When it comes to the classification of an employee, it is a pretty cut-and-dried issue. One is either an employee or a contact worker.
Employees are listed on an employer’s benefits payroll and the second group, well, isn’t.
In 2017, lawsuits challenging independent contractor classifications have been on the rise.
In the real estate industry, there are some specific issues when it comes to worker classification. For example, brokers are required to supervise their agents, but a key criteria for forming an independent contractor relationship is a general lack of control.
The National Association of Realtors also has chimed in on this issue in recent years, amid lawsuits that ultimately could have a profound effect on the real estate industry by challenging the longstanding practice within the real estate industry of brokers choosing to classifying real estate agents as independent contractors, as opposed to employees.
According to NAR, the Department of Labor has made it clear that it will aggressively pursue worker misclassification as a top priority.
However, a primary characteristic of the independent contractor relationship that exists in real estate is one where the worker is generally free of control.
According to NAR, state real estate statutes specifically require brokers to exercise supervision over their agents.
This requirement places the worker classification in direct conflict with one of the basic tenants of an independent contractor relationship. As a result, it can be a challenge for a broker to both comply with labor laws in order to establish an independent contractor relationship, while also fulfilling their supervisory duties under state real estate laws.
As a result, federal and state laws have made exceptions for the real estate industry, given the individual aspects presented by the real estate industry by addressing the independent contractor issue directly through statutes.
However, the industry also will be watching Washington as the Trump administration mulls changes that could have a ripple effect through the real estate industry.
Some laws, such as the Fair Labor Standards Act (FSLA), passed in 1938 when most workers were on a company’s payroll, fail to recognize the changing landscape of labor in today’s economy.
With on-demand companies, including transportation services like Uber and Lyft, independent workers make up the on-demand or “gig” economy. According to a Randstad U.S. survey, 70 percent of workers and 68 percent of employers think the on-demand economy will dominate the workforce by 2025.
Jack Schaedel, a Los Angeles attorney with the Dykema law firm, contends that the law needs to redefine “independent contractor” to give employers more hiring flexibility without penalty and independent workers some important protections.
“Employers must decide how much control over independent workers they’re willing to give up,” he told Supply Chain Drive.
Everyone also is waiting to see how the Trump administration will act on this.
If Alex Acosta is confirmed as secretary of the Labor Department, it is expected that he will scale back some of the Obama administration’s mandates on worker classification.
Trump has suggested changing all 1099 workers to a flat 15 percent tax. Whether that can be achieved remains to be seen.
What is known is that the new administration is likely to be issuing new guidance on worker classification, that likely will protect independent businessmen.
The president also may appoint an advocate for sharing economy workers and employers within the Labor Department.
