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recent New Jersey court decision has upheld the right of real estate brokerages to classify sales associates as independent contractors (ICs), potentially helping to mitigate future challenges to employment classification status in the industry. Here's a breakdown of the case and its implications for brokers.

    In 2019, James Kennedy II sued Weichert Co., where he worked from 2012 to 2018, claiming the brokerage had misclassified him as an IC instead of an employee under New Jersey's wage payment law. The complaint alleged that this misclassification resulted in unlawful deductions of marketing fees and other expenses from his compensation.

    Weichert argued that its agreement with Kennedy was enforceable under the state's Brokers Act, which authorizes real estate brokers to affiliate salespeople as either employees or ICs through written agreements. However, the trial court denied Weichert's motion, ruling that Kennedy's status wasn't determined by the parties' agreement but rather by the wage payment law.

    The appellate court initially agreed with Weichert, but later reversed its decision after New Jersey lawmakers amended the Brokers Act to allow the amendments to apply retroactively. The case ultimately went to the state Supreme Court, which examined the language of the Brokers Act and found that the word "notwithstanding" signaled the legislature's intent for the parties' agreement to prevail in any conflict with a law or regulation.

    To avoid potential risks, brokers can follow best practices when affiliating salespeople as ICs:

    * Use an agreement that clearly defines salespeople's status as ICs and specifies them as such for federal tax purposes.

    * Pay salespeople on a commission basis.

    * Require salespeople to provide their own equipment and cover their own business expenses.

    * Avoid mandating dress codes, meeting attendance, or desk or phone coverage.

    * Refrain from referring to IC salespeople as employees.