The Wage Payment Law Does Not Override An Independent Contractor Agreement Between A Real Estate Salesperson And A Broker For Whom The Salesperson Works

Kennedy v. Weichert Co., ___ N.J. ___ (2024). As discussed here, this putative class action case addressed whether written agreements under which plaintiff, a licensed real estate salesperson, entered in to an independent contractor with defendant, a licensed real estate broker, excluded plaintiff from the protections of the Wage Payment Law, N.J.S.A. 4:11-4.1 et seq. (“the WPL”). Resolution of that issue entailed the interplay between the WPL and the New Jersey Real Estate License Act, N.J.S.A. 45:15-1 et seq., commonly known as the Brokers’ Act.

The case had a lengthy procedural history, as Justice Patterson recounted in her unanimous opinion for the Supreme Court today. In short, both the Law Division and the Appellate Division denied a defense motion to dismiss the case for failure to state a claim, though the Appellate Division modified the Law Division’s ruling in 2021 by granting dismissal in part. The Supreme Court, however, granted cross-motions for leave to appeal. The Court’s opinion today applied de novo review to the motion to dismiss, reversed, and ordered dismissal.

Justice Patterson provided a detailed history of the Brokers Act, which was adopted in 1921. As she noted, “[i]n short, the Brokers Act requires that a real estate salesperson affiliate with a broker in order to conduct real estate activities and imposes on that broker significant responsibilities with respect to the salesperson’s operations.” The issue, therefore, was the effect of an independent contractor agreement between the salesperson and the broker, and whether such an agreement permits a salesperson to benefit from the WPL. The WPL protects employees, but it expressly states that “independent contractors and subcontractors shall not be considered employees, but without supplying a standard for determining whether a person is an employee or an independent contractor.

Justice Patterson observed that the issue posed by this case “has been addressed by the Legislature in successive amendments to the Brokers Act. It has also been the subject of regulations promulgated by the Real Estate Commission, an entity created to regulate the real estate industry that is now a Division of the Department of Banking and Insurance.” The most important of those enactments for this case occurred in 2016, after the Supreme Court’s ruling on a question certified to the Court in a WPL case, Hargrove v. Sleepy’s, LLC, 220 N.J. 289 (2015).

“In the wake of our decision in Hargrove, the Real Estate Commission adopted regulations to make clear that a real estate broker and a real estate salesperson may elect a business affiliation in which the salesperson is an independent contractor, not an employee…. The Commission also proposed a new subsection, N.J.A.C. 11:5-4.1(j), stating that it ‘interprets ‘employment agreement,’ ‘employ,’ and ‘employing broker’ in [the Brokers Act] and this section to permit an employment relationship or an independent contractor relationship between a broker and a broker-salesperson, salesperson, or referral agent.” The Legislature followed up in 2018 with an amendment to the Brokers Act that expressly permitted independent contractor agreements in the real estate sales context.

That 2018 amendment was what led the Appellate Division in 2021 to deny in part the defense motion to dismiss in this case, which the Law Division had granted in full. The Appellate Division ruled that the 2018 amendment applied only prospectively, so that that portion of plaintiff’s claim that involved agreements that predated the effective date of the 2018 amendment would survive. Shortly after that decision, the Legislature again amended the Brokers Act to say that if there was a written agreement stating that a salesperson was an independent contractor, “the broker-salesperson or salesperson shall be deemed to be or have been an independent contractor during the period in which the agreement is or was effective and shall not be classified as an employee for any purpose under any law, rule, or regulation for that period of time ….”

Governor Murphy conditionally vetoed that amendment. He had no concern with its effect on the real estate industry, but stated that some of the amendment’s language “could be used as a basis for other employers in the State to misclassify workers.” He recommended changes, including that the 2018 amendment be retroactive to August 10, 2018. The Legislature agreed to those changes in 2022.

Justice Patterson held that the plain language of the Brokers Act required the dismissal of the complaint in this case. “A real estate broker and a broker-salesperson or salesperson seeking to conduct real estate activities must execute a written agreement defining ‘the nature of the business affiliation’ between the parties as either an employment relationship or an independent contractor relationship. N.J.S.A. 45:15-3.2(a), (b). The statute expresses no preference between the two options; that question is for the parties to resolve. N.J.S.A. 45:15-3, -3.2; -14 to -20…. the Brokers Act expressly defines the consequences of that choice; it provides that brokers and broker-salespersons or salespersons may affiliate in an independent contractor relationship, ‘[n]otwithstanding any provision of’ the Brokers Act ‘or any other law, rule, or regulation to the contrary.’ N.J.S.A. 45:15-3.2(b)…. Thus, in the Brokers Act, the Legislature clearly intended that if the parties’ business affiliation agreement under N.J.S.A. 45:15-3.2 conflicts with another law, rule or regulation, the agreement will prevail.”

That doomed plaintiff here. “Because he was an independent contractor when he was affiliated with Weichert, Kennedy may not be deemed to have been Weichert’s employee under the WPL, see N.J.S.A. 34:11-4.1(b), and he was not covered by that statute. He cannot assert the claim set forth in his complaint, a misclassification claim premised on the WPL.”