Realtors and New Dept of Labor Guidelines on Independent Contractor Status

Are Agents Independent Contractors or Employees? U.S. Department of Labor’s New Regulations: Effective March 11, 2024

The California Department of Real Estate / DRE requires that all real estate commissions be paid to a licensed broker and that broker MUST SUPERVISE their salespeople. The California Department of Labor has a simple three part test for the real estate industry that fit well into the normal practice and 'independent contractor' status was easy to achieve.

However the US Department of Labor /DOL recently issued revised rules that may make that more difficult beginning on March 11, 2024. The new rule uses a “totality-of-the-circumstances” test. Because no one factor or set of factors is controlling, there is still a chance the agent could be deemed an employee.

The Six Factors are:

Opportunity for profit or loss depending on managerial skill;
Investments by the worker and the potential employer;
Degree of permanence of the work relationship;
Nature and degree of control;
Extent to which the work performed is an integral part of the potential employer’s business; and
Skill and initiative.

While the DOL stated each specific industry is “highly relevant” when applying the factors, the Final Rule is general and applies across the board to all industries. Some of the factors conflict with California real estate law such as licensed activities being an integral part of the real estate company (factor 5).

Due to the six key factors, the existence of an independent contractor agreement alone does not guarantee an agent’s independent contractor status.

In California, by law agents may work for and receive payment from only one broker at a time. The broker is additionally required to adopt policies and procedures and supervise their agents. How does this fit into the DOL’s rules?

The DOL rule says that policies adopted for the sole purpose of compliance with law are not indicative of control over the worker. However, a broker’s chosen compliance methods might indicate a level of control over the agent.

California law requires a broker to adopt rules to supervise agents, and if they do not, then they may run afoul of DRE regulations. Going beyond what the DRE requires and imposing too many requirements on their agents, may be a factor for making them an “employee” per federal wage and hour law. Brokers may suggest risk management protocols in order to minimize their liability and to comply with real estate and other laws. However, given this new federal rule, brokers should consider consultation with an attorney who specializes in employment law to evaluate whether there are recommended changes for the broker’s procedures.