HR Legalist

New Jersey Supreme Court Could Upend The State’s Real Estate Industry

The notorious “ABC” test continues to rear its head across the nation. This strict, worker-friendly test that is used to determine whether a worker is properly classified as an independent contractor as opposed to an employee has risen to fame primarily in California, with the Biden Administration close behind touting its intent to implement the test at the federal level. Under the “ABC” test, a worker is presumed to be an employee of a business unless the business satisfies three conditions, one of which being that the person performs work that is outside the usual course of the hiring entity’s business.

But what about real estate agents who are commonly paid on a commission basis? In a decision that could signal a broader and potentially disruptive movement for the industry, the New Jersey Supreme Court (“NJSC”) will soon decide whether the “ABC” test, which currently falls under New Jersey’s Unemployment Compensation Law (“UCL”), applies to such agents under the state’s Wage Payment Law (“WPL”). That decision will crucially impact whether certain marketing fees and other expenses were legally deducted from the agents’ wages by the defendant in the matter, Weichert Realtors. According to Weichert, because the UCL contains a specific exemption for real estate agents, that exemption should carry over to them under the WPL. So far two courts have disagreed with Weichert and have relied on a prior NJSC case to do so. Weichert’s chances of success with the NJSC remain unclear, but should it lose, the case has the potential to throw the entire real estate agency model into disarray in New Jersey. If the “ABC” test is found to be applicable to real estate agents under the WPL, then there appears to be a strong argument that real estate agents must be classified as employees and paid as such. Without the benefit of the NJSC’s decision, it is too early to tell whether agencies can structure their relationships with agents in such a way to satisfy the “ABC” test, and so real estate agents should pay close attention to this case and its outcome. As always, we will continue to monitor this potentially troublesome case, and stand ready to counsel real estate agencies upon its outcome. 

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.