Whitlach v. Premier Valley, Inc., 86 Cal. App. 5th 673 (2022)

James Whitlach, a real estate agent, brought a PAGA suit against Premier Valley, Inc. dba Century 21 MM and Century 21 Real Estate, LLC (collectively, “Century 21”). Whitlach alleged that Century 21’s real estate agents were misclassified as independent contractors. The Court of Appeal affirmed the trial court’s holding that Section 650 of the Cal. Unemp. Ins. Code, rather than the ABC test or Borello, was the proper test for classification of real estate agents because of AB-5’s exemption for real estate licensees. Accordingly, real estate licensees are independent contractors if: (1) “substantially all” of their remuneration comes from sales; and (2) the written contract provides that the licensee is an independent contractor. Examining legislative history, the Court of Appeal explained this meant that Century 21’s real estate licensees “as a matter of law” were independent contractors and not employees. The Court of Appeal rejected Whitlach’s arguments that the statute was unconstitutional and that the contract was unconscionable. As to the first point, real estate agent contracts are unique and thus the legislature could have rationally decided that their unique nature warranted an exemption. The contract was also not unconscionable because the statute expressly permitted the designation of real estate agents as independent contractors. Because PAGA claims can only be brought by “aggrieved employee[s],” the claim was properly dismissed.