Teri Lussier pointed this out to me last week, and I’ve been waiting since then for someone to plumb the implications. Ah, well, when there’s constabulary work to be done…
Here’s the news: The state of California is making ZipRealty pay it agents minimum wage for their time.
That’s huge. It’s just the thin edge of the wedge, for now, but the implication is that the real estate broker’s “safe harbor” exclusion from employment laws is about to be flushed into the Pacific Ocean.
This is why brokers pile on as many hopeless, helpless, hapless idiots as they can: Virtually everyone has at least one transaction in him, and the cost to the broker for the eventual failure of 85%+ of the new “hires” is nothing.
I don’t want to seem to praise employment laws, since their sole effect is to destroy jobs. But no other business would — or even could — be as wasteful of human capital as virtually every real estate brokerage is.
Could that be changing in California? Take note of this:
“Employers who previously were not concerned with minimum wage issues are now put on notice to ensure they are providing those basic protections to workers.”
And this:
After learning of the Bakersfield cases, California State Labor Commissioner Julie Su in September filed a $17 million lawsuit in Alameda County Superior Court on behalf of hundreds of other ZipRealty employees statewide. That lawsuit is pending.
Brokerages like Zip (and Redfin, etc.) have a greater exposure, because they operate too much like real businesses. But I can’t imagine what the 25,000 or so starving California Realtors might be thinking just now.
But I think I have a fair idea what their brokers are thinking…
The National Association of Realtors is propped up on three flimsy stilts: The real estate licensing laws, the “co-broke” — the cooperating brokerage fee behind the MLS system — and the IRS-sanctioned independent contractor “safe-harbor.”
Unheralded by anyone who knows why it matters, the “safe-harbor” took the first hit in its ultimate demise last week. You heard it here first.
Michael Rahmn says:
The suite appears to have been brought forth whilst the agents were actual employees (Zip has since switched to the ‘traditional’ model of ICs). I’m not following how that would lead to the un-doing of safe-harbor. If anything, it would seem to scare others away from taking on the same risk of salaried, employee-agents, no?
December 5, 2011 — 11:06 pm
Greg Swann says:
From the linked article:
December 6, 2011 — 6:25 am
Russ says:
They should have seen this coming. The same suit happened to LOs a couple of years ago and we all now are supposed to be paid minimum wage. With the LOs, I think it was one of the boiler room outfits (maybe E-Loan) where “phone officers” were probably forcibly tied to a desk for 8 hours a day and therefore figured they needed min. wage since they were being forced to work set hours versus the typical professional LO that operates very similar to a Realtor/independent contractor. The judgement didn’t make that distinction between the classes of LO.
The problem I have with it is that it assumes that the employee doesn’t know what they are getting into in regards to employment. It is a 100% commission profession. You either produce or you don’t. Winners and losers. It is the employee that decides which group they belong. If you are struggling to close deals, find a new job. That simple.
So what if the employee may have been a higher paid producer at one point. If business falls off or they can’t maintain production, maybe it is time to move on to another profession (which I suspect most did – loan modifications, selling gold, credit repair, acai berries, or whatever is the next hot get rich quick scheme/industry. Good Riddance.)
This could certaily shake out a few body shop brokerages if it does force all Realtors to make minimum wage. THey are going to be a lot more careful about who they hire.
December 6, 2011 — 11:27 am
Jeff Brown says:
This has happened periodically in CA, especially when they need money. It happened in the late 70s or early 80s with a Long Beach broker, who had to cough up $400,000, a handsome figure now, much less 30+ years ago.
It’s all about walkin’ like a duck. If brokerages treat agents as employees they deserve what may happen. This isn’t rocket science.
December 6, 2011 — 11:44 am
Ashley says:
You make some great points here. Thanks for sharing this.
December 6, 2011 — 7:18 pm
Dylan Darling says:
Jeff hit it on the spot, “if brokerages treat agents as employees, they deservee what may happen”. If you’re required to sit at a desk for 30 hours a week, they there may be grounds for pay. Most offices don’t require this, therefore the agents are strictly contract workers.
I don’t see this hitting the “real” real estate industry anytime soon. If the big, nationwide companies want to treat real estate like an employee game, make them pay minimum wage.
75% of agents probably don’t make more than a minimum wage earnings in a year, so there could be some hopeless hopefuls that try to jump on this wagon.
December 8, 2011 — 9:35 am
Sandy Shore says:
The issue goes beyond sitting at a desk. ‘Employment’ requirements (or should I say ‘Agent’ requirements) such as required training, floor time, and skimming new agents commissions during ‘training periods’ all constitute potentially questionable practices for brokers who utilize independent contractors. But here’s the rub – the IC status of agents can make it difficult for brokers to implement programs to help achieve consistent quality standards, which ultimately hurts the public, which is exactly who the broker laws were put in place to protect. If I were a broker and was ordered to pay minimum wage to my agents, I sure would expect more consistent performance from them. So much for the under achievers…
December 8, 2011 — 12:37 pm
Jim Klein says:
“But here’s the rub – the IC status of agents can make it difficult for brokers to implement programs to help achieve consistent quality standards, which ultimately hurts the public, which is exactly who the broker laws were put in place to protect.”
That would make it a very unusual law, perhaps unique. Laws are never passed to protect the public, which is why they rarely do, and then only by coincidence. That’s just what is /said/ to be their justification.
Bastiat makes a great point in “The Law.” If protecting the public were really what’s going on, then it wouldn’t be a huge deal who runs the show to accomplish that. But we see that it /is/ a huge deal, and a major competition for the halls of power. This is because what it’s really all about, is plunder; they who hold the seats get to do the plundering. The incumbent socialist won’t be arguing with the hopeful fascist in the next election because they disagree about how to best protect the public. If they were, then we’d be winners no matter who got the office. As it stands, we’re losers either way, as their ability to plunder becomes the standard by which they’re measured.
December 10, 2011 — 10:10 am
Sandy Shore says:
RE: “But here’s the rub”…proclaiming, intending, and implementing are all very different concepts that, somehow, seem to get very confused in the minds of many politicians.
December 11, 2011 — 8:38 am
Robert Worthington says:
Do zip realty agents who closed no sales in 2010/2011 now qualify for housing assistant, free health care, food stamps, social security, and a zip realty pension?
December 16, 2011 — 10:33 am