’s place or places of business (and away from the employee’s home office, if any).  This does not mean that the agents must necessarily spend most of their time in the field.  Federal cases have generally held that licensed real estate agents whose primary duty is real estate sales meet the “outside sales” exemption.  The United States Department of Labor  has stated that the time away from the office should be more than occasional and should include work that is normally done every workweek.  Massachusetts generally would follow this same definition of “outside sales.”

Q.9:     What issues might there be with unemployment and workers compensation?
Both the unemployment statute and the workers’ compensation statute contain exemptions for licensed agents who are paid on a commission-only basis regardless of whether the agents are independent contractors or employees.  G.L. c.151A, § 6(p); G.L. c.152, § 1(4)(c).  

Q.10:   How does the Massachusetts Sick Leave law apply to agents who are deemed employees?
MAR’s position is that under the Monell decision, the sick leave requirements should not apply to agents classified as independent contractors. The Attorney General’s draft Sick Leave regulations define an employee by reference to the Independent Contractor Statute, so the inapplicability of that statute to real estate licensees under Monell would seem to support the exemption of agents from the Sick Leave law.  This is important because the draft regulations issued by the Attorney General would require paid sick leave at the minimum wage rate (up to 40 hours per year) to employees paid on a commission-only basis. 

Q.11:   What should real estate firms and agents do now?
A. Real estate firms should rely on advice from their own attorneys and tax advisors.  It continues to be essential, especially for state and federal tax purposes, that brokers who affiliate with agents as independent contractors enter into written Independent Contractor Agreements, such as those available from MAR on its website.  In addition, for protection under the federal wage laws, and for belt and suspenders protection under state law, attention should be paid to whether the agents qualify as outside salespeople, so as to fall within the exemptions from overtime and minimum wage requirements that apply even if agents are deemed to be employees.   Finally, to minimize the risk that an employee who is classified as an independent contractor might nonetheless be deemed an employee under state law, MAR advises brokers to avoid unnecessary and excessive control over agents beyond such supervision as is needed to ensure that they act ethically and in accordance with all applicable laws.  An example of the type of control that might put a brokerage firm at risk of litigation would be setting the work hours of its independent contractors, as opposed to having them set their own hours.

To read more about the background of Monell v. Boston Pads, LLC, click here