In a recent case, a real estate agent brought a PAGA suit against his real estate brokerage. The Agent alleged that the brokerage’s real estate agents were misclassified as independent contractors.

The Court of Appeal affirmed the trial court’s holding that Section 650 of the Cal. Unemp. Ins. Code, rather than the ABC test or Borello tests, was the proper test for classification of real estate agents because of Assembly Bill 5’s exemption for real estate licensees. Thus, real estate licensees are independent contractors if: (1) “substantially all” of their remuneration comes from sales; and (2) the written contract provides that the licensee is an independent contractor. The Court of Appeals explained this meant that the brokerage’s real estate licensees “as a matter of law” were independent contractors and not employees. The Court of Appeal rejected the Agents arguments that the statute was unconstitutional and that the contract was unconscionable. Because PAGA claims can only be brought by “aggrieved employee[s],” the claim was properly dismissed.

If you are a real estate broker, or have a brokerage with associated real estate agents, protect yourself and your business. Contact your business attorney to ensure your Real Estate Agent Agreements expressly state that your agents are independent contractors.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.