Independent Contractor Status
New Storms Brewing
It reads like NCIS: Los Angeles or Survivor: All Stars, and has enough plot lines and twists that merit a primetime tv slot or a miniseries on the History Channel. Before you grab the remote to raise the volume on the new season of Independent Contractor Status: New Storms Brewing, let’s recap “last season.”
A favorable decision in Monell v. Boston Pads and the pending settlement of Bararsani v. Coldwell Banker have provided a brief respite from the storm over independent contractor status. Nevertheless, the most recent rulings in the Uber lawsuit may open the door to an even greater threats in the future.
So what’s new? Take a look at the four part “miniseries” below.
Monell v. Boston Pad: “Epic Win” or Opening for More Litigation?
In a June 3, 2015, The Supreme Judicial Court in Massachusetts ruled in favor of Boston Pads (the broker) in the Monell v. Boston Pads Independent Contractor case. The plaintiffs alleged that they were treated as employees with regularly scheduled hours, duties, and prohibitions against working on their own transactions when they were required to be at the office. While some called it an “epic win for the real estate industry,” a closer reading of the decision shows this issue is far from being resolved. In fact, the court’s decision seemed to encourage further litigation:
“We take no position on whether the plaintiffs in fact are employees or independent contractors, or on how, in the absence of the framework established by the independent contractor statute, it may be determined whether a real estate salesperson is properly classified as an independent contractor or employee…In light of the potential impact of that issue on the real estate industry as a whole and its significant ramifications for real estate salespersons’ access to the rights and benefits of employment, we think it prudent to leave that issue’s resolution to another day, when it has been fully briefed and argued.”
Bararsani v. Coldwell Banker Pre-settlement Reached
Industry experts agree that Barasani v. Coldwell Banker posed the most serious threat to real estate’s independent contractor status. As reported in the 2015 Swanepoel Trends Report, an unfavorable ruling could have forced up to half the brokerages and 75 percent of the agents to leave the business. According to the SEC filings, the parties have entered into a pre-settlement agreement.
“To avoid further litigation expense, we entered into a settlement at the first mediation session on May 5, 2015. The settlement requires court approval and was accrued for as of June 30, 2015. In entering into this settlement, CBRBC made no admission of wrongdoing or liability, and is not obligated to change its business structures. The Company continues to believe it properly classified the sales associates as independent contractors and would have significant defenses to the claims asserted in this action.”
The 2015 Swanepoel Trends Report suggested that having independent contractor agents agree to individually arbitrate disputes with their brokerage, could provide some degree of defense against class action litigation. Coldwell Banker apparently used this approach to limit the size of the class. Agents were asked whether they wanted to join the class action lawsuit or to arbitrate individually with Coldwell Banker if there was a dispute. Most agents agreed to arbitration, thereby shrinking the class significantly. As a result, neither side saw continuing the litigation as a profitable venture. The final settlement amount is reportedly based upon the costs of continuing the litigation through multiple appeals.
The Uber Ruling Thirteen Factors Now in Play
On September 1, 2015, Judge Chen ruled that Uber drivers could proceed in a class action lawsuit alleging they were employees rather than independent contractors. The decision seems to signal that the court accepts the drivers’ arguments on the merits. Moreover, the decision highlighted an additional 13 different issues that the court deemed to be relevant.
“Judge Chen’s opinion demonstrates that class actions in California are alive and well, in part because businesses have been unable to have all of their workers or independent contractors to sign new agreements…And if the issue of control was not confusing enough, the court devoted another 15 pages to “secondary factors” — 13 in all — that the Borello court found to be relevant to the inquiry. But, the weight to be given to any one of those factors varies from case to case, as the court and the parties seemed to agree.
This confusion leaves both businesses and workers in an impossible quandary. The lack of guidelines on how to evaluate the myriad overlapping and intersecting factors the court has identified, not to the mention the lack of any definition as to how to measure those factors, leaves everyone involved without any predictability for evaluating future workforces.” (Daniel H. Handman and Derek Ishikawa, Hirschfeld Kraemer LLP, Law360, September 4, 2015)
Control and Right to Terminate Become Pivotal Issues
Reported in the 2015 Swanepoel Trends Report, the degree of control exercised by the broker was a key claim the plaintiffs made in the Monell and the Zip Realty litigation to assert that the agents were employees rather than independent contractors. The Uber ruling followed suit. It also strongly emphasized the right to terminate.
“A bona fide independent contractor cannot terminate the agreement at will – if he was truly a contractor he would have to finish out his contract or pay damages to Uber for early termination.”
Real estate independent contractors have always had the right to terminate their relationship with their employing broker at will. Handman and Ishikawa warn that the Uber decision is bad news for businesses everywhere:
“If that factor (the right to terminate) is of paramount importance, as Judge Chen’s opinion suggests, it is bad news for businesses everywhere since those relationships are frequently terminable at will. To the court, Uber’s right to terminate drivers allows it to exert control over employees who are economically dependent on it. But to Uber and businesses everywhere, the flip side of that control is the worker’s freedom to decide for themselves when, how, and for whom they work. While workers and businesses may always have different perspectives on that issue, if it is singularly determinative, businesses will be hard-pressed to justify treating any worker as an independent contractor.”
Even though the Bararsani and Monell cases appear to be resolved, the Uber class action suits and litigation coupled with on-going federal labor lawsuits still pose a threat to the independent contractor status of real estate agents. We will continue to monitor this critical issue and will provide an in-depth review and recommended action steps in the 2016 Swanepoel Trends Report.