In a long-awaited decision, the Supreme Judicial Court of Massachusetts ruled yesterday that the state independent contractor (IC) law, widely regarded as the most restrictive IC law in the nation, does not apply to licensed salespersons in the real estate industry.  Monell v. Boston Pads, LLC, No. SJC-11661 (Mass. Sup. Jud. Ct. June 2, 2015).  Rather, the Court held, the provisions of the real estate licensing and registration scheme, which governs real estate brokers and salespersons and permits real estate salespersons to be “affiliated with a broker either as an employee or as an independent contractor” trumps the state’s IC law.

The Court reached that decision in reliance on a canon of statutory construction that a specific statute (here, the real estate licensing and registration law) controls over the provisions of a general statute (such as the IC law). The Court noted that under the real estate law, brokers were required to exercise supervision and control over real estate salespersons, who cannot engage in a real estate transaction except where affiliated with a broker.  If it reached any other result, the Court stated, “we would be subjecting real estate brokerage firms to potential criminal penalties [under the Massachusetts IC law] for misclassifying its real estate salespersons in a manner expressly authorized by the real estate licensing statute.”

The Court concluded by noting that “we take no position on whether the plaintiffs [real estate salespersons] are employees or independent contractors, or on how, in the absence of the framework established by the independent contractor statute, it may be determined whether a real estate salesperson is properly classified as an independent contractor or employee.”

Impact of the Decision

This decision impacts licensed real estate companies doing business in Massachusetts as brokers that retain licensed real estate salespersons. It frees such companies from the IC test in that state – a restrictive type of “ABC” statute not found in any other state – that all too frequently leads courts in Massachusetts to conclude that ICs in other industries have been misclassified.

The Court’s decision, though, does not mean that all real estate salespersons in Massachusetts are ICs; rather, they may be ICs or employees. However, the Court noted that the test to be applied to determine whether the real estate salespersons in Monell are ICs or employees is being left to be determined “to another day.”

What is the significance of this decision moving forward for real estate companies operating in Massachusetts? Real estate broker companies doing business in that state will likely seek to examine their independent contractor relationships and, where suitable, enhance their structure, documentation, and implementation. The Court’s description of the facts in Monellsuggests that the defendants may do precisely that. Some real estate companies operating in that state may turn to IC Diagnostics™ to accomplish that objective, as described in our 2015 White Paper on minimizing IC misclassification liability.

Does this decision impact other industries in Massachusetts? The answer is no.  Other industries remain governed by the restrictive IC law in that state.  That includes the taxicab industry which, in contrast to the real estate industry, was the subject of a recent decision by the Massachusetts Supreme Judicial Court that the state’s IC law was applicable to Boston licensed taxicab drivers, despite the fact that they were regulated by a Boston Police Department rule. Sebago v. Boston Cab Dispatch, Inc., No. SJC-117579 (Mass. Sup. Jud. Ct. April 21, 2015). See our April 2015 ICC News Update blog post.