Blog / Time Management
Greg Jemmeson, What's your legal position?
The real estate industry is tightly regulated. Agents, agency owners – anyone working in the industry must keep up to date with changes in compliance and the legal landscape. Greg Jemmeson is a real estate law specialist from the Sydney legal and accounting firm, Jemmeson & Fisher and in this article, he explains exactly how restriction of trade operates in the real estate sector and how the status of people working in agencies affects their legal rights.
Question: What happens when an agent leaves a business and goes to work with another agency in the same area? Can that agent be restricted from working?
Greg explains:
In the past, it has been a general principle in the real estate industry and in industry in general, that a restraint of trade is against public policy and is generally unenforceable. In other words, it has not been possible to restrict a person from trading. The law has regarded people as being entitled to earn a living and as long as people are not using the confidential information of their former employer, they have, generally, been allowed to go about their work. However last year in the New South Wales Supreme Court, a restraint of trade was upheld against a former real estate salesperson. In this particular case, the Supreme Court upheld a six-month and five-kilometre restraint of trade on an individual real estate agent, saying it was reasonable to protect the previous real estate employer’s confidential information.
Interesting questions about this case are why is this so different from what’s the norm in the industry and, does it mean restraints will be upheld in the future against all agents and what needs to be taken into account? For many, many years Principals of agencies have been told, ‘There’s nothing you can do about it; you can’t prevent the agent who has left to continue working in your area and from earning a living. Just let it go’. In this case last year in the Supreme Court, the particular Principal had had it happen to him before, and he’d had enough and decided to go to court and test out the means to restriction of trade.
With the case last year, there were three factors.
1
The first one was that the salesperson in question, at their previous place of employment was marked as an area specialist in a defined area.
When that person moved to their new employer, on that company’s website, the person was described as an area specialist in the same defined area. This is a common practice in the real estate industry.
2
The second point was that the salesperson had received testimonials whilst in the employment of the previous employer; and those testimonials were then listed on the new employer’s website; again, piggy-backing off the reputation they’d earned with the first employer
3
And thirdly, the salesperson actively solicited customers on the database of the former employer. Now the database here was held by the court to be the database of the employer, not of the employee, because they weren’t an independent contractor, they were an employee.
In this particular case the salesperson was an employee. This was a critical part of the case. If an agent is employed as an employee, they need to realise they don’t own the database; it’s created for and on behalf of the employer; it is not their personal property.
The salesperson in this case was restrained for a six-month period and was unable to work within five kilometres of their former employer’s office. An interim injunction was imposed on the salesperson by the court for a six-month period. At the end of the six months, the case will go back to court for an assessment as to what damages have been incurred by the employer and that will be a whole other case.
The problem for all parties involved is that when there are any legal proceedings, particularly in the Supreme Court, the costs are horrendously expensive. So the best result out of this is for all parties to ensure that they comply with their employment agreements. The heart of the matter all comes down to the relationship a Principal has with his or her employees. If you are employed at an agency and you utilise your own equipment and own databases, a database is always created for, and on behalf, of the employer who will ultimately retain ownership of that database. But it’s not always that clear cut. Recently there was a full Federal Court decision based on three former independent contractors in the insurance industry.
Even though this is a case relating to the insurance industry, it affects the real estate industry. The insurance agents entered into agreements that set themselves out as independent contractors, and their pay was paid directly to their companies.
They were held by the court to be employees not-withstanding that they were engaged by the company and they were entitled to compensation for all of their employee entitlements.
What this decision means for the real estate industry is that employers need to get their house in order and protect themselves legally when engaging salespeople as independent contractors or conjunction agents. When engaging a person as a contractor, the head agent needs to take all of these factors into account to make sure it will be an appropriate situation for them and it will work out for both parties to be beneficial.
Clearly seeking legal advice is the key to avoiding any legal minefields. If you have any questions or concerns, you can always call Greg on 02 9267 6263 or email him at Greg@jemfish.com.au
Please remember that the content in this article is intended only to provide a summary and general overview on matters of interest. It is not intended to be comprehensive nor does it constitute legal advice. We have attempted to ensure that the information contained in this article is current. You should seek legal or other professional advice before acting or relying on any of the content.
← Go back
