Shifting to new companies
Termination of employment
An agent is leaving another company and coming to work for the broker. The previous broker is saying she will not release the agent until next month.
An independent contractor’s relationship with a broker-employer effectively exists on two different levels: the regulatory level governed by the Department of Safety and Professional Services (DSPS) and on the contractual level.
With respect to the DSPS, Wis. Admin. Code § RL 17.06 indicates that an agent is required to file the Notice of Termination of Employment of Broker or Salesperson Form #766 within 10 days after leaving the previous company. No fee is required. A licensee’s transfer from one broker or employer to another is effective upon the mailing of a completed Notice of Real Estate Employment Form #812 and a $10 fee payable to the DSPS. Forms are available from the DSPS at P.O. Box 8935, Madison, WI, 53708, (608) 266-5522, or online at drl.wi.gov/prof_docs_list.asp?profid=118&locid=0. A broker who has an agent leave is best served to also submit the Notice of Termination to assure the DSPS has notice of the termination.
On the contractual level, there may be other obligations associated with the process of ending the independent contractor relationship, for example giving advance notice of the termination date. Whether there are other contractual consequences resulting from the timing of the termination would have to be answered by the agent’s independent contractor agreement, office policy and any other applicable documents. The best practice for the agent is to read and review her documents before taking action.
See the March 2008 Legal Update, “Running a Real Estate Office, at www.wra.org/LU0803 and Legal Update 00.12, “Real Estate Office Management,” at www.wra.org/LU0012 for further information.
Commissions after termination
The agent is moving on to a new broker and wants to know how commission for pending transactions will be paid?
The entitlement to a commission in this situation depends upon the contract between the broker and agent, which can be the independent contractor agreement or company policy and procedures manual, for example. If the contract does not cover the situation, prior actions of the broker in this regard and the prevailing practice in the industry would be factors that would be considered if the matter went to court.
Wisconsin real estate statutes and administrative rules do not address commission policies between an employee or broker and a salesperson. This is an issue of contract law. If the former broker does not pay commission according to the terms of the agreement, the salesperson can attempt to have the dispute arbitrated at the local REALTOR® association, provided the previous broker agrees to arbitrate. This would be considered a voluntary arbitration under Article 17 of the Code of Ethics. If the former broker refuses to arbitrate, the salesperson can bring separate actions in small claims court for each commission due.
For more information, see page 10 of the March 2008 Legal Update, “Running a Real Estate Office” at www.wra.org/LU0803.
New real estate roles
Who hires a personal assistant?
The licensee is a broker associate working for a licensed real estate business entity. The licensee wants to provide an opportunity for an agent who is shifting gears by hiring the person as a licensed assistant and hanging the assistant’s salesperson’s license under his individual broker’s license. What are the rules regarding hanging a salesperson’s license under a broker who is hanging his license under a licensed real estate broker or business entity?
The license of a licensed personal assistant must be held by the employing broker or firm; in this case, the business entity. A licensed personal assistant needs to be engaged by the broker, as required per Wis. Admin. Code § RL 17.03(2). That rule indicates that a licensee, with a salesperson’s or a broker’s license, employed by and licensed with a broker may not, in turn, employ another licensee such as a licensed personal assistant. The broker or entity must be the one to engage and hold the license of the licensed personal assistant.
More information about licensed and unlicensed personal assistants is available in the January 1998 Legal Update, “New Personal Assistant Rules & Forms” at www.wra.org/LU9801.
What roles may a personal assistant play?
Two licensees have been talking and one is thinking of not renewing her REALTOR® membership. Can she go to work for her friend as a personal assistant? What would the agent, who has a salesperson’s license, be allowed to do as a licensed personal assistant? They are thinking that the salesperson could be an assistant to help at open houses, do showings, draft offers and otherwise cover in the broker’s absence.
As a person with a salesperson’s license, the agent may not engage in real estate brokerage services per Wis. Stat. § 452.02 without an employing broker. If the salesperson has her license held with the friend’s employing broker, the licensee may act as a licensed assistant and provide brokerage services according to the independent contractor or licensed assistant agreement with the broker. If the services are merely administrative in nature and do not include brokerage tasks such as conducting showings, negotiations, and drafting contracts, then the licensee could provide such services without having her license held with the broker. In such a case, the licensee would be working as an unlicensed assistant despite the fact that she does have her sales license.
Does the salesperson in the previous situation need to be a REALTOR®?
The broker or owner who is a member of the REALTOR® association and is the designated REALTOR® determines whether REALTOR® membership is a condition of employment for a licensed assistant. The licensee and the broker owner may review the company’s agreements and office policy to see whether REALTOR® membership is an office requirement and to whom it applies. If not required, agents and licensed assistants may continue to work for the broker - not as REALTORS®, but as licensees working for a REALTOR® broker. These agents and licensed assistants may not hold themselves out as REALTORS®.
The term used for these licensees is “salesperson assessments.” According to the dues formula, it is the obligation of the designated REALTOR® to pay fair share dues for each agent who does not individually pay REALTOR® dues, either as a REALTOR® member or as a salesperson assessment.
The agent’s access to the MLS is based on the MLS participant’s membership. In this case, that MLS participant is the broker. MLS fees are based on the number of licenses held with the MLS participant. Whether the agents are REALTORS® or not, the fee structure and access to the MLS remains the same.
More information about dues is available on page 11 of the July 2005 Legal Update, “MLS and Professional Standards,” www.wra.org/LU0507, and “The REALTOR®’s Dues Formula — A Fair Share” at www.realtor.org/mempolweb.nsf/pages/duesformulaarticle?OpenDocument&Login.
New approaches to referrals
Can a broker pay a referral fee to a person with a sales license who does not have an employing broker?
Wis. Stat. § 452.19 limits the payment of referral fees, finders fees and commission splits to persons licensed or registered in Wisconsin to practice real estate, or persons regularly and lawfully engaged in real estate brokerage in another state.
Referrals may be made to persons with either a sales license or broker’s license. If the licensee has his or her license held with a broker, the payment must be made through the employing broker. If the licensee is not affiliated with a broker, the referral fee may be paid directly to the licensee.
It is important to have any referral agreement setting forth the details, in writing, to eliminate confusion and disputes later on. There is no state-approved form to document a referral agreement. Tips for creating referral agreements are available in the January 2002 Legal Update “Getting Paid Outside the MLS” at www.wra.org/LU0201. Before entering into the referral agreement, it is prudent to confirm that the agent is active and eligible to practice on the DSPS Licensee Lookup at online.drl.wi.gov/LicenseLookup/LicenseLookup.aspx.
A broker is considering starting a separate “referral company” so licensed agents who are not currently practicing could give the broker referrals. What licensing and other issues must be addressed to make this happen?
The broker may consider creating a Limited Function Referral Office (LFRO). The REALTOR® dues formula provides that each designated REALTOR® is responsible for dues for each licensee affiliated with the broker. One exception to the dues formula is if the designated REALTOR® has an LFRO. An LFRO is a separate legal entity that the broker has to credential licensees who do referrals only. The entity is created and engaged exclusively to solicit and/or refer clients and customers, and the agents are not engaged in listing, selling, leasing, managing, counseling or appraising real property. See www.wra.org/lfroforbroker.
An LFRO is not required in Wisconsin for an agent to receive a referral fee. Wis. Stat. § 452.19 permits a broker to pay referral fees and finders fees to other Wisconsin licensees as long as that person’s license is active and regardless of the fact that the person holds a salesperson license rather than a broker license. The fact that the person is not currently employed by a broker is not relevant. Pursuant to Wis. Stat. § 452.14(3)(f), any referral fee received by an employed salesperson, whether licensed as a broker or a salesperson, in connection with a real estate transaction may be received by the salesperson only from the salesperson’s employing broker. A non-employed or inactive salesperson can however make a referral and receive a fee.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.