Independent Contractor Status Underpins Your Business

Some say the true definition of freedom is being your own boss.

That’s why independent contractor status—which has faced federal challenges in the past—is so predominant in real estate. The National Association of REALTORS® has made it a top priority for years to protect the independent contractor status of its members, which enables them to work uninhibited by burdensome regulations.

However, litigation and federal and state legislative action are threatening many workers’ ability to be classified as independent contractors, including real estate professionals. Last October, the Department of Labor released a proposed rule reinterpreting how a worker is classified under the Fair Labor Standards Act. Although the proposed rule didn’t impact the classification of real estate professionals as independent contractors, the legal landscape makes the future uncertain.

NAR provided a comment on that proposed rule last December, reinforcing its support for the right of real estate practitioners to work as independent contractors and for brokers to choose how to classify their salespeople. NAR argued that the proposed rule could compel misclassification litigation or encourage states to adopt similar measures. The department has yet to propose a final rule for adoption.

The risk of misclassification poses a challenge for brokerages, particularly with the proliferation of teams, where team leaders may want to dictate how team members manage their tasks and time. Some state statutes expressly address the unique status of real estate agents, permitting classification as independent contractors despite the required control and supervision the broker has over the licensees.

Risk Reduction Tips for Brokers

If your agents operate as independent contractors:

1. Know your state law regarding independent contractor classification of real estate licensees. Statutes protecting this classification are the strongest defense to a legal challenge.
2. Always have a written independent contractor agreement with your agents and consider including a mandatory arbitration and class-action waiver provision.
3. Don’t mandate meetings, administrative office duties or use of certain tools.
4. Allow salespeople to work where, when and how they deem best.

Get a better understanding of why independent contractor status is crucial to your livelihood with these frequently asked questions, like: “What is the difference between an independent contractor and an employee?” In addition, learn about NAR’s advocacy efforts to protect independent contractors.