California generally presumes a worker is an employee, but the state’s strict “ABC Test” allows companies to classify workers as independent contractors if they can demonstrate specific conditions are met. This test is codified in Labor Code section 2775.
Real Estate Exception to California’s Worker Classification Rules
However, this standard does not apply universally across all industries in California. Labor Code section 2778 creates an exception for real estate licensees, directing classification analysis instead to Business and Professions Code section 10032(b). This means a real estate broker and a salesperson licensed under that broker can contractually determine whether their relationship is one of employment or independent contracting.
Despite this contractual flexibility, the law clarifies that all regulatory and public duties associated with licensure must be fulfilled regardless of how the relationship is labeled. Contractual agreements cannot override compliance obligations.
Maintaining Independent Contractor Status for Real Estate Licensees
For brokers seeking to maintain an independent contractor model with their licensees, aligning the relationship with three specific conditions is considered the most legally sound approach. These include ensuring proper licensure under the Business and Professions Code, structuring compensation so that “substantially all” remuneration is tied to sales or output, and establishing a written contract stating the individual will not be treated as an employee for state tax purposes.
It’s important to note that classification for wage/hour or tax purposes is not the only legal consideration. Workers’ compensation rules require separate analysis, and California has already issued specific notices to the real estate industry regarding coverage issues.
Frequently Asked Questions
What is the ABC Test?
The ABC Test is a standard used in California to determine if a worker is an employee or an independent contractor. Under this test, a worker is presumed to be an employee unless the hiring company proves otherwise.
Does the ABC Test apply to all workers in California?
No, the ABC Test does not govern the classification of certain real estate licensees. Instead, their classification is guided by Business and Professions Code section 10032(b).
What three conditions should real estate brokers consider to maintain an independent contractor model?
Brokers should ensure proper licensure, structure compensation around sales or output, and establish a written contract stating the individual will not be treated as an employee for state tax purposes.
How might these evolving regulations impact the future of work arrangements within the California real estate industry?
