The real estate industry has been focused on Monell v. Boston Pads and Bararsini v. Coldwell Banker as cases that will determine whether the real estate industry will continue to operate using independent contractor status. Two recent rulings against Uber, coupled with previous judgments against ZipRealty and FedEx, may ultimately be the cases that decide this issue.
Last week’s California Labor Commissioner’s ruling against Uber could become the seminal case that forces real estate agents into employee status. This shift, however, may not result from a trial court ruling; instead, it may be due to the magnitude of fines that the California Labor Commissioner can assess.
The ZipRealty Litigation
In November 2010, the California Division of Labor Standards Enforcement issued an ODA (order, decision or award) in favor of the four agent plaintiffs against Zip Realty for misclassifying them as independent contractors rather than employees. The plaintiffs alleged that Zip Realty had violated the California Labor Code by failing to pay them minimum wage and overtime premium pay. Excluding attorneys’ fees and the costs of suit, the four ODA amounts totaled approximately $330,000.
ZipRealty appealed. The appellate court upheld the plaintiffs’ awards ruling that ZipRealty violated California Labor Law. ZipRealty settled the four claims for close to $600,000.
Although the settlement ended the litigation, the Labor Commissioner then sought to recover unpaid wages and overtime for all ZipRealty agents throughout California. The new action against ZipRealty sought $7.5 million in minimum wages, $1.25 million in premium overtime pay, and over $9 million in additional damages. The case ultimately settled for $5 million. The company was also to pay the employer’s share of FICA taxes and other employer tax responsibilities on back wages as they were distributed to former employees.
After the settlement, the California Labor Commissioner issued this warning:
“Employers considering appealing Labor Commissioner awards should keep the ZipRealty case in mind. If our agency determines that violations go beyond the claims before us, we can and will pursue those cases for all affected employees. We learned of ZipRealty’s systemic minimum wage violations during the litigation of these cases in Superior Court.”
The scenario above is strikingly similar to the situation that Uber now faces. The California Labor Commissioner has found against Uber. Uber is now going to appeal. Although no one can predict what the Labor Commission will do, Uber could find itself facing “systemic minimum wage violations” that could result in the same type costs that ZipRealty incurred.
Moreover, this decision comes on the heels of two other rulings against Uber. Uber recently lost a Florida case on independent contractor status. Furthermore, the United States District Court ordered Uber to stand trial before a jury on the issue of whether it misclassified drivers as independent contractors rather than employees for purposes of the California Labor Code.
Disturbing News For The Real Estate Industry
The U.S. District Court’s ruling denying Uber’s appeal for summary judgment contains language that poses a real threat for the real estate industry’s current independent contractor model.
“The court first concludes that plaintiffs are Uber’s presumptive employees because they ‘perform services’ for the benefit of Uber.”
The District Court’s decision pointed to the California Supreme Court ruling that held.
“the fact that one is performing work and labor for another is prima facie evidence of employment and such person is presumed to be a servant in the absence of evidence to the contrary.”
Furthermore, “when evaluating the extent of that control, the Supreme Court has stressed that an employer’s ‘right to discharge at will, without cause’ is ‘strong evidence in support of an employment relationship.’” (Borello)
Both of these scenarios apply to the real estate industry. Agents can only work for one broker. Moreover, both the agent and the broker have the right to end their employment agreement without cause.
The FedEx Misclassification Ruling
The judgments against ZipRealty pale in comparison to those made against FedEx for misclassification of their drivers as independent contractors rather than employees. On Aug. 27, 2014, the Ninth Circuit Court of Appeals reversed a lower court decision against a FedEx independent contractor misclassification class action case in California. FedEx settled the case for the 2,300 drivers covered in the complaint for $228 million (almost $100,000 per driver). It is believed that the bulk of the settlement will be for reimbursement of necessary expenses. (Alexander v. FedEx Ground Package System)
A Nightmare Scenario
While the real estate industry defends the current independent contractor model in state court, the Uber and FedEx litigation is playing out at the federal level. In other words, the judgments in these cases may apply nationally, not just at the state level.
Moreover, if the California Labor Commission comes after Uber for “systemic violations,” it could potentially set a precedent for the current litigation against Redfin and Coldwell Banker in California.
This raises the most disturbing question of all: How many real estate companies could sustain fines of $100,000 per agent for misclassification of their agents and still stay in business?
