by Sadayah Q. DuRant-Brown, Genova Burns LLC

In a recent decision, the New Jersey Appellate Division concluded the “ABC test” under the Unemployment Compensation Law (UCL) is inapplicable in determining a real estate salesperson’s status as an independent contractor under the Wage Payment Law (WPL).

Facts

James Kennedy II was a fully commissioned real estate salesperson with licensed real estate broker Weichert Company. He alleged, on behalf of himself and a class of others similarly situated, that Weichert had violated a provision of the WPL that generally prohibits an employer from withholding or diverting any portion of an employee’s wages.

Kennedy claimed Weichert violated the WPL by deducting marketing, insurance, and other expenses from his wages without authorization. The company asked the court to dismiss the complaint for failure to state a claim and argued that fully commissioned real estate salespersons are independent contractors, whom the WPL doesn’t cover.

The trial court denied Weichert’s request to dismiss and declared the UCL’s ABC Test is the proper test to determine a real estate salesperson’s status as an independent contractor under the WPL.

Company appeals

Weichert appealed the trial court’s decision, arguing the ABC Test didn’t apply to fully commissioned real estate salespersons because the UCL expressly exempts them. The company also asserted the ABC Test was inconsistent with the Real Estate Brokers and Salesmen Act.

The Appellate Division affirmed denial of Weichert’s request to dismiss. It recognized the 2018 amendments to the Brokers Act may affect the application of a test for determining a real estate salesperson’s employment status under the WPL based on the statute’s plain language. But it declined to declare the Brokers Act amendments’ impact on Kennedy’s claim retroactively.

On November 16, 2021, the New Jersey Supreme Court granted Weichert leave to appeal the Appellate Division’s judgment. While the appeal was pending, the legislature added new language to Section 3.2 of the Brokers Act’s 2018 amendments.

On January 18, 2022, a new bill was enacted that again amended the 2018 amendment to the Brokers Act. The amendment applied the Act retroactively to enforce but not change any written agreement between a salesperson and a broker that defines, identifies, or provides the salesperson is or was an independent contractor. On June 6, 2022, the supreme court vacated its order granting Weichert’s request for leave to appeal and remanded the matter (sent it back) to the Appellate Division to consider the impact of the new legislation.

Appellate Division’s decision

On remand, the Appellate Division affirmed the trial court’s order denying Weichert’s request to dismiss for failure to state a claim and modified the order, vacating the second paragraph that generally stated the ABC Test was the applicable standard to review Kennedy’s WPL Claim.

In reaching its decision, the Appellate Division considered the parties’ arguments, the new legislation and amendments to the Brokers Act, and arguments submitted on behalf of the New Jersey Realtors and the New Jersey Department of Labor and Workforce Development, as well as Governor Phil Murphy’s veto message regarding the purpose of the new amendments to the Brokers Act.

Applying Section 3.2 of the Brokers Act retroactively, the Appellate Division considered the impact of the new legislation on Weichert’s appeal and its prior opinion on the issue. The issues it considered were:

• Whether Section 3.2 of the Brokers Act compelled dismissal of Kennedy’s complaint for failure to state a claim since the new legislation declared written agreements between the parties to be enforced but not changed, and the agreement between Kennedy and Weichert identified him as an independent contractor;
• Whether Section 3.2 of the Brokers Act in conjunction with other provisions of the 2018 amendments meant the ABC Test didn’t determine employment status under the WPL for fully commissioned real estate salespersons who entered into written agreements with a real estate broker; and
• If so, whether the court’s existing evidence record allowed it to decide if Kennedy is an employee of Weichert under the WPL.

The Appellate Division concluded the ABC Test didn’t apply to WPL claims asserted by fully commissioned real estate salespersons, like Kennedy, because the Brokers Act forecloses its application. Under the ABC Test, a person is presumptively an employee unless and until the employer shows:

• Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact;
• Such service is either outside the usual course of the business for which it is performed, or that it is performed outside of all the places of business of the enterprise for which it is performed; and
• Such individual is customarily engaged in an independently established trade, occupation, profession, or business.

All three prongs must be satisfied for a worker to be considered an independent contractor. The Appellate Division reasoned that applying the ABC Test to determine the relationship of the parties in this case was contrary to the plain language and legislative intent of the Brokers Act because the ABC Test compelled the conclusion that all full commissioned salespersons were employees of their broker regardless of how they defined their relationship.

Despite rejecting the application of the ABC Test, the Appellate Division affirmed the denial of Weichert’s request to dismiss and sent the matter back to the trial court for the development of a record concerning the actual business relationship between the parties. Because of this incomplete record, the Appellate Division declined to establish a test to determine whether a fully commissioned real estate salesperson is an employee or an independent contractor. Kennedy v. Weichert Co.

Bottom line

The Appellate Division concluded the ABC Test is precluded by the Brokers Act and shouldn’t be used to determine whether a fully commissioned real estate salesperson is an independent contractor. It didn’t set forth an alternate test, however, to decide the issue. Instead, it sent the matter back to the trial court for the development of a record. It specifically held that neither an agreement between the parties that referred to Kennedy as an independent contractor nor compliance with the Brokers Act are dispositive of the issue. Consequently, the law division judge will be required to set forth a test to determine whether a real estate salesperson is an independent contractor or an employee based on a full factual record concerning the parties’ business relationship.

For more information regarding this decision and best practices for hiring independent contractors to avoid claims and costly litigation, please contact Peter F. Berk, lead partner of Genova Burns LLC’s wage and hour compliance and dispute resolutions practice via email at pberk@genovaburns.com, or via telephone at 973-533-0777.