The Supreme Court of New Jersey issued a unanimous decision May 13, clarifying how the employment status of real estate salespersons associated with brokers should be determined. James Kennedy v. Weichert Realtors holds that agreements between real estate salespersons and the brokers they work with are controlling as to whether the salesperson is an employee or an independent contractor, regardless of any laws, rules, or prior court-made tests to the contrary.
The Kennedy plaintiff sought classification as an employee, rather than an independent contractor, for purposes of alleged violations by the broker of New Jersey’s Wage Payment Law (WPL). Kennedy claimed his commissions were unlawfully reduced by fees and expenses the broker deducted. Weichert argued that Kennedy was an independent contractor pursuant to an agreement between the parties, and therefore the WPL did not apply.
The trial court rejected Weichert’s argument, and the Appellate Division affirmed, clarifying that the relevant 2018 amendments to New Jersey Real Estate License Act, known as the Brokers Act, which established that salespersons and brokers could contractually define their business relationship, applied only to such agreements entered after that law went into effect.
Following legislative clarification in 2022 that the 2018 amendments should apply both prospectively and retrospectively, the Appellate Division held that agreements to a particular business relationship were relevant but not dispositive of employment status. Weichert appealed again and the Supreme Court reversed, holding that such agreements are the last word on salesperson employment status.
The decision is important because it applies even outside WPL disputes. It may present opportunities for dismissal of claims predicated on a direct employment relationship despite a valid independent contractor agreement between the parties. This is a meaningful tool in defending against claims such as those alleging fraud. New Jersey law, via the Supreme Court’s 1993 decision in Baldasarre v. Butler, is clear that a principal is not vicariously liable for the misconduct of an independent contractor if the principal did not direct or participate in that misconduct. That is far less exposure than respondeat superior, which opens employers to liability for the misconduct of their direct employees, regardless of whether the employer directed or participated in that misconduct.
Real estate professionals may benefit from consulting with experienced professional liability attorneys about the pros and cons of defining certain professional business relationships using independent contractor agreements.