Think twice about converting salespeople to independent contractors

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The COVID-19 pandemic and the related economic shutdown and quarantine orders continue to weigh heavily on businesses across California, and auto dealerships are certainly no exception. During such trying times, it is only natural for dealers to begin thinking about creative ways to operate as efficiently as possible. One idea that dealers have considered is converting relationships with salespeople from one of employment to one more akin to an independent-contractor relationship, where commissions are paid to salespeople. Dealers considering such an idea must be mindful, however, of their continuing legal duties under such circumstances.

Generally speaking, a “vehicle salesperson” is a person employed or retained by a dealer as a salesperson. (See California Vehicle Code §11806(a)(1).) In order to lawfully act as a vehicle salesperson in California, a person must first obtain and maintain a valid license or temporary permit issued by the Department of Motor Vehicles. (California Vehicle Code §11800.) All of this may seem rather obvious to most dealers. What may not be so obvious, however, is that the Department of Motor Vehicles may refuse to issue a license, or may suspend or revoke a salesperson’s license, if it determines that the applicant (or salesperson) has concurrently acted as a vehicle salesperson for, or on behalf of, more than one licensed dealer (unless the various dealers have common controlling ownership). (California Vehicle Code §11806(g).) In other words, a vehicle salesperson must at all times be employed or retained not only by a dealer, but by only one dealer (subject to the exception above). In fact, if a person facilitating vehicle sales is not so affiliated with a dealer, that person is not operating as a “vehicle salesperson” at all, but rather as an “autobroker.” (See California Vehicle Code § 166.)

To lawfully operate as an autobroker, however, that person must have both a dealer’s license and an autobroker’s endorsement. (See California Vehicle Code §§ 11700 and 11735(a).)

So, what does all of this mean for dealers? Essentially, it means that so long as a dealer maintains a financial arrangement with a salesperson (whether via employment or other means), that dealer must continue to comply with all requirements with respect to the dealer/salesperson relationship. For example, the dealer must still post and continuously display the salesperson’s license in a place conspicuous to the public at each location where the salesperson is engaged in the selling of vehicles for the dealer. (See California Vehicle Code §11812(a)-(b).)

All of this is to say nothing of the tremendously complex (and entirely separate) body of law in California regarding employees and independent contractors generally, which too dealers must carefully consider before endeavoring to implement changes in employment relationships with salespersons. Fortunately, Scali Rasmussen’s attorneys are well-versed in both auto dealership law and employment law and are ready to answer any questions you might have.