Can agents be terminated for any reason?

by Will Mendelson

Can agents be terminated for any reason?

The question of ethics is an issue that agents face in both their personal and professional lives. Last November, the NAR board OK’d a hate speech rule, noting that Realtors who use harassing or hate speech outside of work and in their personal lives/social media could face fines by the National Association of Realtors. And recently, a local real estate broker participating in the group that “stormed” the U.S. Capitol in Washington, D.C was fired by her brokerage for her actions. And not only that, but both NAR and Illinois Realtors denounced the violence.

“With regard to recent activities at the U.S. Capitol, Illinois Realtors echoes the sentiments and comments of National Association of Realtors’ President Charlie Oppler, and denounces the violence we witnessed in Washington, D.C., on Jan. 6 as an assault on our nation’s centuries-old observance of peaceful protests and the peaceful transfer of power,” Illinois Realtors General Counsel and Vice President of Legal Services Betsy Urbance told Chicago Agent in a statement.

This raises the question: As most brokers are independent contractors, what are their rights in Illinois when it comes to their employment security?

Real estate agents are often treated as independent contractors, and so assuming they are correctly classified as independent contractors, their rights and responsibilities come down to what the independent contractor agreement says,” Walker R. Lawrence, partner at Levin Ginsburg, told Chicago Agent. “As a general matter, independent contractors are not protected by most employment laws because they are not employees. There are exceptions to that. When the Illinois Human Rights Act was amended in 2019 in response to the “ Me Too” movement, that law was changed such that employers are now responsible for claims under the human rights act, even if the victim is a third-party, non-employee. So what does that mean in the context of an agent? A real estate brokerage house cannot likely make a decision that would be discriminatory against a real estate agent even though they are a non-employee.”

When asked about the specific incident of the real estate agent losing her job after posting social media selfies taken at the Capitol’s raid, Lawrence explained that the agent likely violated a specific clause in her contract with her brokerage.

“It is highly likely that the agent’s contract had a clause in it that effectively said that if you engage in activity that damages the reputation of the brokerage, they have the right to terminate immediately,” he explained. “Real estate broker agreements often have that cause, because as an agent, you represent that brokerage. In this specific case, it is likely there was a contractual cause that enabled the firm to make this decision and why they have been so comfortable broadcasting it.”

Urbance echoed Lawrence, citing that an agent must carefully look at the agreement he or she signed with the respective brokerage. “Regarding questions about a real estate broker’s participation in the events at the U.S. Capitol, and whether they should be fired and/or lose their real estate licenses; answers will depend upon the specific facts of each case,” Urbance said. “For purposes of their hiring and firing, these matters will be governed by the terms of the contractual agreement between the sponsoring brokerage company and the licensee. Typically, the contract defines an independent contractor relationship between the broker and their company. Both the company and the broker are contractually bound to the other and it is common that one can terminate the relationship with or without cause depending on specific contract provisions. The brokerage company also has written policies and procedures to which the affiliated licensee must adhere. Breaches of company policy, procedure or contractual obligation can all be grounds for termination. Criminal charges can be grounds for termination, and some criminal convictions can be grounds for real estate license termination. Specific facts must be addressed in the context of the applicable contracts, policies and laws.” 

Another lingering question is what happens regarding an agent’s residual compensation from sales he or she has made, but are then fired. And again, Lawrence explains, it comes down to what the contract says.

“In legal terms it’s called “the procuring cause” — the broker was the procuring cause of the sale,” Walker said. “And so even though they terminated the agreement, everything was completed for the sale and therefore they are entitled to that money. This is not always clear cut, which is why this is an issue and is often litigated. Anything that could be done in which the commission has been completed and you’re just waiting to get paid, there are some legal instances where you should still be paid for it. In the litigation that occurs, that is most often the biggest dispute. So let’s say you get terminated on Jan. 1 and the sale closes on Jan. 2, and you were the one who did that, it seems unfair you don’t get that commission. And that’s where you get litigation. But if the contract was terminated for cause, special rules apply for getting paid commissions that are outstanding.”

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