Employment Highlights: 1Q 2020

The employment topics of interest to real estate professionals cover a wide array of topics, such as independent contractors, personal assistants, wage and hour issues, and wrongful termination issues. The employment cases retrieved from April 2019 to April 2020 focused primarily on independent contractors. Over the past twelve months, employment issues were identified in six cases.

1. Essig v. Lai, No. 78014-0-I, 444 P.3d 646, (Wash. App., July 8, 2019)

The Wage Rebate Act authorizes exemplary damages against an employer who fails to pay wages pursuant to a contract when the employee has not performed the actual work.

David Essig began working for the Rainier Valley Community Development Fund (CDF) in 2006. He managed the real estate investment portion of the fund to create revolving loans and attract development and funds to the Rainier Valley. Through his work with the CDF, Essig met Michael Lai who managed a real estate brokerage. Essig worked with Lai’s firm on two successful loan transactions. Lai spoke to Essig about becoming a real estate agent, but Essig was not interested. In 2014 Essig and Lai began to talk about Essig working for Lai in a development capacity. Essig did not have the financial capacity to partner on large scale developments. Lai then asked Essig to consider working as a consultant or independent contractor, but Essig was not interested in working as an independent contractor. Essig stated that his interest was in working as a key employee to build the development organization. Lai asked Essig to draft a proposal for Essig to begin working for him. On May 29, 2015, Essig entered into an employment agreement with Lai and several business entities under Lai’s control. Lai agreed to employ Essig for a minimum of two years, with an annual salary of $114,000, health and dental benefits for Essig and his spouse, an expense account, office space, office support, and a $5,000 signing bonus. Lai gave Essig a $5,000 check, which Essig successfully deposited. He resigned from the Rainier Valley Community Development Fund in reliance on the employment agreement. 

Essig began performing his duties under the employment agreement on July 13, 2015. Over several weeks, he worked in the field reviewing projects, attending meetings and site visits with Lai, meeting with Lai, and engaging in phone, email, and text message communication with Lai regarding the business. On July 30, Essig emailed Lai requesting medical insurance and benefits for Essig and his wife, as provided in the employment agreement. On August 18, Essig sent Lai a letter demanding payment of his wages and benefits to that date. Essig continued to work for Lai until August 26. Throughout August, Lai suggested changes to the employment agreement, but did not deny the existence of the employment agreement or employment relationship. Lai continued to involve Essig in meetings, phone calls, and communications regarding the business. On August 27, Essig notified Lai that he considered Lai in breach, he was stopping work on Lai’s behalf, and would seek other employment. Lai sent a text to Essig that Essig interpreted as an offer to work as an independent contractor. Essig engaged in efforts to find comparable replacement employment.

Essig brought suit against Lai for breach of employment contract. The court entered judgment and awarded damages for Essig, including exemplary damages under the Wage Rebate Act (the Act). Lai appealed. The court noted that the evidence showed that the position Lai offered to Essig was not the position they had agreed to in the employment contract. Furthermore, the court determined that the Essig’s salary under the employment contract constituted wages under the Act and he did not fail to mitigate his damages. The Act authorizes exemplary damages against an employer who fails to pay wages pursuant to a contract when the employee has not performed the actual work.  Therefore, the court affirmed the awards of $228,000 in lost wages, $228,000 in exemplary damages under the Act, $13,263 in medical benefits, $85,890 in attorney fees, and $708.28 in costs.

2.  Shapiro v. Sankarsingh, No. 10525, 652282/18, 178 A.D.3d 484 (N.Y. App. Div., December 10, 2019)

Real estate broker allowed to enforce the arbitration provision in a policy manual.

Independent contractor (contractor) brought action against a licensed real estate broker, based on alleged oral agreement concerning commissions. Contractor signed a form acknowledging receipt of the brokerage policy manual and that she was obligated to follow the corporate policies and rules. The policy manual included an arbitration clause requiring “any disputes between [brokerage] Agents relating to commissions” to be resolved through the company's internal arbitration procedures and imposing a six-month limitations period. The real estate broker moved to dismiss the complaint citing those policy manual provisions. The court held that by signing the form, the contractor agreed to be bound by the terms of the brokerage policy manual, including the arbitration provision. Although the real estate broker is not a signatory to the arbitration agreement in the brokerage policy manual, she can enforce it as a third-party beneficiary. The court granted the real estate broker’s motion to dismiss and ordered a resolution by arbitration.

3.  Altick v. Hernandez, No. E069644, 2019 WL 1498210, (Cal. App, April 5, 2019)

The arbitrator examined property sale transactional documents and found that none of the documents identified Altick as the listing agent.

In January 2013, the father of Mary Altick (Altick) died and left in his family trust real property, a residence, in Northern California (the Property). In 2015, Altick was living in the Property. After Altick obtained her real estate license in 2015, she wanted to sell the property and move to Southern California. She was referred to Hernandez, a Southern California licensed real estate broker. On September 1, 2015, Hernandez and Altick entered into an independent contractor agreement, which named Hernandez as broker and Altick as associate licensee. Pursuant to the agreement, Altick agreed to use her best efforts to sell, exchange, lease, or rent properties listed with Hernandez; solicit additional listings, clients, and customers; and otherwise promote the business of serving the public in real estate transactions such that both Hernandez and Altick might derive the greatest benefit possible. Under paragraphs 8.A. and 8.B. of the agreement, if Hernandez's brokerage represented one side of any property sales transaction in which Altick was the procuring cause, Hernandez was entitled to receive one-third of the commission, and Altick was entitled to receive two-thirds of the commission. One week after Altick and Hernandez executed their independent contractor agreement, Altick, as trustor of the family trust, signed an exclusive listing contract to sell the Property with Hernandez's brokerage. The Property was listed in the multiple listing service (MLS) and the listing was paid for by Altick. In February 2016, the Property sold, and escrow closed. When Altick discovered that the entire $32,725 sales commission was to be paid to Hernandez, Altick initiated binding arbitration to resolve the commission dispute.

During the arbitration hearing, Altick testified that Hernandez agreed to mentor her during her first sales transaction, and pursuant to their independent contractor agreement, Altick expected a sales commission. Altick paid for the Property's MLS listing, which initially stated “‘owner is co-listing agent.’” At some point after signing the initial listing agreement, Altick's name was removed entirely from the Property's MLS listing information. Altick held numerous open houses and broker tours, made a flyer identifying herself as the sales agent, and paid for the Property's advertising and staging expenses. Hernandez never saw the Property but handled all sales negotiations. When Altick questioned Hernandez about receiving payment of her share of the commission, Hernandez explained that he was being paid the entire sales commission because he had to first pay the taxes on the income. He later tried to convince Altick to change the agreed upon share of the commission.

The arbitrator examined the Property's sale transactional documents and found that none of the documents identified Altick as the listing agent. Nevertheless, the arbitrator considered whether Altick was entitled to receive a commission under paragraph 8 of the independent contractor agreement. The arbitrator concluded that Altick was the “procuring cause,” of the transaction and rendered a final binding arbitration award finding that Altick was entitled to her share of the commission for the sale of the property. Altick filed a petition to confirm the binding arbitration award in the trial court. Hernandez opposed and requested the court to issue an order vacating the arbitration award. The Court ruled that the request to vacate the arbitration award was untimely. The court granted Altick’s petition to confirm the binding arbitration award and entered judgment in favor of Altick. Hernandez filed a separate petition to vacate the arbitration award and set aside the judgment. The court ruled the petition was untimely, but ultimately considered the merits of Hernandez’s petition. However, they denied his petition to vacate the binding arbitration award because he failed to show the arbitration award was procured by fraud. The arbitration award of $51,887 for Altick was upheld.

2. Statutes and Regulations

No statutory or regulatory changes relating to Employment were located.