Appeals Court: Brokers Act Forecloses Use of 'ABC Test' to Determine Whether Real Estate Agent Is Employee

In an unpublished opinion, the Appellate Division held that the New Jersey Supreme Court’s holding in Hargrove v. Sleepy’s does not apply to Wage Payment Law claims asserted by fully commissioned real estate salespeople because the Brokers Act forecloses the use of the “ABC test” to distinguish between employees and independent contractors.

According to the opinion, this is the court’s second opinion issued in the case. The plaintiff, James Kennedy II, was a fully commissioned real estate agent with licensed real estate broker Weichert. Kennedy alleged a putative class action claim that Weichert had violated a provision of the WPL “by deducting marketing, insurance, and other expenses” from his wages without authorization. Weichert moved to dismiss this claim for failure to state a claim and argued “that fully commissioned real estate salespersons are independent contractors, whom the WPL does not cover.”

That motion was denied by a Law Division judge ”after declaring that the ‘ABC test’ under the Unemployment Compensation Law determines a real estate salesperson’s status as an independent contractor under the WPL.” According to the per curiam opinion, the judge followed the New Jersey Supreme Court’s holding in Hargrove ”that the ‘ABC’ test derived from the UCL governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim.”

In that case, the Appellate Division denied Weichert’s motion to dismiss. There, the appeals court cited “relevant 2018 amendments to the Brokers Act.” According to the opinion, Weichert was granted leave to appeal by the New Jersey Supreme Court. But while that appeal was pending, the New Jersey Legislature added a new section, 3.2, to the Brokers Act. Then, the Legislature proposed A. 6206, a bill that proposed to amend 3.2. Gov. Phil Murphy conditionally vetoed A. 6206 and stated, in part, that the bill should be changed to “more directly satisfy its intent” and to “clarify that the Brokers Act should be given retroactive effect.”

The Legislature accepted the recommended changes and then approved a final version of A. 6206 on Jan. 18, 2022. The New Jersey Supreme Court vacated its order granting leave to appeal and remanded the matter to the Appellate Division, according to the opinion.

“It is undisputed that we must apply Section 3.2 retroactively; it therefore affects the entire time frame of plaintiff’s WPL claim,” the Kennedy opinion said. Weichert argued that the Appellate Division must reverse the Law Division’s order and remand the matter to be dismissed.

“Alternatively, defendant urges us to grant declaratory relief and remand the matter to the Law Division with instructions that the ABC test does not apply to plaintiff’s WPL claim for the entire period pled in his complaint,” the opinion said.

“We conclude the court’s holding in Hargrove does not apply to WPL claims asserted by fully commissioned real estate salespersons because the Brokers Act forecloses application of the ABC test,” the opinion said. “We also conclude, however, that the written agreement required by Section 3.2(a) of the Brokers Act is a factor, but not the sole factor, in determining the employment status of a fully commissioned real estate salesperson.”

The Appellate Division affirmed the Law Division’s order, as modified, but declined ”to adopt a specific ‘test’ to determine whether in any given set of circumstances a fully commissioned real estate salesperson is a broker’s employee or an independent contractor.” The court stated that due to the “paucity” of the record, it would not adopt such a test, according to the opinion.

The court further held that the ABC test does not apply to determine whether Kennedy was Weichert’s employee for purposes of the WPL. According to the opinion, that conclusion is not a contradiction of Hargrove because the plaintiffs in that case were delivery truck drivers.

“No other statutory scheme, much less a statutory scheme adopted for a highly regulated industry such as the real estate industry, needed to be harmonized with the court’s decision to apply the UCL’s ABC test to WPL claims,” the opinion said. “Nor did the Hargrove court address any employment relationship, such as real estate salespersons, within the statutory exceptions to the ABC test contained in the UCL.”

The opinion stated that the ABC test should not apply to determine the business affiliation between a broker and a fully commissioned real estate salesperson. However, the court stated that just because the ABC test does not apply does not mean that Kennedy’s complaint should be dismissed for failure to state a claim.

“Our point is that for reasons already stated, applying the ABC test to determine the relationship of the parties in this case is contrary to the plain language and legislative intent of the Brokers Act, because the ABC test compels the conclusion that plaintiff, indeed all fully commissioned salespersons, are employees of their broker regardless of how they defined their relationship,” the opinion said. “However, no ‘provision of the Brokers Act, or any other law, rule or regulation,’ certainly no provision of the WPL, contravenes the ability of parties to affiliate as employer-employee or as a salesperson providing services as an independent contractor.”

“Here, we decline an opportunity to definitively announce a test to determine plaintiff’s employment status in advance of the development of a more complete record that permits exposition of the actual business relationship between the parties,” the opinion said. “We anticipate the parties will develop that more complete record in the Law Division and, in the motion practice that is sure to follow, address in their briefs ‘how the court should determine the nature of their relationship’ in light of our decision today.”

The opinion was issued by Judges Carmen Messano, Lisa Rose and Katie A. Gummer.

Counsel to Weichert, admitted pro hac vice, John F. Birmingham and Jennifer M. Keas of Foley & Lardner, and counsel to Kennedy, Ravi Sattiraju of Sattiraju & Tharney, did not immediately respond to a request for comment.