Question: Is the designated officer on a corporate real estate license liable for the actions of the agents and brokers employed by the corporation?
Answer: Yes, the designated officer is liable — but only to a certain extent.
The designated officer (DO) is the individual who is the licensed officer qualifying a corporation for a corporate broker license. A designated officer is also known as the broker of record.
A corporation license is different and distinguishable from an individual broker license, just like an entity is distinguishable from an individual. An individual acts on their own or through an agent, but a corporation can act only through an agent who is an individual.
The designated officer is responsible for the supervision of sales agents and broker-associates licensed to the corporation in their actions for which a real estate license is required. The officer is also responsible for control of the activities its officers and employees conduct on behalf of the corporation. [Calif. Business and Professions Code §10159.2(a)]
However, a designated officer may assign supervisory responsibility over its sales agents to the corporation’s licensed broker-officers. [Calif. Bus & P C §10159.2(b)]
When responsibility is assigned to a broker-officer, the designated officer needs to file a certified copy of the resolution assigning responsibility with the California Real Estate Commissioner within five days of adopting the resolution. [Calif. Bus & P C §10159.2(c)]
Liable to whom?
A real estate agent or broker-associate is always an employee of the broker under California’s labor law. Therefore, the broker is liable as an employer for their agent’s conduct. This is true even if an independent contract agreement is used to document the employment, since the agent may not act independently of the broker.
But who is the designated officer liable to? The law mentioned above is ambiguous on this.
In California, this question was recently clarified by a 2012 case, in which individuals sought to hold a corporation’s designated officer liable for the misconduct of their employee, a sales agent.
The designated officer was responsible for supervising the agents employed by the corporation. The officer did not properly supervise employees, effectively “lending” their license to the corporation. A sales agent employed by the corporation misrepresented and misused funds lent to the corporation by a family trust, resulting in the loss of the trust’s money. The designated officer had no knowledge of and did not participate personally in the agent’s misconduct.
The clients sought to recover the money lost from the agent and the corporation’s designated officer. The court agreed the officer was not responsible for the agent’s actions since they did not personally participate in the agent’s misconduct.
The court came to this decision by interpreting California law as the designated officer’s responsibility being to the corporation — not to its clients. Thus, the clients cannot hold the designated officer liable for the actions of the corporation’s employee. [Sandler v. Sanchez (2012) 206 CA4th 1431]
So what does happen when a designated officer does not supervise the corporation’s employees?
Failure to reasonably supervise employees is grounds for the Real Estate Commissioner to suspend or revoke the designated officer’s real estate license. [Calif. Business and Professions Code §10177(h)]
During February 2017, the Real Estate Commissioner took disciplinary action in four separate cases of designated officers failing to supervise their employees.
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