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A 2024 court decision that upheld a New Jersey brokerage’s ability to affiliate real estate sales associates as independent contractors (ICs) could help combat further challenges to employment classification status in the industry. Here’s how it played out and how you can protect your business.
The Complaint
In 2019, sales associate James Kennedy II sued Weichert Co., where he worked from 2012 to 2018, claiming the brokerage had misclassified him and other agents as ICs instead of employees under the state’s wage payment law.
The complaint alleged the misclassification meant agents faced unlawful deduction of marketing fees and other expenses from their compensation. Kennedy had affiliated with Weichert Co. under two signed agreements that designated him as an IC.
Weichert sought a dismissal, arguing that its agreement with Kennedy was enforceable under the state’s Brokers Act as amended in 2018. The act, also known as the New Jersey Real Estate License Act, authorizes real estate brokers to affiliate salespeople by written agreement as either employees or ICs, “notwithstanding any provision of [the Act] or any other law, rule or regulation to the contrary.”
The trial court denied Weichert’s motion, ruling Kennedy’s status wasn’t determined by the parties’ agreement, but rather under the wage payment law. Although the appellate court agreed with Weichert, it said the amendments applied only to contracts executed after the amendments’ effective date, which covered only a brief period of Kennedy’s tenure.
In 2022, the state’s Senate and General Assembly amended the Brokers Act, allowing the amendments to apply retroactively. With this development, the case went back to the appellate court, which again denied Weichert’s motion to dismiss, holding the parties’ contracts weren’t a determining factor in employment status under the law.
While the case was wending its way through the courts, the New Jersey REALTORS®, with legal action support from NAR, submitted amicus briefs expressing concern over the precedent the case could set for brokerages’ ability to decide employee status. The state association also successfully lobbied New Jersey state lawmakers to amend the Brokers Act to clarify that written agreements between a broker and salesperson define the worker’s status.
The Ruling
The case went to the state Supreme Court, which examined the language of the Brokers Act to understand the legislature’s intent. The court found the word “not-withstanding” was key: “A not-withstanding clause clearly signals the drafter’s intention that the provisions of [that] section override conflicting provisions of any other section.” The legislature clearly intended that the parties’ agreement prevails in any conflict with a law, rule or regulation, the court ruled.
The Takeaways
While litigation hasn’t resulted in a loss of IC classification, challenges remain, including one from the Department of Labor. (Learn more by reading the NAR FAQs here.) NAR continues to advocate for laws that preserve brokerages’ and salespersons’ ability to choose this relationship. Brokers: To avoid risk, follow these best practices for affiliating salespeople as ICs:
- Use an agreement that clearly defines salespeople’s status as ICs and specifies them as such for federal tax purposes.
- Pay salespeople on a commission basis.
- Require salespeople to provide their own equipment, like cars, phones and computers.
- Require salespeople to cover their own business expenses, like insurance, gas, phone bills and client entertainment.
- Avoid mandating dress codes, meeting attendance, or desk or phone coverage.
- Avoid referring to IC salespeople as employees.
