TL;DR
California real estate brokers and the salespersons licensed under them may contract with each other as INDEPENDENT CONTRACTORS or as EMPLOYER AND EMPLOYEE. Business and Professions Code §10032 sets the framework, and the critical point is that the election has LIMITED REACH. Under §10032(b), the parties may choose their characterization "for purposes of their legal relationship with and obligations to EACH OTHER," and that characterization for statutory purposes such as wage withholding and unemployment compensation is governed by Unemployment Insurance Code §650 and §§13000–13054, while workers' compensation is governed by Labor Code §3200 and following. But under §10032(a), ALL obligations created under the Real Estate Law, ALL regulations issued by the Commissioner relating to salespersons, and ALL other obligations of brokers and salespersons TO MEMBERS OF THE PUBLIC apply REGARDLESS of whether the parties characterized the relationship as independent contractor or employer and employee. Section 10010.5 reinforces the same limit from the supervision side: a RESPONSIBLE BROKER, as defined in §10015.1, has the duty to supervise and oversee the licensed acts of each salesperson and broker associate working under that broker's supervision, REGARDLESS OF WHETHER THE RETENTION CONTRACT SPECIFIES AN INDEPENDENT CONTRACTOR RELATIONSHIP OR AN EMPLOYMENT RELATIONSHIP, and the responsible broker is LIABLE FOR THE ACTIONS OR NEGLIGENCE of a retained salesperson or broker associate performing acts for which a license is required. Alongside these statutes, common-law agency principles apply — including Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190, holding that a broker may be VICARIOUSLY LIABLE under respondeat superior for a salesperson's tortious acts. Separately, Commissioner's Regulation 2726 requires every broker to have a WRITTEN AGREEMENT with each salesperson and broker associate.
The two questions the statute separates
Almost every mistake in this area comes from collapsing two different questions into one. The first question is how the broker and the salesperson treat each other — who pays payroll taxes, who controls the schedule, whether commissions are wages. The second question is what the broker and salesperson owe to the DEPARTMENT OF REAL ESTATE and to the PUBLIC. Business and Professions Code §10032 answers the first by permitting an election, and forecloses the second from being affected by that election.
Section 10032(a) is the controlling sentence for regulatory purposes: all obligations created under §10000 and following, all regulations issued by the Commissioner relating to real estate salespersons, and all other obligations of brokers and salespersons to members of the public apply regardless of how the parties characterized their relationship. Whatever the retention agreement says about independence, the licensee still owes the public every duty the Real Estate Law imposes. For the underlying license structure, see our guide to DRE licensing structure and requirements.
What the parties may elect under §10032(b)
Section 10032(b) permits a broker and a salesperson licensed under that broker to contract between themselves as independent contractors or as employer and employee, for purposes of their legal relationship with and obligations to each other. The statute then routes the consequences of that election to other codes rather than deciding them itself.
Tax and unemployment. Characterization as either employer and employee or independent contractor for statutory purposes — including but not limited to withholding taxes on wages and unemployment compensation — is governed by Unemployment Insurance Code §650 and §§13000 through 13054.
Workers' compensation. For workers' compensation purposes, characterization is governed by Labor Code §3200 and following.
For tax and unemployment purposes the election is governed by Unemployment Insurance Code §650 and §§13000–13054, and in practice that tracks the familiar tax-treatment test applied to licensed real estate agents: the individual is duly licensed as a real estate agent; substantially all remuneration is directly related to sales or other output rather than to hours worked; and the services are performed under a WRITTEN CONTRACT providing that the individual will not be treated as an employee for state tax purposes. Satisfying that test secures independent contractor treatment for tax purposes — and does nothing else.
| Question | Governed by | Does the IC election control? |
|---|---|---|
| Obligations between broker and salesperson | B&P §10032(b) | YES — parties may elect |
| Wage withholding, unemployment compensation | Unemp. Ins. Code §650, §§13000–13054 | Per those code sections |
| Workers' compensation | Labor Code §3200 et seq. (per §10032(b)) | Per the Labor Code, not the label |
| Duties under the Real Estate Law and to the public | B&P §10032(a) | NO — apply regardless |
| Supervision and liability for licensed acts | B&P §10010.5; common law (Gipson) | NO — applies regardless of the label |
Section 10010.5 and the Gipson principle
The most heavily tested nuance in this area is what happens when a member of the public is harmed. Business and Professions Code §10010.5 addresses it directly. Subdivision (b)(1) declares that a responsible broker, as defined in §10015.1, has the duty to supervise and oversee the licensed acts of each salesperson and broker associate affiliated with and working under that broker's supervision — REGARDLESS OF WHETHER THE RETENTION CONTRACT SPECIFIES AN INDEPENDENT CONTRACTOR RELATIONSHIP OR AN EMPLOYMENT RELATIONSHIP.
Subdivision (b)(2) goes to liability: consistent with existing statutory and common law, a responsible broker is LIABLE FOR THE ACTIONS OR NEGLIGENCE of a salesperson or broker associate retained by that broker to perform acts for which a license is required. Subdivision (a) further provides that nothing in the 2017-18 legislation that produced this section may be construed to affect a broker's duties as an agent under existing statutory or common law, fiduciary duties owed to a person who retains the broker, duties of disclosure, the duties of a salesperson or broker associate, or a responsible broker's duty of supervision and oversight.
Layered on top of the statute is long-standing case law. Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190 holds that a real estate broker may be vicariously liable under the doctrine of RESPONDEAT SUPERIOR for the tortious acts of a salesperson licensed under that broker. The practical takeaway for a licensee is therefore straightforward: an independent contractor agreement governs the internal economics and tax treatment between broker and salesperson, but it does not eliminate Real Estate Law duties, the responsible broker's supervision duty, or the responsible broker's liability for licensed acts affecting the public. A clause drafted to disclaim the agency relationship as against third parties does not accomplish what its drafter hopes.
Supervision survives the election
Independent contractor status does not diminish the broker's supervisory responsibilities. The Real Estate Law requires a broker to exercise reasonable supervision over the activities of salespersons, and failure to do so is itself a ground for discipline. The obligation is unaffected by the retention agreement's label, and it operates alongside the licensing rule that a salesperson may be licensed under only one broker at a time.
This is where California license law diverges from ordinary employment classification analysis. The California Supreme Court's adoption of an "ABC" test for employee status in other contexts created apparent tension with real estate practice, but the Legislature had already addressed the point in §10032: licensed salespersons and brokers may elect an independent contractor relationship even though the salesperson remains subject to the Real Estate Law, including broker supervision and single-broker licensure. The election is recognized for its intended purposes without displacing regulatory obligations. For the disciplinary consequences of supervisory failure, see our guide to the Commissioner's disciplinary process, and for the underlying distinction between the two license levels, see our guide to broker versus salesperson licensure.
The written agreement requirement
Commissioner's Regulation 2726 requires every real estate broker to have a WRITTEN AGREEMENT with each salesperson or broker associate, whether that person is licensed as a salesperson or as a broker. The agreement must be dated and signed by the parties and retained for the period the regulations specify.
The written agreement is where the independent contractor election is documented, and it is a standard item in a DRE audit. Note the interaction with the tax test described above: one of its elements is that services be performed under a written contract providing the individual will not be treated as an employee for state tax purposes. The Regulation 2726 agreement and the tax-election language therefore typically live in the same document — but a well-drafted agreement should not overstate what the election accomplishes, because §10032(a) and §10010.5 keep the Real Estate Law duties, the supervision duty, and the responsible broker's liability for licensed acts in place no matter what label the contract uses.
Frequently Asked Questions
- Can a California salesperson be an independent contractor?
- Yes, for defined purposes. Business and Professions Code §10032(b) allows a broker and a salesperson licensed under that broker to contract between themselves as independent contractors or as employer and employee, for purposes of their legal relationship with and obligations to each other. Characterization for tax withholding and unemployment compensation is governed by Unemployment Insurance Code §650 and §§13000–13054, and workers' compensation by Labor Code §3200 and following. The election does not extend beyond those purposes.
- Does independent contractor status change what a licensee owes the public?
- No. Under §10032(a), all obligations created under the Real Estate Law, all Commissioner regulations relating to salespersons, and all other obligations of brokers and salespersons to members of the public apply REGARDLESS of whether the parties characterized their relationship as independent contractor or employer and employee. The election governs the internal relationship only; every public-facing duty under the Real Estate Law survives it untouched.
- Can a broker avoid liability for a salesperson's conduct by using an independent contractor agreement?
- No. B&P §10010.5(b)(2) provides that, consistent with existing statutory and common law, a responsible broker is LIABLE FOR THE ACTIONS OR NEGLIGENCE of a salesperson or broker associate retained to perform acts for which a license is required. Section 10010.5(b)(1) imposes the supervision duty regardless of whether the retention contract specifies an independent contractor or an employment relationship, and §10032(a) keeps all Real Estate Law and public-facing duties in force regardless of the label. Common-law agency principles apply as well, including Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190 on respondeat superior.
- What is the three-part test for independent contractor treatment?
- Drawn from federal tax law and reflected in the Unemployment Insurance Code, it requires that the individual be duly licensed as a real estate agent; that substantially all remuneration be directly related to sales or other output rather than to hours worked; and that the services be performed under a WRITTEN CONTRACT providing the individual will not be treated as an employee for state tax purposes. Meeting the test secures independent contractor treatment for tax purposes and does not affect regulatory duties or third-party liability.
- Does a broker still have to supervise an independent contractor salesperson?
- Yes. Independent contractor status does not diminish the broker's responsibilities or civil liabilities for the conduct of salespersons. The Real Estate Law requires reasonable supervision, failure to supervise is an independent ground for discipline, and a salesperson may be licensed under only one broker at a time. The Legislature specifically contemplated that licensees could elect independent contractor status while remaining subject to broker supervision.
- Is a written agreement required between broker and salesperson?
- Yes. Commissioner's Regulation 2726 requires every real estate broker to have a written agreement with each salesperson or broker associate, whether licensed as a salesperson or as a broker. It is a standard DRE audit item and is normally the document in which the independent contractor election and the tax-treatment language appear. It should not, however, be drafted as though the label disclaims the agency relationship as to the public, since §10032(a) and §10010.5 keep those duties and the responsible broker's liability in place regardless.
Bottom Line
Business and Professions Code §10032 lets a California broker and salesperson elect to be INDEPENDENT CONTRACTORS or EMPLOYER AND EMPLOYEE — but only for their obligations TO EACH OTHER. Section 10032(b) routes tax withholding and unemployment compensation to Unemployment Insurance Code §650 and §§13000–13054, and workers' compensation to Labor Code §3200 and following. Section 10032(a) then forecloses the election from reaching further: all Real Estate Law obligations, all Commissioner regulations relating to salespersons, and all obligations to MEMBERS OF THE PUBLIC apply regardless of characterization. Section 10010.5 reinforces the limit from the supervision side: a RESPONSIBLE BROKER (defined in §10015.1) must supervise and oversee the licensed acts of each salesperson and broker associate REGARDLESS of whether the retention contract specifies independent contractor or employment status, and is LIABLE for the actions or negligence of a retained salesperson or broker associate performing acts requiring a license. Common-law agency principles apply alongside, including Gipson v. Davis Realty Co. (1963) 215 Cal.App.2d 190 on respondeat superior. Broker supervision survives the election, a salesperson remains licensed under one broker, and Commissioner's Regulation 2726 requires a written agreement with every salesperson and broker associate. For the exam, hold the two questions apart: the election controls the internal economics and tax treatment; it never controls duties to the public or liability to third parties. For related topics, see our guides to broker versus salesperson licensure, DRE licensing structure, and agency relationships and disclosure.
Source: California Business and Professions Code §10032 — Independent Contractor or Employee (full text) · California Business and Professions Code §10010.5 — Responsible Broker Duties and Liability · California DRE Reference Book, Chapter 10 — Agency, Supervision, and Employment Contracts