What happens when a REALTOR® leaves a brokerage while working on client transactions? This is an ongoing issue for REALTORS® and managing brokers to navigate. This article will review considerations surrounding listing agreements, independent contractor agreements or employment agreements, commission, transferability of trades in real estate, and confidentiality when a licensee departs a brokerage.

Independent Contractor Agreements and Employment Agreements

Both brokerages and licensees should carefully review and consider the independent contractor agreements and employment agreements that govern their relationship. Both parties should ensure that the agreements clearly set out what happens if the licensee wishes to leave the brokerage or is terminated. These sections of the agreements should consider the following:

• Is the licensee required to give the brokerage a specific notice period before their exit? Is the brokerage required to give the licensee notice of termination?
• What happens to commissions for transactions that are still conditional, (pending)or haven’t closed yet? Are there different terms for different transaction stages, for example, prior to or after subject removal?
• Does the licensee have to pay the brokerage an administration fee upon their exit?
• Are pending transactions and listings transferrable to the licensee’s new brokerage?

Since there is no standard precedent in British Columbia for these agreements between brokerages and licensees, both parties must consider these questions and ensure the agreement clearly outlines each party’s rights and responsibilities upon the departure of a licensee.

Listing Agreements

Listing agreements in BC are with the brokerage, not the licensee, and under the standard multiple listing agreement, brokerages are given the right to designate another licensee if the designated agent ceases to be engaged by the listing brokerage.¹ As such, if a licensee leaves a brokerage while a property is listed or during a pending transaction, then the brokerage is entitled to designate a different licensee to act on behalf of the seller. Barring an arrangement to the alternative as set out in the independent contractor agreement, the listing, and the client stay with the brokerage.

Despite the terms outlined in the listing agreement, some brokerages may allow the transfer of listings and transactions  to a new brokerage through their internal policies and procedures or  independent contractor agreements. If such provisions exist, then the brokerages, licensee, and client would all need to be in agreement regarding the transfer.

Commissions

When a licensee leaves a brokerage while transactions are still pending, one of the key considerations will surround the remuneration of the licensee through either commissions or bonuses.

As it relates to remuneration and the payment of commissions or bonuses, licensees should become familiar with their rights and responsibilities under their independent contractor agreement or employment agreement (as the case may be). Key considerations to look for in these agreements regarding remuneration following a departure include:

• Is the licensee still entitled to commissions in pending transactions or transactions that haven’t closed. Does it depend on what stage of the transaction they are at?
• Are there any reductions, such as administrative fees, applied to the commission or bonus?
• What happens to advances made on pre-sale contracts?

Confidentiality

Section 30(e) of the Real Estate Services Rules² sets out the confidentiality obligations of a brokerage and its licensees to clients:

“…if a client engages a brokerage to provide real estate services to or on behalf of the client, the brokerage and its related licensees must do all of the following: …

(e) maintain the confidentiality of information respecting the client.”³

This duty of confidentiality to the client continues even when the client ceases being a client of the licensee. Licensees need to recognize and understand this ongoing duty even following their departure from a brokerage or when they cease representing a client. For more information, look at the BC Financial Services Authority’s confidentiality guidelines.⁴

Brokerages

Brokerages should ensure that clear provisions are included in their independent contractor agreements or employment agreements regarding the departure of licensees. It is recommended that such agreements specify a minimum length of notice that the licensee must provide before they depart. The notice period will give the brokerage time to review active listings where the licensee is acting as a designated agent, determine if the licensee has any pending transactions, and to formally remove (offboard) the licensee from their systems. Having clear policies and procedures in place and communicating these to licensees can make the transition smoother for both the brokerage and the clients. 

Summary

The decision to leave a brokerage can be a big one. Before leaving, licensees should become familiar with the terms of their independent contractor agreement or employment agreement to ensure a smooth transition. Knowing their rights and responsibilities will allow the licensee to strategically plan the move and make proper arrangements. Licensees should consider active listings and pending transactions, and how their departure from their current brokerage will impact these. Ideally, the timing of any transitions should be done to mitigate any negative outcomes or harm to clients.

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