BILL ANALYSIS �
AB 2169
Page 1
Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Susan A. Bonilla, Chair
AB 2169 (Cooley) - As Amended: April 23, 2014
SUBJECT : Business and professions.
SUMMARY : Codifies a previously uncodified section of existing
law pertaining to the employment relationship between real
estate brokers and salespersons, states the intent of the
Legislature to reiterate the application of existing law, and
makes various findings and declarations relative to the
relationship between real estate brokers and salespersons.
Specifically, this bill :
1)Codifies a previously uncodified section of current law which
states that existing law pertaining to the characterization of
the employment relationship between a real estate broker and a
real estate salesperson shall not be interpreted or applied to
affect: the obligation or ability, if any, of a real estate
broker to maintain workers' compensation insurance; and the
vicarious liability of a real estate broker for tortious acts
of a licensed salesperson. The uncodified section also states
that real estate salespersons cannot be classified as
independent contractors for purposes of liability to third
parties, and that any provision in a contract that purports to
change that relationship from that of an agent to independent
contractor is invalid as being contrary to law for purposes of
tort liability to third parties.
2)States the intent of the Legislature that the codification of
Section 2 of Chapter 679 of the Statutes of 1991 made by
Assembly Bill 2169 of the 2013-14 Regular Session is to
reiterate its application to the validity and enforceability
of the election made by the parties to a real estate retention
agreement to characterize their relationship as one of
"independent contractor" or "employer and employee."
3)Makes findings and declarations relative to the importance of
the real estate marketplace to the California economy, the
special retention relationship between real estate brokers and
salespersons, the risk to that relationship if there is
uncertainty as to how that choice is characterized, the
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reliance of real estate professionals on their industry's
understanding of existing law as it pertains to the
characterization of the retention relationship between real
estate brokers and salespersons, and that the codification of
previously uncodified law does not change the rights and
obligations of either real estate brokers or real estate
salespersons under existing law, as specified.
4)Makes other technical or clarifying changes.
EXISTING LAW:
1)Requires all obligations under the Real Estate Law, all
regulations issued by the Real Estate Commissioner relating to
real estate salespersons, and all other obligations of brokers
and real estate salespersons to members of the public to apply
regardless of whether the real estate salespersons and the
broker to whom he or she is licensed have characterized their
relationship as one of "independent contractor" or of
"employer and employee." (Business and Professions Code (BPC)
Section 10032 (a))
2)Authorizes a real estate broker and a real estate salesperson
licensed under that broker to contract between themselves as
independent contractors or as an employer and employee, for
the purposes of their legal relationship with, and obligations
to, each other. Under existing law, the characterization of a
relationship as either "employer and employee" or "independent
contractor" for purposes, including, but not limited to,
withholding taxes on wages and unemployment compensation is
governed by certain specified provisions of law. (BPC 10032
(b))
EXISTING UNCODIFIED LAW prohibits BPC 10032 from being
interpreted or applied to affect existing obligations of a real
estate broker regarding liability or workers compensation
insurance or from altering existing case law. (Section 2,
Chapter 679, Statutes of 1991)
FISCAL EFFECT : None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS :
1)Purpose of this bill . This bill would codify previously
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uncodified law dealing with the contractual relationship
between a real estate broker and a real estate salesperson,
and add legislative intent language to reinforce the view that
the choice of the parties is conclusive but still subject to
specified statutory requirements. AB 2169 was introduced in
an attempt to counter a very recent and unpublished trial
court holding that questioned the interpretation of that law,
which the sponsor believes will cause uncertainty in the legal
relationships between brokers and salespersons. This bill is
sponsored by the California Association of Realtors (CAR).
2)Author's statement . According to the author, "Existing law
authorizes a real estate salesperson to contract with a real
estate broker as either an 'independent contractor' or as an
'employee' for the purposes of establishing what legal
obligations the 'employer' (the real estate broker) has in
regard to the salesperson.
"When this section was added to [the BPC] in 1991, it was
intended to ensure that the characterization of the
employer-employee or independent contractor relationship was
legal, applied to wages and unemployment compensation, and
specifically did not pre-exempt workers compensation. This has
been the status quo for the past two decades in the real
estate industry.
"However, in a current lawsuit, a former sales agent has
argued that current law does not allow an independent
contractor relationship, and the judge in this case has
criticized the current statute as ambiguous.
"It is necessary to clarify without delay that the
employee-employer or independent contractor relationship used
throughout the real estate industry is both legal and that it
conclusively applies to wages, unemployment compensation, and
all other statutory, regulatory, common law, and contractual
purposes, except regarding workers compensation.
"AB 2169 would provide that clarification, and would not
change any existing obligations under current law regarding
taxes, workers compensation, or unemployment insurance."
3)The practice of real estate . Real estate agents in California
are generally licensed as real estate brokers or real estate
salespersons under the jurisdiction of the California Bureau
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of Real Estate (BRE). Real estate appraisers are licensed
separately under the Bureau of Real Estate Appraisers. As of
October 2013, there were 140,026 brokers and 268,470
salespersons actively licensed in California.
An applicant for a real estate salesperson license must apply
for and pass a real estate examination, submit to a background
check, and fulfill certain real estate education requirements.
In most cases, a broker applicant, in addition to required
real estate education, must also have two years of real estate
experience before applying for the exam. Broker and
salesperson licenses are issued for a four-year period.
Generally speaking, while a licensed real estate broker may
assist directly in the buying and selling of real estate,
brokers may supervise the work of salespersons or other
associate brokers who report to the lead broker. The broker
may also handle earnest money deposits and establish escrow
accounts. As a result, a broker and another agent working
together may need to legally characterize their working
relationship as one of employment or as one of independent
contracting.
4)Understanding who is an "employee" or a "contractor" . As
noted above, real estate brokers and salespersons often work
together in teams. The nature of that relationship is
important for multiple reasons. According to the sponsor,
"Existing law, originally sponsored by C.A.R., codifies the
option of sales agents and their employing brokers to create
either a broker-independent contractor relationship or a
broker-employee relationship. The overwhelming majority of the
real estate industry uses the independent contractor model.
Better tax options for sales agents, greater flexibility,
reduced costs and ease of entry into the profession for new
agents are powerful reasons for the choice."
The relationship is also important to the broker, because legal
employers are required to report wages paid to employees, to
pay unemployment insurance and employment training tax on
those wages, as well as withholding and remitting state
disability insurance and personal income tax on wages paid.
Current law generally provides that brokers and salespersons
can decide between themselves whether they have an employment
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relationship or an independent contracting relationship for
purposes of their legal obligations to each other. However,
the statute requires that for other "statutory purposes,"
including withholding taxes on wages and unemployment
compensation, that decision between the parties remains
relevant but is subject to specific criteria in the
Unemployment Insurance Code. For purposes of workers
compensation, a specific test in the Labor Code is
determinative.
Without these specific statutes, the question of whether or
not a relationship is one of employment or contracting is
often answered by common law (a test developed by judges
through court cases, rather than in statute). That test looks
at a multitude of factors, laid out in regulation, the most
important of which is the right of the principal to control
the manner and means of accomplishing the desired result.
Notably, courts do not view the existence of a written
contract as a determining factor, because actual practices are
deemed more important than the words of a contract. (See EDD
Information Sheet DE 231 Rev 11 (7-13))
5)Related and ongoing litigation . The underlying impetus for
this bill is an ongoing lawsuit, Barasani v. Coldwell Banker
Residential Brokerage, currently pending in Los Angeles
County. The Barasani case is a class action complaint against
Coldwell Banker alleging that it misclassified all of its
sales associates as independent contractors when they were
actually employees, leading to multiple violations of the
Labor Code due to failure to reimburse for business expenses,
among other things.
On August 28, 2013, the judge hearing the case issued a
tentative ruling which effectively held that BPC 10032 and its
direction that the parties may characterize their own working
relationship, subject to the provided statutory requirements,
was not conclusive. Based on his reading of the statute, the
judge ruled that there may be a question of fact about the
nature of the relationship, perhaps meaning that the common
law test would later be applied. Counsel for Coldwell Banker
disagreed, contending that the language of existing law was
clear on its face and indicated that the parties'
characterization and specified statute should control.
According to the sponsor, the possibility that this particular
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code section could be read by courts to require a fact-based
inquiry into the nature of the relationship between real
estate brokers and salespersons would inject a great deal of
uncertainty into their contracting agreements. This bill is
an attempt to reinforce the reading of the law that the
parties' election and the specified statutory requirements are
conclusive.
6)Comments from the Committee . As a threshold matter, it should
be noted that the judge's ruling in Barasani was tentative,
and the case is still ongoing. That decision is unpublished
and could not yet be relied upon as precedent by another
court. It is also the traditional remedy for parties who
believe that a court made an improper and unsupportable ruling
to file an appeal to have the ruling reversed.
As such, the Committee may wish to consider whether or not this
bill is premature or even necessary, and if it is appropriate
to attempt to influence litigation that is in process.
7)Arguments in support . According to the sponsor, the
California Association of Realtors, "This legislation will
codify the original legislative intent language that
accompanied the enactment of [BPC 10032] in 1991 and add
additional intent language to ensure that the statute
continues to be interpreted as it has since its inception.
The language is calculated to avoid making any change to the
existing law or practice, and instead to affirm the existing
rule?Codification of the Legislature's original intent in the
enactment of Section 10032 and its on-going approval of the
existing independent contractor model is a necessary and
important clarification to avoid potential disputes and
unfounded litigation."
8)Prior legislation . SB 630 (Boatwright), Chapter 679, Statutes
of 1991, provided that a real estate broker and a real estate
salesperson licensed under that broker could negotiate a
contract that established either an employer and employee
relationship, or an independent contractor relationship, for
purposes of their legal relationship and obligations to each
other.
9)Double referral . This bill is double referred with the
Assembly Committee on Insurance, where the bill will be
referred if passed by this Committee.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (sponsor)
Opposition
None on file.
Analysis Prepared by : Hank Dempsey / B.,P. & C.P. / (916)
319-3301