The classification of REALTORS® as "independent contractors" is a common practice among brokerages, with about 89% of National Association of REALTORS® (NAR) members falling under this category. However, this status has recently faced increased scrutiny due to lawsuits and proposed federal legislation. A recent case in New Jersey, however, may have set a significant precedent for the industry.
In a landmark decision, the New Jersey Supreme Court ruled in favor of maintaining the independent contractor status for real estate agents, thanks to advocacy efforts by New Jersey REALTORS® and support from NAR. This ruling stemmed from a 2019 lawsuit where a Weichert Co. sales associate claimed misclassification as an independent contractor, alleging unlawful deductions from commissions due to this status.
Despite the sales associate having agreed to an independent contractor status in written agreements from 2012 to 2018, a trial court initially ruled that the classification should be determined by New Jersey’s Wage Payment Law (WPL) "ABC" test, rather than the brokerage agreement. In response, New Jersey REALTORS® and NAR took a proactive stance, filing amicus briefs and lobbying for legislative amendments to clarify the classification criteria under the New Jersey Real Estate License Act, also known as the Brokers Act.
The amendments, enacted in 2018 and further clarified in 2022 to be retroactive, played a crucial role in the Supreme Court's decision to dismiss the case. This dismissal upheld the brokerage's ability to classify agents as either independent contractors or employees based on mutual agreement, providing much-needed clarity and stability for the industry in New Jersey.
Jarrod Grasso, CEO of New Jersey REALTORS®, emphasized the importance of this ruling, noting that without their advocacy, the independent contractor status of many members would have been jeopardized. The decision not only benefits New Jersey but also has the potential to influence similar cases across the United States.
Barry S. Goodman, an attorney representing New Jersey REALTORS® in the case, highlighted the broader implications of the ruling. Had the court found real estate agents to be employees, many brokerages would likely have had to lay off lower-producing agents, leading to significant industry repercussions.
John F. Birmingham, an attorney for Weichert, expressed gratitude for the resolution after five years of litigation, noting that the ruling provides much-needed clarity for the real estate industry in New Jersey. He also suggested that this case could serve as a model for legislation and judicial decisions in other states.
NAR's Legal Action program has been instrumental in supporting both Weichert and New Jersey REALTORS® throughout the litigation process. The issue of employee classification for real estate salespersons remains a national concern, and NAR continues to advocate for laws that protect the independent contractor status of its members nationwide.
For further insights and tips on entering into independent contractor agreements with salespersons, NAR's "Window to the Law" video provides valuable guidance for brokerages navigating these legal complexities.
Stay informed about ongoing legal and legislative developments affecting the real estate industry. Visit ncjar.com regularly for further updates.
