Recent Ruling Leaves Agent-Broker Liability Questions
Question: In real estate school we were taught that under Arizona law a real estate agent was an employee of the broker. The reason was that the broker was required to reasonably supervise all real estate agents under the license of the broker. Therefore, the broker as the employer was liable for all wrongful acts of the real estate agent. An Arizona court recently ruled, however, that a real estate agent is legally an independent contractor, and not an employee. Therefore, the broker has no liability for the acts of the real estate agent. Has the law we learned in real estate school changed?
Answer: The law today is unclear. On August 23, 2016, the Arizona Court of Appeals ruled that a broker had no liability for the negligence of a real estate agent who crossed a median and caused a fatal automobile accident after leaving a listing appointment. The Arizona Court of Appeals said that there was no liability of the broker because this real estate agent is an independent contractor, not an employee. Whether this ruling will apply to wrongful acts by a real estate agent acting specifically as a real estate agent (e.g., forging a deed or failing to disclose a leaky roof) is unclear.
The Effect of Independent Contractor Agreements for Real Estate Agents
Most real estate agents sign an independent contractor agreement (“ICA”) with the brokerage firm rather than an employment agreement. ICAs are generally viewed by courts not as evidence of a real estate agent’s independent contractor status, but as a simple formality to avoid payment by the brokerage firm for a real estate agent’s unemployment taxes, worker’s compensation, and employment/withholding taxes. Therefore, additional terms included in an ICA will generally have little effect. Instead, courts look to whether evidence of a brokerage firm’s lack of control over a real estate agent can be shown to categorize a real estate agent as an independent contractor.
Below is a summary of the facts from this recent Arizona Court of Appeals ruling, which should at least be helpful to use as a guideline for a more limited agent-broker relationship in the ICA relating to liability for a real estate agent’s (or salesperson’s) negligent driving:
The brokerage firm requires the salesperson to carry auto insurance; salesperson, a licensed professional, drives his own car; salesperson works from his own home office; salesperson works purely for commission; salesperson sets up his own appointments; salesperson has complete discretion in time, manner, and means for travel to meet clients and is otherwise classified as an independent contractor for tortious liability. Santorii v. MartinezRusso, LLC 240 Ariz. 355 (2016).