Form-of-the-Week:

Agent and Broker-Associate Employment Agreements — Forms 505 and 506

Public release of a broker’s licensed employees

As common knowledge within the profession, a real estate broker hiring other licensees to act on their behalf enter into written agreements with each of the associate-licensees they employ to act as their agents. The employment agreement covers material aspects of the employment relationship between the broker and their sales agent or broker-associate. The employment agreement sets the parameters for the conduct of both — and their fee sharing arrangements.

Any individual, sales agent or broker, licensed by the California Bureau of Real Estate (CalBRE) licensee and acting on behalf of a broker, is both an employee and an agent of the employing broker. Thus, any licensee hired by a broker interacts with members of the public under the mandate they are to be continuously supervised by the broker, whether they are a salesperson or broker-associate. Of importance is the concept they represent the broker when acting as an agent of the broker, never independent of their employing broker (except for broker-associates if permitted by their employing broker). [Calif. Civil Code §2079.13(b)]

All CalBRE licensed brokers fall into categories distinctly different from licensed salespersons. Brokers, unless they hold themselves out as a broker-associate employed by a broker when negotiating a transaction on behalf of a client, are authorized to independently deal directly with members of the public. Only they as brokers are authorized to offer, contract for and render brokerage services on the client’s behalf for compensation, called licensed activities. Sales agents never are, nor are brokers when holding themselves out as a broker-associate. [Calif. Business and Professions Code §10131]

A real estate agent and a broker-associate when dealing with members of the public as a licensee are required to present themselves as an agent acting on behalf of their employing broker. Agents of an employing broker may not contract in their own name or on behalf of anyone — including other brokers with the sole exception of those broker-associates whose employment agreement so permits — other than in the name of their employing broker.

Further, a sales agent may not seek or be employed by a person who is a member of the public — they are not a broker. This is the reason a sales agent’s or broker-associate’s license is handed to the employing broker, who retains possession of the license until the licensee leaves their employ (unless the broker-associate has been authorized to work with other brokers under their employment agreement). [Bus & P C §10160]

A sales agent may perform brokerage services only when they are acting as a representative of the broker who employs them — evidenced by a writing. Only a licensed broker is authorized to contract for and render services on behalf of members of the public, be they clients or customers. [Grand v. Griesinger (1958) 160 CA2d 397]

Further, a sales agent and a broker when acting as a broker-associate may only receive compensation for their real estate-related activities from their employing broker. A sales agent may not receive compensation directly from anyone else (e.g., an owner, buyer, another licensee, mortgage lender or tenant), much less illegal kickbacks. [Bus & P C §10137]

Thus, brokers are legally the agents of the members of the public who employ them, while a broker’s sales agents and broker-associates are the agents of the agent — the individuals who render services for the broker’s clients by acting on behalf of their broker. [CC §2079.13(b)]

As a result, employing brokers are responsible for all the activities their sales agents and broker-associates carry out within the course and scope of their employment with the broker. [Gipson v. Davis Realty Company (1963) 215 CA2d 190]

The agent’s and broker-associate’s right to compensation

Most sales agents and broker-associates receive compensation from their employing brokers based on a negotiated percentage of contingency fees received by the brokers for completed sales, leases or mortgages solicited, negotiated or processed by these employed licensees.

Here, an agent’s or broker-associate’s right to a fee arises under the licensee’s written employment agreement with their broker, not a listing agreement the client entered into with the broker as negotiated by the agent or broker-associate (since the ownership of the listing agreement and its commercial advantage is held by the employing broker, not the employed licensee who negotiated the listing). Thus, the agent or broker-associate of the employing broker may not pursue collection of a fee from the client; only the employing broker may. Through the broker-agent employment agreement, the employed licensee is entitled to a share of the fees received by their broker on sales, leases or mortgage originations in which they participated.

A real estate broker is required to have a written employment agreement with each of the licensees acting on their behalf  —available on audit by the CalBRE. The agreement covers material aspects of the employment relationship between the broker and their sales agents or broker-associates.

Realty Publications, Inc. (RPI) publishes two employment agreements used by a broker employing a licensee to perform agency duties on the broker’s behalf. These employment agreements are:

  • Sales Agent and Broker-Associate Employee Agreement [See RPI Form 505]; and
  • Independent Contractor Employment Agreement — For Sales Agents and Broker-Associates. [See RPIForm 506]

Brokers typically negotiate fee sharing arrangements structured as an independent contractor (IC) agreement to document their employment of agents. [See RPI Form 506]

Alternatively, brokers may choose other pay and tax withholding arrangements documented by an employee agreement form. [See RPI Form 505]

An IC employment agreement, in contrast with an employee agreement form, is used solely to avoid federal and state withholding and employer contributions by real estate brokers. [See RPI Form 506 §2.13]

Regardless of the written employment agreement used and signed by the agent, the broker and agent are CalBRE compliant.

Despite the labels given to these employment forms, an agent or broker-associate is always an employee of the broker under California’s labor law and real estate law. Thus, the broker is liable as an employer for their agent’s wrongful conduct during the agent’s exercise of its employment with the broker.

Even if an IC agreement is used to document the employment, a sales agent may not act independent of the broker when interacting with members of the public rending services requiring a broker’s license. The broker employing agents or broker-associates using an IC agreement is not released from their duty to supervise their agents and broker-associates, as well as the labor law requirement they maintain a worker’s compensation policy. [See RPI Form 506]

Both RPI employment agreements include provisions covering:

  • broker supervision of associate-licensee activities;
  • associate-licensee obligations owed to their broker, including providing auto insurance coverage and naming the broker as an additional insured;
  • broker obligations owed to the associated licensee, including maintaining membership in professional organizations agreed to, providing worker’s compensation insurance;
  • the broker’s obligation to notify the CalBRE in writing of the employment and termination of the broker-licensee hired as a broker-associate;
  • duties owed to clients and the public; and
  • associate-licensee compensation. [See RPI Forms 505 and 506]

Both types of employment agreements require all documents and funds received on listings and sales negotiated for a client on behalf of the broker to be entered into and taken in the name of the broker.

Also, all advertising and business cards identify the agent as acting for the broker as an associate-licensee.

Further, associate-licensees are subject to supervision by their broker since employing brokers are mandated to actively manage their brokerage business. This CalBRE mandated supervision cannot be contracted away or eliminated by use of an IC employment agreement. Thus, a broker may not permit their agents to have unsupervised discretion in their handling of client listings or negotiating sales, leases or mortgages.

New broker-associate reporting hits January 1, 2018

On or before January 1, 2018, California Bureau of Real Estate (CalBRE)-licensed real estate brokers who employ other brokers, called broker-associates, are required to notify the CalBRE in a mailed, printed writing regarding:

  • agreements they have entered into with individual brokers employing them as associates to act on behalf of the employing broker in the capacity of agents [See RPI Forms 505 §3.10 and 506 §3.10]; and
  • termination of the employment of a broker-associate. [Calif. Business and Professions Code §10161.8(a)-(b); see RPI Forms 505 §3.10 and 506 §3.10]

To notify the CalBRE a broker-associate has been employed (or is presently in the broker’s employment), the employing broker fills out and mails CalBRE Form RE 215, as required by law and in employment agreements. [See RE Form 215; see RPI Forms 505 §3.10 and 506 §3.10]

Employing brokers who entered into employment agreements with broker-associates prior to January 1, 2018 file an RE 215 for every broker-associate still currently employed. For this retroactive reporting, employing brokers enter the date of the broker-associate’s written employment agreement as the date of employment in RE 215.

Willful failure to file is considered a misdemeanor violation of the Real Estate Law, thus exposing the employing/responsible broker to fines, disciplinary action and/or imprisonment. [Bus & P C §10185]

Related article:

 

Your guide to the new CalBRE broker-associate reporting requirement

 

Presently, no California real estate law or CalBRE regulation limits the broker-associates’ ability to work for multiple employing brokers, or for their own account as an independently operating broker.

Instead, employment agreement provisions limiting brokerage activities will determine the extent to which a broker-associate’s involvement in fee-generating brokerage services, other than on behalf of the employing broker, are permitted. [See RPI Forms 505 and 506]

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