Independent Contractor Misclassification and Compliance News May 2024

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

Real Estate Salespersons: Employee or Independent Contractor? New Jersey says Independent Contractor

In May, the New Jersey Supreme Court said that the New Jersey Real Estate License Act, commonly known as the Brokers Act, allowed an agreement between a real estate broker and a real estate salesperson to determine that the salesperson was an independent contractor, despite the provisions of New Jersey’s Wage Payment Law. The Wage Payment Law determines if a worker is an employee or independent contractor based on the ABC test. The ABC test says that a worker providing services is presumed to be an employee unless the business can show:

1. Such individual has been and will continue to be free from control or direction over the performance of such service, both under contract of service and in fact; and
2. Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
3. Such individual is customarily engaged in an independently established trade, occupation, profession or business.

In a 2015 decision, the New Jersey Supreme Court determined that the ABC test determined the status of a worker. In this case, the New Jersey Supreme Court reviewed its previous decision, the Brokers Act, and concluded that an agreement under the Brokers Act permitted a real estate salesperson be an independent contractor despite the Wage Payment Law.

New Jersey’s decision is similar to other court’s decisions in Massachusetts and California. Because state legislatures enact special laws relating to real estate brokers which permit agents or salespeople to be independent contractors, the real estate brokers laws conflict with general wage laws. The courts in these states have said that the real estate brokers laws set the guidelines for determining worker status despite the more general wage and hour laws. The National Association of Realtors (realtors.org) prepared a white paper in 2015 (updated in 2016) that has a chart with statutes (such as workers compensation and unemployment insurance) that list the states that have carve outs for real estate professionals. See  Independent Contractor Status in Real Estate – 2015 White Paper

The proper classification of real estate agents and salespeople is determined by state laws and many states have laws for real estate professionals that conflict with wage and hour laws. As in this New Jersey case, the courts will frequently permit the real estate professional statute to have precedence over the more general wage and hour laws.

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.