Key Ruling on Real Estate Broker Classification Announced by New Jersey Supreme Court

The New Jersey Supreme Court recently held that an agreement between a real estate salesperson (i.e., a realtor) and a real estate broker designating the salesperson as an independent contractor is dispositive in determining whether the individual is properly classified as an independent contractor or an employee, the latter of which would otherwise be subject to the benefits afforded under the New Jersey Wage Payment Law (the “NJWPL”). In doing so, the Supreme Court ruled that under the New Jersey Real Estate License Act (often referenced simply as the Brokers Act), a written agreement between the parties will override any other applicable laws, rules or regulations, and accordingly obviates the need to engage in a fact-sensitive analysis under the ABC test.

In Kennedy v. Weichert Co., No. 087975, 2024 WL 2118262 (N.J. May 13, 2024), James Kennedy II, a fully commissioned realtor, agreed to work as an independent contractor with real estate brokerage firm Weichert under two separate written agreements. In 2019, Kennedy, as a named member of a class action suit, later claimed that Weichert violated a provision of the NJWPL by withholding certain expenses from his wages without authorization after misclassifying him as an independent contractor. Weichert moved to dismiss the lawsuit, claiming that its fully commissioned realtors are independent contractors, and are thus not subject to the NJWPL as alleged employees. The trial court initially denied Weichert’s motion, stating that the question of Kennedy’s status was not governed by contract, but by the legal standard governing employee classification under the NJWPL. This ruling was affirmed by the Appellate Division, holding that realtor classification determinations must be governed by the ABC test, which looks at whether (i) the individual is free from the employer’s control or direction, (ii) the work is performed outside the usual course of the company’s business, and (iii) the worker is engaged in an independent trade, business or profession.

On appeal to New Jersey’s Supreme Court, the Court unanimously ruled that the parties’ agreement to enter into an independent contractor relationship was fully enforceable under the Brokers Act, and thus Kennedy was not subject to the NJWPL as an employee. Based on the legislative intent of the Brokers Act, the parties’ intended business affiliation as evidenced by a broker agreement trumps any other rules or regulations, and therefore the ABC test should not be applied. In other words, the parties’ agreement wholly governs whether a real estate salesperson is an independent contractor or an employee, rather than just one of multiple factors in evaluating the issue.

While limited to application under the Brokers Act in New Jersey, the New Jersey Supreme Court’s critical holding in Kennedy v. Weichert Co. will clearly impact how real estate brokers and salespersons draft and negotiate the terms of their relationship. As the designation of a real estate salesperson as an employee or an independent contractor has far-reaching ramifications for both parties to the relationship, brokerage firms and realtors alike are encouraged to consult with counsel to fully understand these issues.