Real Estate Agents Are Independent Contractors As A Matter Of Law in California If Requirements Met

From JDSupra, Anthony Oncidi provides January updates for California law including a case in a real estate broker was found to be an independent contractor through the analysis oof several statutes. Anthony writes: 

Whitlach v. Premier Valley, Inc., 86 Cal. App. 5th 673 (2002)

James Whitlach, a real estate agent, brought a PAGA suit against Premier Valley, Inc. dba Century 21 MM and Century 21 Real Estate, LLC (collectively, “Century 21”). Whitlach alleged that Century 21’s real estate agents were misclassified as independent contractors. The Court of Appeal affirmed the trial court’s holding that Section 650 of the Cal. Unemp. Ins. Code, rather than the ABC test or Borello, was the proper test for classification of real estate agents because of AB-5’s exemption for real estate licensees. Accordingly, real estate licensees are independent contractors if: (1) “substantially all” of their remuneration comes from sales; and (2) the written contract provides that the licensee is an independent contractor. Examining legislative history, the Court of Appeal explained this meant that Century 21’s real estate licensees “as a matter of law” were independent contractors and not employees. The Court of Appeal rejected Whitlach’s arguments that the statute was unconstitutional and that the contract was unconscionable. As to the first point, real estate agent contracts are unique and thus the legislature could have rationally decided that their unique nature warranted an exemption. The contract was also not unconscionable because the statute expressly permitted the designation of real estate agents as independent contractors. Because PAGA claims can only be brought by “aggrieved employee[s],” the claim was properly dismissed.

Source: January 2023 California Employment Law Notes | Proskauer – California Employment Law – JDSupra

The analysis started with the langauge in AB5 (as amended) which added California Labor Code Section 2778 (c) 

(c) Section 2775 and the holding in Dynamex do not apply to the following, which are subject to the Business and Professions Code:

(1) A real estate licensee licensed by the State of California pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code, for whom the determination of employee or independent contractor status shall be governed by subdivision (b) of Section 10032 of the Business and Professions Code. If that section is not applicable, then this determination shall be governed as follows:

(A) For purposes of unemployment insurance by Section 650 of the Unemployment Insurance Code.

(B) For purposes of workers’ compensation by Section 3200 et seq.

(C) For all other purposes in the Labor Code by Borello. The statutorily imposed duties of a responsible broker under Section 10015.1 of the Business and Professions Code are not factors to be considered under the Borello test.

The language of AB5 refers the classification of real estate agents to California Business and Professions Code, section 10032, which states: 

(a) All obligations created under Section 10000, and following, all regulations issued by the commissioner relating to real estate salespersons, and all other obligations of brokers and real estate salespersons to members of the public shall apply regardless of whether the real estate salesperson and the broker to whom he or she is licensed have characterized their relationship as one of independent contractor or of employer and employee.

(b) A real estate broker and a real estate salesperson licensed under that broker may contract between themselves as independent contractors or as employer and employee, for purposes of their legal relationship with and obligations to each other. Characterization of a relationship as either employer and employee or independent contractor for statutory purposes, including, but not limited to, withholding taxes on wages and for purposes of unemployment compensation, shall be governed by Section 650 and Sections 13000 to 13054, inclusive, of the Unemployment Insurance Code. For purposes of workers compensation the characterization of the relationship shall be governed by Section 3200, and following, of the Labor Code.

California Business and Professions Code, section 10032 refers the issue of classification of real etat agents to California Unemployment Insurance Code section 650 which states:


“Employment” does not include services performed as a real estate, mineral, oil and gas, or cemetery broker or as a real estate, cemetery or direct sales salesperson, or a yacht broker or salesman, by an individual if all of the following conditions are met:

(a) The individual is licensed under the provisions of Chapter 19 (commencing with Section 9600) of Division 3 of, or Part 1 (commencing with Section 10000) of Division 4 of, the Business and Professions Code, Article 2 (commencing with Section 700) of Chapter 5 of Division 3 of the Harbors and Navigation Code, or is engaged in the trade or business of primarily inperson demonstration and sales presentation of consumer products, including services or other intangibles, in the home or sales to any buyer on a buy-sell basis, a deposit-commission basis, or any similar basis, for resale by the buyer or any other person in the home or otherwise than from a retail or wholesale establishment.

(b) Substantially all of the remuneration (whether or not paid in cash) for the services performed by that individual is directly related to sales or other output (including the performance of services) rather than to the number of hours worked by that individual.

(c) The services performed by the individual are performed pursuant to a written contract between that individual and the person for whom the services are performed and the contract provides that the individual will not be treated as an employee with respect to those services for state tax purposes.

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