Real estate agent: employee or independent contractor?

Class action alleges California real estate agents not properly paid wages, not reimbursed for expenses

Real estate agent: employee or independent contractor?

The California Court of Appeal recently ruled that the lower court applied the correct standard to determine whether a real estate salesperson was an independent contractor, not an employee, for the purposes of the Labor Code’s wage and hour provisions.

Premier Valley, Inc. – the defendant in the case of Whitlach v. Premier Valley, Inc. et al. – was a real estate brokerage firm in Oakdale. The plaintiff was a former real estate agent affiliated with Premier Valley. In 2018, he filed a class action complaint claiming multiple violations of California’s Labor Code.

The plaintiff alleged that he was acting on behalf of similarly-situated real estate agents who were misclassified as independent contractors when they should be considered employees, who were not properly paid wages, who were subject to unlawful deductions, and who were not reimbursed for reasonable and necessary business expenses.

In 2019, the plaintiff filed the first amended complaint, which added a representative claim under the Private Attorney General Act of 2004 (PAGA). The trial court dismissed the class claims but not the PAGA claim.

The defendant filed a demurrer. It argued that the plaintiff could not assert a PAGA claim or any derivative Labor Code claim since he was an independent contractor, not an employee. The trial court agreed that the plaintiff was an independent contractor and dismissed the first amended complaint.

According to the trial court, the applicable test for deciding whether the plaintiff was an employee or an independent contractor for the purposes of his PAGA claim and derivative Labor Code claims was the test under section 650 of the Unemployment Insurance Code, which was incorporated in section 10032(b) of the Business and Professions Code, which was in turn incorporated in section 2778(c)(1) of the Labor Code.

In 2020, the plaintiff filed the second amended complaint. The defendant again filed a demurrer. The trial court sustained the demurrer and dismissed the second amended complaint. The plaintiff appealed.

The California Court of Appeal for the Fifth District affirmed the trial court’s judgment. The trial court applied the correct test in sections 650 and 13004.1 of the Unemployment Insurance Code and properly concluded that the plaintiff was an independent contractor, the appellate court ruled.

The independent contractor agreement between the plaintiff and Premier Valley was not unconscionable merely because it designated the plaintiff as an independent contractor and was thus not unenforceable, the Court of Appeal said.

The plaintiff’s separate employment agreement for his sales manager position was irrelevant for the purposes of his representative PAGA claim, the appellate court added.

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