It's a safe bet that a good many California real estate brokers are unaware of the Christmas gift that the U.S. Supreme Court recently placed under the tree for them. (Of course, it's also a gift for those in any other state that may have courts like California's.)
The decision was handed down on December 14, this year. The case,DIRECTV v. Amy Imburgia, et al., involved an arbitration clause in the service agreement between DIRECTV and its customer(s). What could this possibly have to do with real estate brokerage practices?
For many years the contracts entered into between real estate salespersons and their brokers have contained an arbitration clause that stipulated an agreement between the parties saying that any irresolvable dispute between them would be submitted to arbitration rather than going to court. Then, in the spring of 2011, a California Court of Appeal (Fourth District) struck down that portion of the contract. Also held unenforceable by California courts was a "class-action waiver", commonly included in an arbitration provision. A class-action waiver provides that the parties agree that any claim of one against the other will be pursued on an individual basis and not on behalf of or as a part of any purported class.
As a result of those court actions, according to a February, 2015, memo from the legal department of CAR (California Association of REALTORS®), "Since then, Brokers have been subject to costly class action lawsuits challenging salespersons status as independent contractors." These were not small potatoes issues. Actions were brought against large brokerages seeking to establish classes of present and past agents that would have run into the thousands. There have been some settlements, but so far none of these cases has been successful. Still…
Earlier this year, CAR®'s Standard Forms Committee published an optional Independent Contractor Agreement (between broker and salesperson) that contains an arbitration provision and a class-action waiver. (An I.C.A. without those provisions is still available.) The CAR Legal Department notes that, "The new clause has been drafted to address both the requirements of the 2011 case and other cases regarding class action waivers." For example, "Broker will pay all costs of the Arbitration that are in addition to or in excess of the amount that a party would need to pay if he/she filed a case in a court of law." (Does not include attorney fees.) But the memo that accompanied the form release also says, "Although C.A.R. carefully drafted the clause to try and ensure its enforceability, this area of the law is in flux."
In the DIRECTV case, the Supreme Court -- to borrow language from other venues -- pretty much spanked the California Courts for their resistance to its ruling on arbitration issues. In DIRECTV it upheld an arbitration clause containing a class-action waiver. This would suggest that CAR's Independent Contractor Agreement may well survive legal challenge. That would be good news for brokers. Merry Christmas!