Is a real estate salesperson an independent contractor or an employee?

Tax-wise, the difference is significant.

From Cyquest Business Solutions Inc.

Always on the lookout to protect employees and the US and State’s pocketbooks at the same time, New Jersey often attempts to treat workers generally considered to be independent contractors as employees. Classifying an employee as an independent contractor with no reasonable basis for doing so makes employers liable for employment taxes.

 New Jersey has adopted, with exceptions, the so-called ABC Test to determine if a worker is an independent contractor or an employee.  

Per New Jersey Unemployment Compensation Law, a worker should be considered an employee unless all the following circumstances apply:

 A.    The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact; and

B.     The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed; and

C.     The individual is customarily engaged in an independently established trade, occupation, profession or business.

 A recent New Jersey Appellate Court decision sides with a real estate salesperson who was seeking classification as an employee.  Let’s sale the real estate industry in New Jersey is in a bind.  Here’s an article taken, in full, because it is behind a paywall at the New Jersey Law Journal.

Ruling Could Portend Shake-Up for Independent Contractor Status of Real Estate Salespeople

 The case "does have national implications" because real estate salespeople across the country work under conditions similar to New Jersey's, said Darren Barreiro of Greenbaum, Rowe, Smith & Davis in Woodbridge, representing the New Jersey Association of Realtors. He said the ruling could lead to an end of 50 years of real estate salespeople in New Jersey having independent contractor status.

 July 02, 2021 at 02:53 PM

 By Charles Toutant

 A New Jersey appeals court ruling could open the door to a finding that commissioned real estate salespeople are employees and not independent contractors.

 The appeals court said the so-called ABC Test for deciding a worker’s employment status applies to a dispute between real estate salespeople and Weichert Realty over payroll deductions. The ruling said an Essex County Superior Court judge correctly denied Weichert’s bid to dismiss a class action over the company’s deductions for insurance, marketing and other expenses from the salespeople’s earnings.

 Plaintiff James Kennedy II claimed that the deductions violate New Jersey’s Wage Payment Law, but Weichert and amicus New Jersey Realtors argued that the Wage Payment Law does not cover fully commissioned real estate salespeople. Weichert moved to dismiss the suit on that basis but the trial judge denied the motion, declaring that the real estate salespeople’s status is determined by the ABC Test. That judge cited the Supreme Court’s 2015 decision in Hargrove v. Sleepy’s, which held that the ABC Test governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage payment or wage-and-hour claim.

 Under the ABC Test, a worker is presumed to be an employee unless the employer can show that A, the employer neither exercised control over the worker nor had the ability to exercise control over how the work is completed; B, the services provided by the worker were either outside the usual course of business or provided outside all the places of business of the enterprise; and C, the individual is customarily engaged in an independently established trade, occupation, profession or business.

 On appeal, Weichert claimed that the ABC Test does not apply to real estate salespeople because the state’s Unemployment Compensation Law expressly excludes them from coverage. But the appeals court panel of Judges Carmen Messano, Mitchel Ostrer and Ronald Susswein rejected that claim, adding that Weichert wrongly held that the Hargrove ruling applies only to truck drivers.

 “We conclude that the UCL’s special treatment of commissioned real estate salespersons does not render the ABC test inappropriate to determine a real estate salesperson’s independent-contractor status under the Wage Payment Law,” Ostrer wrote for the panel.

 The appeals court said the ABC Test applies to the period before enactment of the Brokers Act, a 2018 statute.

 The appeals court said it lacked sufficient information from the record of the case to decide the outcome of an ABC Test focusing on the period before the Brokers Act was enacted, and it could not decide based on the information before it whether the ABC Test applied to the period after enactment of the Brokers Act. The case was sent back to the trial court for those issues to be addressed after the record is augmented.

 Kennedy and the putative class were represented by Ravi Sattiraju of Sattiraju & Tharney in East Windsor. Sattiraju said the ruling could result in a finding that realtors are employees, rather than independent contractors, but he said he would “take it a step at a time.” Sattiraju added that he was “pleased with the ruling. We’re going to continue to litigate the case.”

 Weichert was represented by John Birmingham and Jennifer Keas of Foley & Lardner, with Thomas Ryan of Laddey, Clark & Ryan in Sparta as local counsel. They did not respond to calls about the ruling.

 Darren Barreiro of Greenbaum, Rowe, Smith & Davis in Woodbridge, representing the New Jersey Association of Realtors, said the ruling could lead to the end of 50 years of real estate salespeople in New Jersey having independent contractor status. Most of the sales agents want to maintain their independent contractor status, he said.

 Barreiro said his group was hoping to see an appeal of the ruling before the Supreme Court in conjunction with another case already pending there, Walfish v. Northwestern Mutual Life Insurance, which raises similar issues as they pertain to insurance salespeople.

 “We think the Appellate Division was hamstrung by Hargrove. We’re urging the Supreme Court to clarify the ruling in Hargrove so the exemption will apply,” Barreiro said. He added that the case “does have national implications” because real estate salespeople across the country work under conditions similar to New Jersey’s.

 [End]

 We in the title insurance industry will be keeping an eye on this case as the New Jersey attempts to tax our independent contractors - title searchers - as employees.

Disclaimer:

The information included is designed for informational purposes only. It is not legal, tax, financial or any other sort of advice, nor is it a substitute for such advice. The information may not apply to your specific situation. We have tried to make sure the information is accurate, but it could be outdated or even inaccurate in parts. It is the reader’s responsibility to comply with any applicable local, state, or federal regulations. Vested Land Services LLC and their employees make no warranties about the information nor guarantee of results, and they assume no liability in connection with the information provided.

 

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