Broker responsibility for supervision of salespersons is required under both civil and license law.
Under civil law the legal term for the relationship between a broker and salespersons is respondeat superior. This term arose from the common law and applies to the master-servant, employer-employee relationships. Under the doctrine of respondeat superior, an employer is held responsible or liable for the actions of his employees performed within the scope of their authority.
The civil law does not care whether the employer had knowledge of the negligent or wrongful actions of his employees. It is neither concerned with the fact that the employer took reasonable steps to prevent incidents leading to liability. If it can be shown that the employee was acting within the scope of his authority, then the employee's actions can be imputed to the employer.
The rationale behind the doctrine of respondeat superior is that the employer is in a better financial position to compensate an injured party than the employee. Rather than suing the employee who is likely to have limited assets, the doctrine of respondeat superior allows the third party to bring action against the "deep pocket" of the employer.
Broker liability under the license law is not nearly so extensive. Under the license law, except in trust account and closing activities, the broker must either have guilty knowledge of the wrongful conduct of the salesman or it must be shown that the broker did not adequately supervise (negligent supervision) his salespersons before the broker can be liable under the license law for acts of his salespeople.
Liability is clear when a salesperson performs wrongful acts with the knowledge of the broker. But liability is more difficult to establish when there is not showing of guilty knowledge. In cases where there is no guilty knowledge, the licensing agency must establish that the broker negligently supervised the salesperson in question. To defend himself against a charge of negligent supervision, the broker must show that he exercises reasonable supervision of his sales associates.
What constitutes reasonable supervision? Some of the factors that real estate regulatory agencies and the courts have examined to make this determination include:
Broker's physical ability to supervise. How far is he or she from the office? Does the broker have another job? The physical and mental health of the broker is another factor.
The level of experience of the sales associate who committed the wrongdoing. The less experience, the more supervision would be required.
Has the broker contracted his right to supervise away? (E.g., by being a minority owner or non-owner of the brokerage business.)
Does the broker have a written office policy?
Guaranteed buy-outs-Does the broker monitor and define the office policy?
Does the broker hold staff meetings? How often?
Was there some corrective action taken by the broker after the wrongdoing by the sales associate was discovered?
What supervisory functions are performed by branch manager or office manager?
Also other brokers in the community may be asked to testify as experts concerning local practice or custom for real estate companies to further establish reasonable supervisory practices.
There are differences between civil and license law liability as far as broker supervision of sales associates is concerned. A broker should examine the factors listed above to see if his operation is falling down in a particular area and take steps to rectify the situation.
-Reprinted from South Dakota Real Estate Board Newsletter
(NOTE: Under the rules and regulations governing North Carolina real estate licensees, a broker who certifies to the Real Estate Commission that he (she) wilt supervise a licensed real estate salesman shall actively and personally, supervise the salesman in a manner which would reasonably assure that the salesman performs all acts for which a real estate license is required in accordance with the license law and Commission rules. Furthermore, the supervising broker must be the Broker-In-Charge of the real estate office at which the salesman works.]