BILL ANALYSIS �
AB 2169
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 2169 (Cooley) - As Amended: April 23, 2014
SUBJECT : Independent Contractor Status
SUMMARY : Reaffirms existing law defining when a real estate
agent may be classified as an independent contractor.
Specifically, this bill :
1)Codifies a previously uncodified section of current law which
states that the characterization of the employment
relationship between a real estate broker and a real estate
agent shall not affect:
a) the obligation or ability of a real estate broker to
maintain workers' compensation insurance; or,
b) the vicarious liability of a real estate broker for
tortious acts of a real estate agent; or,
c) liability for injuries 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 existing law governing the classification of real
estate agents as either employees or independent contractors.
3)Makes findings and declarations relative to the importance of:
a) the real estate market to the California economy,
b) the special retention relationship between real
estate brokers and salespersons, and
c) certainty regarding established working
relationships between real estate brokers and real estate
agents, and
4)States legislative intent that the codification of previously
uncodified law does not change the rights and obligations of
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either real estate brokers or real estate salespersons under
existing law.
5)Makes other technical or clarifying changes.
EXISTING LAW :
1)Defines "employee" through a combination of statutory and
common law.
2)Requires employers to provide workers' compensation benefits
to injured employees.
3)Requires employers to report to the Employment Development
Department (EDD) wages for all employees and to pay
unemployment insurance taxes based on those wages.
4)Authorizes a real estate broker and a real estate agent to
enter into a contract that characterizes the real estate agent
as an independent contractor or as an employee for the
purposes of establishing their legal relationship with, and
obligations to, each other.
5)Excludes work performed by real estate agents from the
definition of employment if the following requirements are
satisfied:
a) The individual is licensed as a real estate agent.
b) The individual is engaged in activities requiring a
real estate license.
c) The individual is paid by commission.
1)Provides that the characterization of the employment
relationship between a real estate broker and a real estate
agent shall not affect:
a) the obligation or ability of a real estate broker to
maintain workers' compensation insurance; or,
b) the vicarious liability of a real estate broker for
tortious acts of a real estate agent; or,
c) liability for injuries to third parties.
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FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . The author states that it is necessary to clarify
that the Legislature intended for the employee-employer or
independent contractor relationship used throughout the real
estate industry to be legal and that the Legislature needs
respond to a court's concerns regarding ambiguities in the
existing statute.
2)"Employee" or "Contractor" . Real estate brokers and
salespersons often work together in teams. The nature of that
relationship is important because "employers" are required to
report wages paid to employees, provide workers' compensation
coverage, 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.
The same obligations do not apply if a worker is classified as
an "independent contractor."
Current law generally provides that brokers and salespersons
can decide between themselves whether they have an employment
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.
Absent these specific statutes, the question of whether or not
a relationship is one of employment or independent contracting
is answered by common law (developed by judges through court
cases, rather than in statute). The common law test considers
at a multitude of factors, 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.
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3)Previous Legislation . SB 630 (Boatwright), Chapter 679,
Statutes of 1991, established the provision of the Business
and Professions Code at issue in the pending litigation
referenced below. That bill was sponsored by the California
Association of Realtors (CAR). According to CAR, "Existing
law, originally sponsored by CAR., 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."
4)Related and ongoing litigation . According to the sponsor, the
underlying impetus for this bill is an ongoing lawsuit,
Barasani v. Coldwell Banker Residential Brokerage, currently
pending in the Los Angeles Superior Court. The Barasani case
is a class action complaint against Coldwell Banker alleging
that it misclassified 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. The
judge hearing the case issued a ruling that could allow the
common law test for determining if a real estate agent is an
employee to be applied instead of the test established in the
Business and Professions Code. Counsel for Coldwell Banker
disagreed, contending that the language of existing law was
clear on its face and indicated that the parties'
characterization and the Business and Professions Code should
control. Coldwell Banker appealed the judge's decision and
the Court of Appeal ruled against Coldwell Banker, supporting
the trial court's position that the common law test should
apply in this case.
Another class action suit was filed against Redfin, an online
real estate broker, in December 2013, alleging that Redfin
inappropriately classified its real estate agents as
independent contractors, and seeks payment of wages for those
workers.
In 2012, the California Labor Commissioner reached a $4.8
million settlement with ZipRealty, an online real estate
broker, to resolve litigation seeking wages and overtime
ZipRealty allegedly failed to pay to its real estate agents.
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Opponents are concerned with preserving the ability of
workers to challenge their classification as employee or
independent contractor in court and are concerned that this
legislation may have the effect of denying real estate workers
that opportunity.
5)Premature . It should be noted that the Barasani case is still
ongoing. When the Barasani case is completed, both parties
can evaluate the result and determine if they wish to file an
appeal. Appeals are the traditional remedy for a party who
wants to challenge a decision by a trial court. This bill
seeks to have the Legislature attempt to sway the outcome of
ongoing trial court litigation. The Committee may wish to
consider the necessity of passing legislation before a case
has been decided by an appellate court whose opinion could
serve as a precedent. A published decision by an appellate
court that will affect future court decisions presents broader
public policy issues that may be amenable to a legislative
resolution. On the other hand, a trial court decisions are
focused on resolving the conflict between private parties, and
seldom present issues of sufficient public policy consequence
to warrant legislative intervention.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (sponsor)
Orange County Association of Realtors
Opposition
California Labor Federation
Consumer Attorneys of California
California Teamsters Public Affairs Council
California Conference of Amalgamated Transit Unions
California Conference of Machinists
UNITE HERE
Engineers and Scientists, IFPTE Local 20
Professional and Technical Engineers, IFPTE Local 21
International Longshore and Warehouse Union, West Coast Division
Utility Workers Union of America, Local 132
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086
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