A former Compass agent in California filed a class action complaint against the New York-founded brokerage last week, accusing Compass of fraud, breach of contract, violation of labor law and non-compliant wage statements.
Greg Maffei | Photo credit: LinkedIn
The agent, J. Gregory Maffei, is seeking class-action status with the lawsuit and is looking for similarly situated current and former Compass agents in California.
The lawsuit gives a rarely seen glimpse into the kind of contracts the company offers agents, which have drawn the ire of many in the industry, including Realogy, which has sued Compass over its recruiting practices and attempts to gain market share.
“This class action challenges Compass’ unfair, unlawful and fraudulent business practices that were designed to gain market share by luring top real estate agents with promises of high commissions and compensation packages that include bonuses, covered business expenses and stock options to hire them from Compass’ competitors,” the complaint reads.
“Compass has leveraged more than $1 billion in funding from venture capitalists to support its ‘bait-and-switch’ tactics and to account for the losses Compass has incurred by overpaying and poaching its competitors’ real estate agents.”
According to the complaint, Maffei was recruited to join Compass after a successful 14-year stint with RE/MAX Estate Properties, a Los Angeles area RE/MAX franchisee. At the time of his recruitment, Maffei had no prior interest in leaving RE/MAX, the complaint states.
According to the complaint, Compass promised Maffei an “amazing compensation package” in March to lure him to Compass.
Maffei was lured with the promise of “an attractive workplace outfitted with the latest technology, parking, a generous marketing budget that would be funded/paid by Compass, and ample administrative support,” according to the complaint.
According to a copy of his contract included with the complaint, the initial package included a signing bonus of $16,800 and a split that allowed Maffei to pocket 90 percent of his commission.
Maffei was also given a $49,000 “launch marketing budget” to cover new business cards, signs and agent photos, among other things. The contract included an additional $24,000 renewal term marketing budget.
Also used to lure Maffei was the promise of “restricted stock units,” being offered at a Series G price.
Maffei accused Compass of breaching the independent contractor agreement in multiple ways. The first of which is that Maffei alleged that Compass paid out commissions based not on gross commission, but a net commission number that takes into account certain deducted expenses.
The company also violated the agreement by engaging in price-fixing, according to the complaint. Compass receives its 10 percent of commission based on the industry standard of 5 percent of the commission so agents actually get less than 90 percent of commission if they offer clients a discounted commission rate, according to the complaint.
The complaint further alleges that Compass exercises a level of control of independent contractors that should, under California state law, actually classify the agents as employees.
Part of Compass’ efforts to recruit agents comes in the form of the long-promised initial public offering, according to Maffei. But the equity promised to agents as part of the recruitment effort are actually restricted stock units (RSUs) obtained by agents giving up a portion of their commission, according to the complaint.
“Compass’ model operated as an effort by Compass to take advantage of and steal from its agents and employees because Compass received commissions, i.e., money, in exchange for a hollow promise,” the complaint reads. “Compass’ agents were pressured to give up hard-earned money to invest in Compass.”
“Plaintiff is informed and believes that Compass’ stock opportunity constitutes an unlawful Ponzi scheme or a get-rich-quick scheme because Compass broke the law in an effort to make a profit.”
It was not immediately clear what Compass offered Maffei — as the stock portion was not included in the independent contractor agreement included in the complaint — but that agents give a portion of their commission in exchange for restricted stock options has been previously reported by Inman in November 2019.
Maffei also said, according to the complaint, that Compass did not disclose to him upfront that he would receive a different class of stock and not common stock in Compass. Restricted stock units in many cases are on a set vesting plan and given a separate market value at the time of vesting. Agents can trade the RSUs for company shares, as previously reported by Inman.
The complaint is seeking class-action status, by allowing any similarly situated Compass agent, or agent that was affiliated with Compass in the past four years, in the state of California, to join.
The complaint seeks relief in excess of $10 million and reimbursement for expenses paid, unpaid commission money and other expenses.
Compass declined a request to comment on the complaint.
