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About 89% of National Association of REALTORS® members are classified as “independent contractors” within their brokerages, but that status is under increased scrutiny in recent lawsuits and proposed federal legislation.
One recent case in New Jersey could have had lasting consequences for brokerages over how they choose to classify their sales professionals. It’s the advocacy efforts led by New Jersey REALTORS®, as well as a recent state Supreme Court ruling, that put the dispute to bed—and could potentially ward off future issues in the state.
“We took an active advocacy role in protecting independent contractor status in New Jersey because we knew that without our efforts, the ability for our members to keep their independent contractor status was in question,” says New Jersey REALTORS® CEO Jarrod Grasso.
In 2019, Weichert Co. was sued by one of its sales associates who claimed the brokerage had misclassified him and other agents as independent contractors instead of employees. The complaint alleged that the misclassification meant agents faced unlawful deduction of marketing fees and other expenses from their commissions.
The complainant had previously entered into two written agreements with Weichert, agreeing to affiliate with them as an independent contractor from 2012 to 2018. Yet a trial court ruled that the salesperson’s status should not be determined by a brokerage agreement but by a legal standard that governs employee classification issues under New Jersey’s Wage Payment Law (WPL), known as the “ABC” test.
The New Jersey REALTORS®, with legal action support from NAR, submitted amicus briefs in the case expressing concern over the precedent the case could set for brokerages’ ability to decide employee status. The New Jersey association also successfully lobbied state lawmakers to amend the New Jersey Real Estate License Act, often known as the Brokers Act, to clarify that written agreements between a broker and salesperson define the worker’s status. New Jersey lawmakers enacted the amendment in 2018 and, in 2022, passed a further amendment clarifying that the 2018 amendment is retroactive.
That change paid off: The New Jersey Supreme Court dismissed the casepdf this week.
“This decision allows brokerage firms the ability to designate agents within their structure as independent contractors or, if they choose, employees,” Grasso says. “New Jersey REALTORS® views this as a huge win for our industry in our state.”
The ruling could offer a precedent for more states, too. “This is the first case in the country to decide on this issue and could have a great effect around the country,” says Barry S. Goodman, an attorney with Greenbaum, Rowe, Smith & Davis, which represented the New Jersey REALTORS® in its amicus brief. “If they found that real estate agents were employees, many brokers have said they would let go salespersons who were not high producers. There would have been real-life consequences.”
Indeed, John F. Birmingham, an attorney with Foley & Lardner, which represented Weichert in the case, says the ruling upholds the state’s amended law stating that real estate brokers and salespeople can decide the nature of their working relationship. “Weichert is grateful that after five years of litigation, the real estate industry now has clarity on this important issue,” Birmingham says. While each state has their own interpretation, “the decision may be a model for legislation and potential judicial decisions in other states,” he adds.
NAR’s Legal Action program has provided support to both Weichert and the New Jersey REALTORS® since the case’s inception in 2019. Employee classification of real estate salespersons remains in the national spotlight. NAR continues to advocate for laws that protect practitioners’ independent contractor classification status across the country.
Watch a recent “Window to the Law” video from NAR, below, for brokerage tips about entering into independent contractor status with salespersons.
