Saturday, March 5, 2016

Act 258: Real Estate Agents Will No Longer Be Able To Pursue Wage Claims

Given that most of my practice involves pursuing claims arising out of real estate transactions, most of my posts on 2015 Wis. Act 258 will consider the new two-year statute of limitations governing actions against real estate agents (see here, here, here, and here).  The Wisconsin REALTORS Association and their affiliates used fear of "frivolous" lawsuits to mobilize real estate agents to lobby their legislators to get this law passed.  Though I might have missed it, I do not recall the WRA alerting real estate agents that they would lose their right to pursue a wage claim under this new law.

Chapter 109 of the Wisconsin Statutes covers claims for unpaid wages.  The definition of "wages" includes "commissions."  See Wis. Stat. s. 109.01(3).  Indeed, my firm is currently pursuing a claim for unpaid wages on behalf of a commission salesperson.  Prevailing parties may be awarded reasonable expenses pursuant to Wis. Stat. s. 109.03(6), including reasonable attorneys' fees.  See Jacobson v. American Tool Companies, Inc.; Wolnak v. Cardiovascular & Thoracic Surgeons of Central Wisconsin; Johnson v. Roma II - Waterford LLC.  Prevailing parties may also be awarded additional penalties of 50% of the amount of wages due and unpaid pursuant to Wis. Stat. s. 109.11(2)(a).  In other words, if a real estate firm owes its agent $10,000 in unpaid commissions, the agent could be awarded an additional $5,000 penalty plus attorneys' fees.  The purpose of these provisions is to encourage wage claimants to bring meritorious claims and to help ensure that successful claimants are made whole.  See Johnson.

Unfortunately for real estate agents, Act 258 includes Sections 2D and 174:

Section 2d109.01 (1r) of the statutes is amended to read:
109.01 (1r) "Employee" means any person employed by an employer, except that "employee" does not include an officer or director of a corporation, a member or manager of a limited liability company, a partner of a partnership or a joint venture, the owner of a sole proprietorship, an independent contractor or person otherwise excluded under s. 452.38, or a person employed in a managerial, executive, or commissioned sales capacity or in a capacity in which the person is privy to confidential matters involving the employer-employee relationship.

Section 174452.38 of the statutes is created to read:
452.38 Independent contractor relationship. (1) Except as otherwise provided in s. 102.078, a licensee shall not, under ch. 102, 103, 104, or 109, under subch. X of ch. 71 or subch. II of ch. 111, under any other law or rule other than those specified under sub. (1m), or in any action or proceeding under the common law, be considered an employee of a firm if all of the following are satisfied:
(a) A written agreement has been entered into with the firm that provides that the licensee shall not be treated as an employee for federal and state tax purposes.
(b) Seventy-five percent or more of the compensation related to sales or other output, as measured on a calendar year basis, paid to the licensee pursuant to the written agreement referenced under par. (a) is directly related to the brokerage services performed by the licensee on behalf of the firm.
(1m) This section does not apply with respect to ch. 108 or any rules promulgated thereunder.
(2) (a) Subsection (1) applies notwithstanding the requirements and responsibilities of a firm under s. 452.132 and any rules promulgated by the board.
(b) Subsection (1) applies regardless of the licensee's status as a supervising broker under s. 452.132 and any actions taken by the licensee as a supervising broker under s. 452.132.
(3) In the case of an individual who is engaged as both an independent contractor and an employee for the same firm, sub. (1) applies only with respect to activities covered under the written agreement referenced under sub. (1) (a).

In short, real estate agents do not qualify as "employees" under the wage claim statutes (and therefore have no right to pursue a claim for unpaid wages under these statutes) as long as they signed an independent contractor agreement with their firm and earn at least 75% of their compensation from providing brokerage services.

I acknowledge that real estate agents might have never been covered by the wage claim statutes.  The definition of "employee" under Wis. Stat. 109.01(1r) already excludes "independent contractors," and I have not found any reported case involving a real estate agent making a claim for unpaid commissions.  That being said, the inclusion of these changes in Act 258 means that at least some real estate firms feared that their agents could sue under the wage claim statutes for unpaid commissions.  Thanks to the tireless lobbying of real estate agents, the law is now crystal clear that the vast majority of real estate professionals in this state have less protection against getting stiffed on their commissions than used car salesmen.