Realtors® and workers’ compensation: A reminder and a caution

The Pennsylvania Workers’ Compensation Act applies only to employees. Independent contractors are not covered.

There has, however, of late been a considerable degree of governmental scrutiny regarding independent contractors, such as the Construction Workplace Misclassification Act passed by the Pennsylvania Legislature in February of 2011. Should Realtors®, as prominent independent contractors, be concerned?

Generally, no; Realtors® benefit from a clear statutory exception and can feel more comfortable than most regarding their status as independent contractors. Nevertheless, there are specific requirements that need to be satisfied in order for the Realtor® exception of Section 321 of the Pennsylvania Workers’ Compensation Act to apply.

First, the exception applies only to licensed sales agents or associate brokers. Next, it applies only to those affiliated with a licensed broker with whom there is a written contract affirming the affiliation. Further, compensation must be paid solely on the basis of commission. Lastly, the licensed sales associate must otherwise qualify as an independent contractor under the federal or state tax codes.

If a Realtor® employs anyone not meeting these requirements, then workers’ compensation coverage must be obtained. Failure to do so is a criminal offense. It is generally graded as a misdemeanor III which is punishable by a $2,500 fine and/or one (1) year in jail. Further, the act provides that every day without coverage is a new violation.

And for those with coverage, a word of caution.  Directly hiring an employee is not the only way to become an employer. The statute provides that, in the event that a general contractor with coverage subcontracts part of his job to a subcontractor without coverage, an injured employee of that subcontractor may have a claim against the general contractor’s coverage.

Accordingly, any broker who has workers’ compensation coverage for non-agent personnel could, under certain circumstances, find themselves liable to people that they did not knowingly employ. For example, a licensed sales associate could hire someone to cover a couple of hours of an open house. If that person should happen to suffer an injury, the broker could find himself a “statutory employer” of that individual, liable for their injuries.

Given those facts, prior workers’ compensation case law might still have protected the broker, as actual occupation or control of the premises was required. That requirement, however, has recently been abrogated by the Pennsylvania Supreme Court in the case of Six L’s Packing Co. v. Workers’ Compensation Appeal Board.

While Realtors® are generally exempt under the Pennsylvania Workers’ Compensation Act as noted above; it’s good to remember that there are specific requirements for that exemption. Further, the direct exemption will not protect a broker from vicarious liability if the facts are right.