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Re/Max of New Jersey, Inc. v. Wausau Ins. Companies

May 9, 1997

RE/MAX OF NEW JERSEY, INC., A CORPORATION OF THE STATE OF NEW JERSEY; RE/MAX RESULTS REAL ESTATE, INC.; LADEN CORP. T/A RE/MAX REALTY EXPERTS; RE/MAX FUTURE REAL ESTATE PROFESSIONALS, INC.; O. HERRARA, INC., T/A VILLA REALTORS, PLAINTIFFS,
v.
WAUSAU INSURANCE COMPANIES; AETNA LIFE & CASUALTY AND NEW JERSEY RE-INSURANCE COMPANY AND PENNSYLVANIA NATIONAL INSURANCE COMPANY, DEFENDANTS V. THE TRAVELERS INSURANCE CO., PLAINTIFF, V. COMPREHENSIVE REALTY CO., RE/MAX TRI COUNTY, DEFENDANTS.



Gibson, J.s.c.

The opinion of the court was delivered by: Gibson

GIBSON, J.S.C.

These are consolidated cases in which Re/Max of New Jersey and several of its franchisees seek a declaratory judgment that their sales agents be deemed independent contractors for the purpose of calculating workers' compensation premiums. Defendants are various insurance carriers which have supplied workers' compensation coverage to plaintiffs. The carriers contend that the agents should be deemed employees. This issue appears to be one of first impression and is before the court procedurally based on stipulated facts and cross motions for summary judgment.

FINDINGS OF FACT

Plaintiff, Re/Max of New Jersey, Inc. (hereafter Re/Max) is a subfranchiser of Re/Max International Inc. The various Re/Max offices in New Jersey are franchisees of Re/Max of New Jersey. All are engaged in the business of providing real estate services to the public. Defendants, Employers Insurance of Wausau, Aetna Life & Casualty, Travelers Insurance Company, New Jersey Re-Insurance Company and Pennsylvania Insurance Company (hereafter carriers) are the insurance companies which service the Re/Max offices. At some point, each of those carriers determined that Re/Max agents should be considered employees for purposes of the workers' compensation act and began to charge premiums accordingly. Plaintiffs objected and contended that the agents were independent contractors. Unable to resolve those differences, this action was instituted.

Each of the Re/Max offices in New Jersey consists of a licensed broker and at least one sales agent. As part of the franchise agreement, all Re/Max brokers are required to have their sales agents sign an "Independent Contractor Agreement" which sets forth their rights and obligations and contains a variety of provisions intended to underscore the agents' independent contractor status. Included among those provisions is the agent's right to set his own hours, engage in his own advertising and to enjoy the benefits of the so-called "100% Concept". Under the 100% Concept, Re/Max agents are entitled to retain the entire commission earned from any sale rather than splitting the commission with the broker, as is common in other real estate agencies. In consideration of the agent's services and the fees paid, the broker agrees to make available, on a non-exclusive basis, office and desk space plus access to listings, forms, telephone and other means of communication.

Although Re/Max agents are not required to share a commission, the agents are obligated to pay to the broker a variety of fees and expenses. Those sums include a security deposit, a one-time initiation fee and a monthly management fee representing a proportionate share of the office expenses. The office expenses include so-called fixed expenses (proportionately shared among the agents), miscellaneous shared expenses and finally personal expenses such as postage and advertising. The actual amount of the monthly expenses may vary from agent to agent and from month to month. At times, individual agents may not generate enough sales to meet their monthly expense obligation. To accommodate those situations, Re/Max offers an Alternative Payment Program which allows agents to reduce the amount they need to pay toward monthly expenses by taking an advance against future commissions.

Re/Max agents generally work full time, but they are not compelled to spend any minimum amount of "floor time" in the office. They also supply their own vehicle and control their own advertising but all advertising must include the Re/Max logo and name and conform with other guidelines. Franchisees hold regular meetings to inform agents regarding real estate topics, but attendance is voluntary. Agents are also required to maintain their personal appearance and provide dependable, efficient, courteous and professional service and Re/Max retains the right to immediately terminate any agent for cause; either party may terminate without cause upon sixty days written notice.

All Re/Max agents agree to work exclusively for the Re/Max office, to maintain his loyalty to Re/Max and to abide by the various statutory requirements of the Real Estate Brokers and Salesman Act, N.J.S.A. 45:15-1 through - 29.5. In accordance with that Act, it is only the broker that can bring an action to collect a commission. Although plaintiffs contend that the broker simply acts as a conduit, the consequences are the same; that is, no agent has the ability to enforce a commission agreement without the help of the broker. Finally, although the actual control exercised varies among offices, the agreement gives the broker the right to supervise and control the performance of every agent.

ConclusionS OF LAW

Before addressing the merits, it should be noted that the purpose of a declaratory judgment is to end uncertainty about the legal rights and duties of parties to litigation. N.J. Assoc. for Retarded Citizens v. N.J. Dept. of Human Services, 89 N.J. 234, 241, 445 A.2d 704 (1982). Although courts will not render an advisory opinion or function in the abstract, declaratory relief is appropriate when there is an actual dispute between parties and those parties have a sufficient stake in the outcome. Both of those elements are satisfied here and all parties agree that relief under the Declaratory Judgment Act is appropriate. N.J.S.A. 2A:16-50 to 62.

As for the merits, given the fact that the financial benefits under the workers' compensation act extend only to employees, N.J.S.A. 34:15-1, the question of whether a Re/Max sales agent is an employee or an independent contractor is crucial to the determination of whether the brokers are required to maintain coverage and, in turn, whether these carriers may legitimately include the agents in calculating premiums. Kertesz v. Korsh, 296 N.J. Super. 146, 152, 686 A.2d 368 (App. Div. 1996). See generally, 38 New Jersey Practice, Worker's Compensation Law § 5.1 through § 5.9 (1994). Although there are no reported cases which have decided this issue, this court is not without guidance. For example, under the Worker's Compensation Act, the term "employee" is given a broad definition and includes "all natural persons ... who perform services for an employer for financial consideration." N.J.S.A. 34:15-36. It is also clear that the term "employee" is to be liberally construed so as to bring as many persons as possible within the coverage of the Act. Hannigan v. Goldfarb, 53 N.J. Super. 190, 195, 147 A.2d 56 (App. Div. 1958). As a consequence, a variety of working relationships have been held to be covered by the Act, including those not necessarily confined to traditional employment settings. Ibid; Marcus v. Eastern Agricultural Ass'n, Inc., 58 N.J. Super. 584, 590, 157 A.2d 3 (App. Div. 1959), rev'd on Dissent, 32 N.J. 460 (1960).

In addressing the employee/independent contractor issue in other factual settings, our courts have applied two tests; the so-called "control test" and the "relative nature of the work test." Ibid; Tofani v. LoBiondo Brothers Motor Express Inc., 83 N.J. Super. 480, 484-92, 200 A.2d 493 (App. Div.), aff'd o.b., 43 N.J. 494 (1964). The "control test" is the older of the two and, in general, is based on the notion that when an individual is an independent contractor, that person carries on an separate business and contracts to do work according to his or her own methods, without being subject to the control of an employer, except as to the results. When the relation is that of employer and employee, on the other hand, the employer not only retains the right to control what is done but also to direct the manner in which the work is completed. Kertesz v. Korsh, supra, 296 N.J. Super. at 152 citing Cappadonna v. Passaic Motors, Inc., 136 N.J.L. 299, 55 A.2d 462 (Sup. Ct. 1947), aff'd, 137 N.J.L. 661, 61 A.2d 282 (E. & A. 1948). Significantly, our courts have held that the "control test" is satisfied so long as the employer has the right of control, and it is not necessary to prove its actual exercise. Brower v. Rossmy, 63 N.J. Super. 395, 405, 164 A.2d 754 (App. Div. 1960), certif. denied, 34 N.J. 65 (1961).

As for the "relative nature of the work test", not only is it the more modern of the two, it is also believed to be the more realistic test in terms of the objectives of the workers' compensation act, Kertesz v. Korsh, supra, 296 N.J. Super. at 154; 1 Larson, Workmen's Compensation Law, ยง 43.50 at 8-10. ...


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