The Massachusetts independent contractor statute does not apply to the state’s real estate salespersons, according to a decision rendered last week by the Massachusetts Supreme Judicial Court in Monell v. Boston Pads, LLC, No. SJC-11661 (June 3, 2015). The case pitted real estate brokers against salespersons, with the latter arguing for classification as employees for the purposes of the state’s wage laws. The brokers ultimately prevailed when Justice Geraldine Hines, writing for the court, held that the state’s real estate licensing and independent contractor statutes conflicted and that salespersons could be classified as either employees or independent contractors. The court declined to stake out new territory on the appropriate factors for determining employee status, however, and reserved that inquiry for subsequent litigation or legislation.
Employees or Independent Contractors?
Massachusetts real estate brokers and salespersons are governed by comprehensive licensing and registration laws. The section pertinent to the court’s inquiry is codified at Chapter 112, Section 87RR of the Massachusetts General Laws. This section states that “[n]o salesman may conduct or operate his own real estate business nor act except as the representative of a real estate broker.” Section 87RR also provides that salespersons “may be affiliated with a broker either as an employee or as an independent contractor.” The plaintiffs in Monell were salespersons claiming to have been misclassified as independent contractors rather than as employees under the state’s independent contractor statute, codified at Chapter 149, Section 148B of the Massachusetts General Laws. Section 148B states, in pertinent part,
[A]n individual performing any service [for an employer]…shall be considered to be an employee…unless:—(1) the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and (2) the service is performed outside the usual course of the business of the employer; and, (3) the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
Which Statute Should Apply?
The plaintiff-salespersons moved for partial summary judgment on the issue of employee classification, which the superior court denied. Instead, the court granted partial summary judgment to the defendant-brokers, explaining that a salesperson could never satisfy Section 148B’s test for independent contractor status and also comply with Section 87RR’s requirements. The court also concluded that Section 87RR should control because it had been amended more recently and was more specific. The Supreme Judicial Court granted an application for direct appellate review and affirmed.
The Supreme Judicial Court Weighs In
The court began by extensively detailing the interrelated nature of the salesperson/broker employment relationship, which includes mandatory trainings, required “office hours,” nondisclosure, nonsolicitation, and noncompetition agreements, dress codes, and the potential for disciplinary action for failing to meet productivity goals. Next, the court noted the difficulty of construing Section 87RR in harmony with Section 148B, stating, “the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status.” The court noted that services must be performed outside the usual course of an employer’s business for independent contractor status to attach under Section 148B but under Section 87RR, salespersons are not permitted to act independently of a broker. The court also explained that Section 148B’s requirement of being customarily engaged in an independently established business runs directly afoul of Section 87RR’s prohibition against salespersons operating their own real estate businesses. Thus, although Section 87RR states that salespersons may be classified as independent contractors, those salespersons are barred by the requirements of that statute from ever satisfying Section 148B’s independent contractor test. Citing legislative history, the court resolved that Section 87RR’s express permission for salespersons to operate as either employees or independent contractors demonstrates the Massachusetts Legislature’s continuing intent to permit independent contractor status and concluded that Section 87RR controlled to the exclusion of Section 148B.
Determination of Employment Status, Post-Monell
Although the court conclusively determined that the independent contractor statute does not apply to salespersons in the real estate industry, it expressly declined to provide an analytical framework for determining how those salespersons might properly gain employee status under the real estate licensing laws. The salespersons had based their argument on the applicability of Section 148B and did not provide an alternative legal test should that statute not apply. Absent the enactment of legislation to resolve this issue, further litigation likely will be required to establish the proper test for determining employment status of real estate salespersons under Massachusetts law.