Massachusetts High Court Rules Real Estate Agents Not Subject to State’s Stringent Independent Contractor Law

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On June 3, the Massachusetts Supreme Judicial Court held that the Commonwealth’s independent contractor law does not apply to real estate salespersons licensed under, and affiliated with and working for, a licensed brokerage firm.  The court’s ruling in Monell v. Boston Pads, LLC, SJC-11661, although limited in scope, represents a significant victory for the real estate brokerage industry.

In Monell, the plaintiffs, a group of real estate salespersons, sued various real estate brokerage firms, claiming that they had been misclassified as independent contractors.  Specifically, the plaintiffs claimed that they failed to satisfy the requirements for independent contractor status under the Massachusetts Independent Contractor Law, Mass. Gen. Laws ch. 149, § 148B.  The Commonwealth's stringent law is strictly applied by courts and provides that an individual may only qualify as such if: (1) he or she is free from control and direction in connection with the performance of the service; (2) the service is performed outside the usual course of the business of the employer; and (3) he or she is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

In response, the defendants argued that the requirements imposed by the Massachusetts real estate licensing statute made it impossible for any real estate salesperson to ever satisfy the requirements of the Massachusetts Independent Contractor Law.  Among other things, the licensing statute requires salespersons to affiliate with a licensed broker, forbids them from conducting their own real estate business, and demands that all transactions must be approved by a licensed broker.

In addressing the tension between these two laws, the Supreme Judicial Court sided with the brokerage firms.  In so doing, the court noted that the real estate licensing statute specifically states that “[a] salesman may be affiliated with a broker either as an employee or as an independent contractor…”  The court also relied heavily on the traditional principle of statutory construction that a more specific statute (the real estate licensing law) should control over the provisions of a general statute (the Massachusetts Independent Contractor Law).  Thus, the court held that the Massachusetts Independent Contractor Law does not apply to real estate salespersons.  Notably, however, the court declined to provide any guidance regarding what standard a real estate salesperson needed to satisfy in order to actually qualify as an independent contractor.

Although the Monell decision is limited in scope, it represents the second significant victory for employers this year at the Supreme Judicial Court with respect to the state’s independent contractor statute.  Just last month,  the Supreme Judicial Court held – in Sebago v. Boston Cab Dispatch, Inc., SJC-11757 – that Boston taxicab drivers may be classified as independent contractors, notwithstanding the strict standard set forth in the Massachusetts Independent Contractor Law.  It remains to be seen whether these decisions represent a change in the court’s interpretation of the law or simply reflect the unique regulatory regimes applicable to the real estate brokerage and taxicab industries in Massachusetts.  Absent more broad-reaching guidance from the court, employers should continue to carefully analyze all of their independent contractor relationships to make sure those relationships satisfy the strict requirements of the Massachusetts Independent Contractor Law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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