Background on Monell v. Boston Pads, LLC (2015)

 Classification of Affiliated Licensees as Independent Contractors or Employees 


Overview:

Monell v. Boston Pads, LLC
was originally heard before the Suffolk County Superior Court and a decision was made in July 2013. The Superior Court held that the existing practice of brokers and salespersons affiliating as independent contractors is consistent with state law and they may affiliate as either an independent contractors or as an employee. Most agents and brokers in Massachusetts, and throughout the country, have agreed to affiliate as independent contractors. This is due to a variety of reasons, primarily because of the commission-based nature of the business, the irregular hours, and the manner in which the business is conducted to best serve consumers. 

The Facts of the Case:
The case dealt with the issue of whether real estate salespersons, who agreed to be treated as independent contractors, should be treated as “employees” for purposes of Massachusetts wage and hours laws. In Monell v. Boston Pads, LLC, a group of former agents who worked for a brokerage sued their broker, alleging that they were misclassified as independent contractors and should have been classified as employees pursuant to the Massachusetts Independent Contractor Statute. If applied to real estate brokers and salespersons, that statute could classify agents  as employees for purposes of the wage laws. However, the Licensing Statute permits independent contractor status, and the Massachusetts Association of REALTORS® supported an amendment to the Licensing Statute in 2010, that, among other things, reaffirmed that independent contractor status is permissible.  The Legislature passed this measure and the Governor signed it into law.

The Lower Court Ruling:
After analyzing the content and history of these statutes, including the 2010 clarifying amendment to the real estate licensing law, the Suffolk County Superior Court sided with the brokerage firm and held that the licensing law allowing for the independent contractor relationship prevailed, and that the Independent Contractor Statute was inapplicable in this case. The ruling was a significant victory for the real estate industry in confirming the long-standing practice on behalf of consumers both within Massachusetts and throughout the country.

The Appeal:
The losing agents appealed the decision, and oral arguments were heard before the Supreme Judicial Court.  Stephen Perry and Robert Kutner of Casner & Edwards, LLP represented the defendant-brokers, and the Massachusetts Association of REALTORS®, along with the Greater Boston Real Estate Board, filed an amicus brief (“friend of the court brief”) in support of the defendant-brokers. The brief clearly explained why the Court should uphold the Superior Court’s ruling. Specifically, overturning this decision would be inconsistent with the legislature’s intent to allow for brokers and salespersons to affiliate as independent contractors, and that it is important for practitioners and consumers at large that brokers and agents continue to have the ability to choose whether to affiliate as independent contractors or as employees. 

The Supreme Judicial Court Ruling:
On June 3, 2015, the Supreme Judicial Court issued its decision in Monell v. Boston Pads, LLC.  The Court upheld the Suffolk County Superior Court ruling, affirming that real estate brokers and salespersons have the ability to affiliate as either independent contractors or employees.

Click here to read the full text of the MA SJC Ruling

Q&A: Monell vs. Boston Pads LLC (2015)

INDEPENDENT CONTRACTOR V. EMPLOYEE, GENERALLY

Q: What’s the difference between an “employee” and an “independent contractor” in Massachusetts?
A: In Massachusetts, workers who are classified as “employees” are protected by laws requiring payment of minimum hourly wages, overtime pay and weekly payment of wages, but there are exemptions to these rules.  Workers who operate independently and who are compensated based upon the results achieved rather than the number of hours worked have been classified as “independent contractors.” Independent contractors work outside the scope of the laws governing minimum hourly pay, overtime and weekly payment of wages.

 

Q: Why are the overwhelming majority of real estate agents independent contractors?
A:
This status is logical, because agents do not generally work fixed schedules; rather they often work from their homes and their cars, fielding telephone calls seven days a week.  Those who are most successful in generating sales are not limited to a fixed salary or hourly wage, but are rewarded for results when closings occur, regardless of the number of hours expended.  On the other hand, even a successful agent may experience periods of weeks or months without a closing and, therefore, without compensation. 

STATUTES SURROUNDING INDEPENDENT CONTRACTOR RELATIONSHIPS

Q: What happened to the independent contractor classification as a result of the 2004 Public Construction Law? 
A: In July 2004, the Massachusetts legislature enacted a “Public Construction Law,” that on its face suggested that every worker must be classified as an employee for purposes of minimum hourly wages, overtime pay and weekly payment of wages, unless the worker worked outside the usual course of business of their employer.

The primary purpose of the law change was to ensure that construction workers who were working on a construction crew were not intentionally misclassified by their employers as independent contractors,  thereby avoiding wage withholding, worker’s compensation, and unemployment insurance responsibilities.  However, the language of the particular section defining the requirements of being an independent contractor could be construed broadly, not just applicable to construction.  

This law created uncertainty about the continued ability of licensed real estate agents, as well as workers in every other industry, to work as independent contractors, regardless of the amount of commissions earned and their classification for other purposes.

Q: Was anything done to clarify the 2004 Public Construction Law and its impact on real estate agents ability to be independent contractors?
A:
In July 2010, a modification to the licensing laws governing real estate licensees clarified the issue for the real estate industry.  The amendment, which was drafted by the Massachusetts Association of REALTORS® and signed into law in 2010, added the following statement to Chapter 112, Section 87RR: A salesman may be affiliated with a broker either as an employee or as an independent contractor and may, by agreement, be paid as an outside salesperson on a commission-only basis but shall be under such supervision of said broker.

This amendment specifically deals with real estate brokers and therefore is controlling when considered in conjunction with the 2004 Public Construction Law.

Q: What has MAR done to protect the choice for real estate agents to affiliate with a broker as either an independent contractor or an employee?
A: MAR has continuously monitored the ability of real estate agents to affiliate as independent contractors. After the  passage of the Public Construction Law in 2004, MAR has worked to highlight the ambiguity in the license law, and as a result, MAR successfully urged the state legislature to pass an amendment to the state license law in 2010 that specifically protected the right to affiliate as an independent contractor. Most recently, MAR filed an amicus brief (a friend of the court brief) regarding Monell v. Boston Pads, LLC, to point out why the 2004 law does not apply to real estate agents and why independent contractor status works so well in the real estate industry.

Q: What is the position of The Massachusetts Association of REALTORS® on the 2004 Public Construction Law? 
A: It is the position of the Massachusetts Association of REALTORS® (“MAR”) that the 2004 Public Construction Law does not apply to real estate brokers and salespeople.  MAR is committed to ensuring that its 20,000 members have this option available to them as specifically referenced and allowed for in Federal Employment Law, the Massachusetts real estate license law, and the express exemptions under Massachusetts unemployment and workers compensation law. It should also be noted that every other state in the country recognizes and allows for this option.

MONELL V. BOSTON PADS, LLC

Q. What was the case about?
A:
In Monell v. Boston Pads, LLC, a group of former agents who worked for a brokerage sued their broker, alleging that they were misclassified as independent contractors and should have been classified as employees pursuant to the Massachusetts Independent Contractor Statute. If applied to real estate brokers and salespersons, that statute could classify agents  as employees for purposes of the wage laws.

Q. What did the Suffolk County Superior Court hold?
A:
After analyzing the content and history of these statutes, including the 2010 clarifying amendment to the real estate licensing law, the Suffolk County Superior Court sided with the brokerage firm and held that the licensing law allowing for the independent contractor relationship prevailed, and that the Independent Contractor Statute was inapplicable in this case. The ruling was a significant victory for the real estate industry in confirming the long-standing practice on behalf of consumers both within Massachusetts and throughout the country.

Q: What did the Massachusetts Supreme Judicial Court rule?
A:  The Supreme Judicial Court issued its decision in Monell v. Boston Pads, LLC.  The Court upheld the Suffolk County Superior Court ruling, affirming that real estate brokers and salespersons have the ability to affiliate as either independent contractors or employees.

Q: What does the SJC ruling mean for real estate brokers and salespersons?
A: REALTORS® may continue to affiliate as either independent contractors or employees. Brokers and salespeople who engage their sales agents as independent contractors should continue to follow the advice that the Massachusetts Association of REALTORS® has been providing, including using and adhering to the provisions of a written Independent Contractor Agreement like the standard form published by MAR. 


Read the Legal Briefs - Massachusetts Supreme Judicial Court


Listen to the Oral Argument - Massachusetts Supreme Judicial Court

Lower Court Ruling - Suffolk County Superior Court

More Information on Independent Contractor (from the National Association of REALTORS®)