MacDougall v. Weichert

POLLOCK, J.,

dissenting.

The entire Court agrees that plaintiff, John W. MacDougall, may not maintain this action for wrongful discharge unless he was an employee of defendant Weichert Co. Realtors (Weichert). Both the Law Division and the Appellate Division ruled that MacDougall was not a Weichert employee. I agree and would affirm solely for that reason. Consequently, I need not reach the provocative issues that divide my colleagues.

I

Following his retirement, MacDougall became a real estate salesman. In 1984 Weichert hired him as a “Sales Associate” in its Chester Borough office. In accordance with N.J.A.C. 11:5-1.10, on March 5,1984, he signed a standard Weichert agreement, which provided in relevant part:

1. The Broker agrees to make available to the Sales Associate materials, supplies and equipment, telephone service, secretarial assistance, sales assistance and advice, as well as all current listings of the Broker, except sales listings as the Broker for valid and usual business reasons may place exclusively in the temporary possession of some other Sales Associates. Such facilities are to be shared with other Sales Associates with whom the Broker has or may hereafter have an agreement.
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5. The Broker shall not be liable to the Sales Associate for any expenses incurred by the Sales Associate, or for any of his/her acts, nor shall the Sales Associate be liable to the Broker for any expense of the operation of the Broker’s business. The Sales Associate acknowledges that he/she is not an employee nor a partner, but a Sales Associate with an independent contractor status, with no rights of workmen’s compensation, salary, pension, sick leave, sick pay or other attributes of an employee relationship.

According to the agreement, MacDougall was not an employee, but an independent contractor. The agreement provided that MacDougall was to pay his own license fees to the State of New *436Jersey and his membership in trade associations, such as the Morris County Board of Realtors. Furthermore, under the agreement, Weiehert provided all sales associates, including MacDougall, with “materials, supplies and equipment, telephone service, secretarial assistance, sales assistance and advice, as well as all current listings of the Broker____” Additionally, MacDougall was not entitled to “any rights of workmen’s compensation, salary, pension, sick leave, sick pay, or other attributes of an employee relationship.”

After the incident that gave rise to this action, MacDougall joined another real estate broker, Centennial. At Centennial, as at Weiehert, MacDougall’s compensation was based solely on commissions. MacDougall acknowledged in depositions that at Centennial he was an independent contractor.

The objective facts confirm that MacDougall was an independent contractor, not an employee of Weiehert. Those facts reflect a typical relationship between a broker and a sales associate. Before receiving his real estate sales license, MacDougall attended, as required by N.J.AC. 11:5-1.27, training classes at a Weichert “school.” As a sales associate, MacDougall reported his sales activities to the manager of the Chester office. MacDougall, however, was not required to attend any mandatory sales meetings. Nor did Weiehert impose on him any mandatory sales quotas. MacDougall was a salesman on commission.

He was entitled to a listing commission for any property he listed with Weiehert and a sales commission on any property that he sold. If MacDougall both listed and sold a property, he would receive both commissions. Typically, his commission would be fifty percent of whatever fee Weiehert received as either the listing or selling broker.

Although Weiehert paid for some advertising that benefitted all sales associates, MacDougall recognized that his personal contacts were his primary source of referrals. Like real estate sales persons generally, he garnered clients through friends, personal acquaintances, and others in the community.

*437Weichert neither reimbursed MacDougaU for out-of-pocket expenses nor withheld from MacDougall’s commissions deductions for either state or federal taxes. As an independent contractor, MacDougaU filed a Form 1099 with the Internal Revenue Service.

II

In Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 82, 417 A.2d 505 (1980), we modified the common-law doctrine of employment-at-wiU to provide an employee a cause of action for wrongful discharge when his or her firing violated a clear mandate of pubhc poUcy. Thus, an essential element of plaintiffs case is proof that plaintiff was an employee. Both the majority, ante at 388, 677 A.2d at 166, and the dissent, ante at 411-12, 677 A.2d at 166, recognize that Pierce does not provide a cause of action for independent contractors. Thus, the threshold question is whether MacDougaU was an employee or an independent contractor.

A

TraditionaUy, this Court has adopted the test in the Restatement (Second) of Agency § 220 when determining whether a hired person is an employee or an independent contractor. E.g., Carpet Remnant Warehouse, Inc. v. Dept. of Labor, 125 N.J. 567, 579-80, 593 A.2d 1177 (1991); Millison v. E.I. du Pont de Nemours & Co., 101 N.J. 161, 203, 501 A.2d 505 (1985) (Handler, J., concurring in part and dissenting).

Restatement (Second) of Agency § 220(1) defines an employee or “servant” as “a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control.”

Restatement (Second) of Agency § 220(2) provides:

(a) the extent of control which, by the agreement, the master may exercise over the details of the work;
(b) whether or not the one employed is engaged in a distinct occupation or business;
*438(c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
(d) the skill required in the particular occupation;
(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
(f) the length of time for which the person is employed;
(g) the method of payment, whether by the time or by the job;
(h) whether or not the work is a part of the regular business of the employer;
(i) whether or not the parties believe they are creating the relation of master and servant; and
(j) whether the principal is or is not in business.

Similarly, the United States Supreme Court has written that “[i]n determining whether a hired party is an employee [or independent contractor] under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the product is accomplished.” Community For Creative Non-Violence v. Reid, 490 U.S. 730, 751, 109 S.Ct. 2166, 2178, 104 L.Ed.2d 811, 831 (1989); see also Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 323, 112 S.Ct. 1344, 1348, 117 L.Ed.2d 581, 589 (1992). In applying this control test, courts consider all aspects of the relationship betwéen the parties. N.L.R.B. v. United Ins. Co. of America, 390 U.S. 254, 258, 88 S.Ct. 988, 991, 19 L.Ed.2d 1083, 1087 (1968); see also Pelliccioni v. Schuyler Packing Co., 140 N.J.Super. 190, 199, 356 A.2d 4 (App. Div.1976) (stating that court must consider all surrounding circumstances).

Although the sale of real estate is heavily regulated, neither the Legislature nor the New Jersey Real Estate Commission has addressed specifically the issue of the employment status of real estate salespersons. The New Jersey Unemployment and Temporary Disability Law, however, provides that real estate salespersons are not employees if they “are compensated wholly on a commission basis.” N.J.S.A 43:21 — 19(i)(7)(k). Similarly, federal employment tax law provides that “a qualified real estate agent ... shall not. be treated as an employee.” 26 U.S.C.A § 3508(a)(1). The definition of a “qualified real estate agent” *439includes a licensed real estate agent who is compensated on the basis of sales made rather than hours worked and who has contracted that he or she will not be treated as an employee for federal tax purposes. 26 U.S.C.A § 3508(b)(1)(A), (B), and (C). Thus, for federal and New Jersey tax purposes, MacDougall was an independent contractor. I need not determine whether a different result might obtain under the Worker’s Compensation Law, N.J.S.A 34:15-1 to 15-128. New Jersey Property-Liability Ins. Guar. v. State, 195 N.J.Super. 4, 9, 477 A.2d 826 (App.Div.1984). As Professor Larson states: “The basic purpose for which the definition [of employee] is used in compensation law is entirely different from the common-law purpose.” A. Larson, Workmen’s Compensation Law § 43.42, at 8-20 (1990).

B

The precise issue whether a real estate salesperson is an employee or an independent contractor is one of first impression in this State. Cases from other jurisdictions, however, establish that a real-estate sales person such as MacDougall is an independent contractor. In a factually similar ease, the New York Court of Appeals ruled that a real estate agent was an independent contractor, not an employee, under the New York unemployment compensation law. In re Wilson Sullivan Co., 289 N.Y. 110, 44 N.E.2d 387 (1942). Despite the statute’s use of the term “employee” to describe real estate agents, the court concluded that common-law principles dictated that a real estate agent was an independent contractor not an employee. 44 N.E.2d at 389-90. In reaching that conclusion, the Court reasoned the dispositive inquiry was whether the broker exercised “control over either the results produced by [the agent] or the means employed by the [agent] to achieve the results.” Id. at 388.

Looking at the facts, the Court observed that the broker provided salespersons with office and desk space, telephone service, stationary, and office supplies. Ibid. Agents submitted to the broker a record of sales. Ibid.

The broker, however, did not require sales agents to submit regular reports, and agents had “no specific hours, no definite *440routine to follow, nor calls to make during the day.” Ibid. Agents signed contracts specifying that they were independent contractors and took instruction only from property owners. Ibid. Furthermore, agents were not covered by worker’s compensation law, id. at 389, and could pursue other occupations. The Court affirmed the decision of the Appeal Board denying benefits to the agent, concluding “there [was] no substantial evidence upon which to sustain the finding of the Appeal Board.” Ibid.

More recently, the United States District Court for the Southern District of New York granted summary judgment dismissing the complaint of a real estate agent against her broker. Krijn v. Pogue Simone Real Estate Co., 752 F.Supp. 102 (S.D.N.Y.1990), aff'd without opinion, 930 F.2d 910 (1991). The complaint alleged that the broker had discharged the agent because of discrimination based on sex and national origin contrary to Title VII, 42 U.S.C.A § 2000e to 2000e-17. Under both the common-law-control test and a “hybrid” test then used to determine claims for benefits under Title VII, the court found that the agent was an independent contractor.

Before reaching that result, the court parsed the relevant facts. It noted that the real estate firm neither withheld taxes nor provided benefits to its sales agents. Id. at 104. Although the broker expected the agents to work periodically, it did not require them to keep regular office hours. The court noted that “[even] if weekly meetings callfed] for mandatory attendance, as Krijn avers, this assertion is not enough to withstand dismissal____” Ibid. Commissions from sales were paid directly to the broker, which provided office space, supplies, resources, guides, and listings. Still, the court found that such practices did not constitute control over the details of the work product of the sales agents. Ibid. The court also emphasized that the broker paid the agents solely on a commission basis, and that the agents were responsible for the costs of obtaining their real estate licenses and that the agents’ time was “totally unstructured.” Id. at 104-05. After weighing *441these factors, the court found that the agent was an independent contractor and granted summary judgment for the broker.

One year after the Krijn decision, the United States Supreme Court construed the term “employee” in the Employment Retirement Income Security Act of 1974 (ERISA). The Court reasoned that when a statute does not define the term “employee,” a court should use the common-law agency test when analyzing the employment relationship. Darden, supra, 503 U.S. at 322-23, 112 S.Ct. at 1348, 117 L.Ed.2d at 589. Thus, the Court decided that agency law principles should apply to resolving the issue whether someone is an employee or an independent contractor.

In Stetka v. Hunt Real Estate Corp., 859 F.Supp. 661 (W.D.N.Y. 1994), the plaintiff-real estate agent brought a sexual-harassment suit under Title VII, claiming that she was an employed of defendant-real estate broker. The agent sought to prove that she was an employee of the defendant-real estate broker. The broker required the agent to serve “floor time” in the firm’s office for two hours a week and to attend weekly sales meetings and house tours. Id. at 667. Furthermore, the broker provided sales agents with office space and supplies. Ibid. As described by the court, the record revealed:

Plaintiff scheduled her own hours, marketed her own listings, and was expected to develop her own business leads. Plaintiff was paid on a commission basis, and did not receive any commission until the property was sold. No taxes were deducted from Plaintiffs’ [sic] gross commission payment, nor was Plaintiff covered by either Worker’s Compensation or New York State unemployment insurance. Plaintiff received a Form 1099 at the end of the year indicating the gross amount of commissions earned at Hunt Real Estate which was used to complete her federal and state income tax returns, including the payment of any self-employment social security tax. Plaintiff also paid for her own licensing fees with New York State, and paid her own fee to obtain multiple listing services.
Ubid.]

Based on those facts, the court concluded that the broker did not exercise “day-to-day” control over the agent “such as an employer would exercise over an employee.” Ibid. Rather, the agent’s time was unstructured. She developed her own clientele and “marketed herself as an independent agent.” Ibid. The court, therefore, *442ruled that the agent was an independent contractor. Ibid.; see also Breen v. Hunt Real Estate Corp., 1994 WL 417017 (W.D.N.Y. 1994) (reaching same result as Stetka).

Similarly, the Appellate Division of Massachusetts has ruled that a real estate agent was not an employee for purposes of a criminal statute that required employers to pay wages on a weekly basis. Commonwealth v. Savage, 31 Mass.App.Ct. 714, 583 N.E.2d 276 (1991). The agent made her own hours, maintained an office in her home, obtained and paid for her own license, was not reimbursed for travel or business expenses, received no base salary, was paid only on a commission basis without deduction for payroll taxes, filed a Form 1099, and received no fringe benefits. 583 N.E.2d at 278-79. The Appellate Division in Florida reached a similar result in ruling that an agent employed by a firm to sell time shares was not an employee for purposes of the Florida Unemployment Insurance Law. F.L. Enterprises, Inc. v. Unemployment Appeals Comm’n, 515 So.2d 1340 (1987). Finally, the United States bankruptcy courts also have held that real-estate sales agents compensated solely on commission were “independent contractors,” not employees. Consequently, the agent’s earnings were not exempt from the Florida Wage Tax. In re Hanick, 164 B.R. 165 (Bankr.M.D.Fla.1994); In re Moriarty, 27 B.R. 73 (Bankr.M.D.Fla.1983).

MaeDougall’s reliance on Golden v. A.P. Orleans, 681 F.Supp. 1100 (E.D.Pa.1988), is unpersuasive. In Golden, the broker required the real estate agent to submit weekly activity reports and to attend weekly meetings. The broker distributed periodic company directives regarding daily work activity, and the agent drew a weekly salary against her commissions. Id. at 1101. MacDougall alleges none of these facts.

Ill

Weiehert furnished MacDougall with office space and supplies. MacDougall reported his sales to an office manager and shared commissions with Weiehert. In none of the decided cases did *443these facts lead to the conclusion that the real estate agent was an employee. Here, moreover, MacDougall, who was not required to attend sales meetings, was even less restricted than the agents who were held to be independent contractors in Krijn, Stetka, and Breen. Nor does MacDougall’s attendance at a Weichert training course compel a conclusion that he was an employee. Breen, supra, 1994 W.L. 417017 at *1 (sales agent who attended six-week in-house training program held to be independent contractor).

The record makes clear that Weichert did not exercise over MacDougall the control typical of a common-law employment relationship. MacDougall, moreover, signed a contract acknowledging that he was an independent contractor. He received only a commission, not a salary or a draw. Weichert neither provided employment benefits to MacDougall nor deducted withholding taxes from MacDougall’s commissions. At the end of each year, MacDougall filed a Form 1099 with the Internal Revenue Service. Weichert did not require MacDougall to attend mandatory sales meetings or to satisfy sales quotas. MacDougall was responsible for developing his own clientele and did not receive reimbursement for expenses. Weichert’s interest was solely in the end results of MacDougall’s efforts: sales and listings leading to commissions. Weichert abstained from controlling how MacDougall reached those results. See Errickson v. Schwiers Co., 108 N.J.L. 481, 483, 158 A. 482 (E. & A. 1931) (stating that “[t]he relation of master and servant exists whenever the employer retains the right to direct the manner in which the business shall be done, as well as the result to be accomplished, or in other words, not only what shall be done, but how it shall be done.”). No remand is necessary to determine that MacDougall was an independent contractor.

rv

Just seven months ago, this Court took a new stand on the grant of motions for summary judgment. Rule 4:46; Brill v. Guardian Life. Ins. Co. of America, 142 N.J. 520, 666 A.2d 146 *444(1995). We held that the motion judge should grant such motions unless the evidence, when viewed in the light most favorable to the non-moving party, sufficed to permit a rational factfinder to resolve the dispute in favor of the non-moving party. As the Court explained, “[t]he thrust of today’s decision is to encourage trial courts not to refrain from granting summary judgment when the proper circumstances present themselves.” Id. at 541, 666 A.2d 146. Underlying the decision was the Court’s recognition of the increase in the filing of meritless cases and the need to avoid unnecessary litigation. Id. at 539, 666 A.2d 146.

Even under the more stringent standard of Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 110 A.2d 24 (1954), the Law Division and Appellate Division concluded that Weichert was entitled to a summary judgment dismissing the complaint. From my perspective, those courts reached the right result. It follows that I reach the same result under Brill. By reversing the grant of summary judgment for McDougall and remanding the matter to the Law Division for trial, the Court undermines the holding of Brill and subjects the parties to the expense of needless litigation. I would affirm.