Freelance Isn’t Free Act fuels surge in lawsuits - part 2 - by Andrew Lieb

To read part 1 click here.

The Freelance Isn’t Free Act is rarely litigated in isolation in the complex dynamic between brokers and agents. Instead, it typically starts with a fight over money and takes off from there. Agents often also advance claims under the NYS/NYC Human Rights Law, which protects non-employees from discrimination at work; Labor Law §740, that protects whistleblowers from retaliation; and misclassification where an agent claims that they were an employee entitled to unpaid wages and other damages. On the other hand, brokers argue breach of contract, including breach of restrictive covenants [non-disclosures, non-competes, non-solicitations]; golden handcuffs [training repayments (a/k/a, training draws); marketing claw-backs; commission cram-downs (a/k/a, drop-downs)]; intellectual property and domain name rights; post-termination rights to listings, buyer brokerage agreements, and client / customer lists; and indemnification provisions. Broker’s breach claims are non-statutory and consequently they are unique to each specific independent contractor agreement, supplemental agreement, side letter, and policy and procedure manual (a/k/a, handbook).

Back to the statutes, as to misclassification, the fact that a broker identified an agent as an independent contractor is irrelevant to the claim. According to the National Employment Law Project, 10% to 30% of purported independent contractors are misclassified. Albeit real estate brokerage does offer a safe harbor for classifying agents as independent contractors in the Federal Internal Revenue Code and the New York State Labor Law (i.e., the agreement must have been executed within the past 12 to 15 months, amongst others). Assuming no safe harbor, misclassification is determined by the federal “economic realties test” and the NYS “control test”. Under these tests, if the broker exerts too much control over the results and means of the job, a misclassification occurred whereby the agent can claim back wages, liquidated damages (2X missed wages), and attorneys’ fees.

Next up is discrimination, where the NYS/NYC Human Rights Law protects non-employees and independent contractors, respectively. As such, a broker may not discriminate against an agent based on protected class (race, age, religion, sex, etc.). Discrimination occurs in many forms, such as an adverse action, a hostile work environment, a quid pro quo for sexual favors, or disparate impact. Available damages include emotional distress, front pay, back pay, attorneys’ fees, and more.

Next is whistleblowing, under Labor Law §740, which prohibits retaliating against an agent who “(a) discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that the employee reasonably believes is in violation of law, rule or regulation or that the employee reasonably believes poses a substantial and specific danger to the public health or safety; (b) provides information to, or testifies…; or (c) objects to, or refuses to participate in any such activity, policy or practice.” If retaliation occurred, the agent can seek an injunction, reinstatement, front pay, back pay, attorneys’ fees, civil penalties, and punitive damages.

As you can see, agent-broker litigation is quite complex.

Andrew Lieb is managing partner at Lieb at Law, P.C., Smithtown, NY.