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Question: How long does an employing broker have before they are required by law to disburse a fee earned by an employed agent or broker-associate?

Answer: The time allowed varies based on the signed employment agreement.

When a broker licensed by the Department of Real Estate (DRE) employs a sales agent or broker-associate, the broker and employee are required to enter into a signed employment agreement. This agreement spells out the fee sharing structure, including the timeline for payment of the agent’s share of fees received by the broker. [Regulations of the Real Estate Commissioner §2726; see RPI Form 505]

A broker using RPI (Realty Publication Inc.)’s Independent Contractor Employment Agreement agrees on receipt of a fee to disburse the agent’s share of the fee as soon as practical after the agent’s completion and submission of the transaction file which generates the fee. [See RPI Form 506 §5.1]

Some brokers instruct and authorize escrow to disburse to the agent the amount of fees due the agent from the broker on the transaction. These fees, for example, accrue to the broker on the close of a sales escrow. However, one downside for the employing broker is this “through escrow system” of payment leaves the broker without adequate records for mandatory IRS 1099 and workers’ compensation reporting and audits. [See RPI Form 524]

How does payment work when a sales agent or broker-associate is fired or quits before a transaction closes?

When an agent quits or is fired before a transaction closes, the employment agreement controls the exact procedure of fee disbursement. In some agreements, it is specified that no fee is due to an agent whose employment is terminated mid-transaction.

However, when the agreement does not specify how the agent is to be paid (or not paid) should they quit or be fired before the transaction closes, the broker may be required to pay the agent a portion of their earned fee remaining after offsets. [Watson v. Wood Dimension, Inc. (1989) 209 CA3d 1359]

Editor’s note — For the small share of agents who are classified as regular employees (not independent contractors), their employing broker is required to establish regular twice-monthly paydays. [Lab C §§204(a), 3357]

What happens when a broker does not pay their agent within the agreed-upon timeframe?

When a broker does not pay their sales agent or broker-associate within the agreed-to timeline, the agent may turn to the Labor Commissioner for collection assistance. [Lab C §§200; 206]

The sales agent may also take their broker to court to pursue unpaid agent fees. But if their signed employment agreement requires the agent and broker to pursue arbitration in lieu of court, they are required to arbitrate, despite the dangers of arbitration.

Editor’s note — As a matter of policy, Realty Publication, Inc. (RPI) forms do not contain arbitration provisions.

Sales agents and broker-associates who are not paid in a timely manner consistent with their employment agreement may contact their local Labor Commissioner’s Office.