By Danny Kucharsky
Twelve sales reps in Saint John, N. B. have been ordered to pay back more than $80,000 in commission advances that they say they never received.
The Court of Appeal of New Brunswick ruled in April that the agents who worked for now bankrupt Mawhinney Real Estate have to pay the money to Agent’s Equity of Toronto for advances paid shortly before Mawhinney went belly-up.
The agents say they were flabbergasted to discover their former firm was using advances on commission to pay off its operating expenses and that they were on the hook to Agent’s Equity for non-payment after Mawhinney declared bankruptcy in August 2009. The agents had signed contracts allowing Mawhinney to collect the advances on commission on their behalf.
“We were always under the assumption those monies were being paid back (to Agent’s Equity), but we discovered they weren’t,” says Sheila Henry, one of the former Mawhinney agents who now owes money to Agent’s Equity. “It’s very disillusioning.”
Mawhinney Real Estate was founded by Marc Mawhinney, a successful agent for several years. He had a business model that made it appealing for both seasoned agents and rookies to work for him.
New agents were supplied laptops and Blackberrys and their monthly MLS fees and other expenses were covered. Agents worked as salaried employees and not as independent contractors, but still received commissions on sales – albeit at lower than usual splits until they reached certain sales quotas.
Henry, an experienced agent who has a sales manager’s license, was brought in as sales manager and tasked with training the new sales force.
“It was a fresh approach,” but the freshness didn’t last. “He got too big too fast” and didn’t have cash flow, she says. “He was literally taking from Peter to pay Paul.”
The day after Mawhinney folded, 22 agents received letters from Agent’s Equity demanding repayment for money that had not been reimbursed. (Several later settled out of court.)
As contracts with Agent’s Equity are under Ontario law, the company went to court in Ontario to collect the money it had advanced to Mawhinney. The agents did not contest the Ontario action, saying that the time, distance and costs would be prohibitive. Agent’s Equity received a judgment in its favour by default.
“Those of us who felt this was not our debt, and therefore we didn’t owe it, decided to fight the judgment coming here,” Henry says.
In June 2010, a lower court in New Brunswick ruled the Ontario judgment was unenforceable because advances on commissions were similar to consumer financial loans, such as payday loans. Under Canadian law, judgments for consumer financial loans can not be moved across provincial borders.
However, the decision was overturned by the appeals court, which ruled the advances on commissions were business-to-business transactions, meaning the Ontario judgement can be enforced in New Brunswick.
Henry is now sounding a warning about signing contracts without obtaining a legal opinion. Like the other agents, “I signed it over to my employer without specific reason, since he asked.” Asks Henry: “Did we read and understand the contracts we were signing? In most cases, I would say no.”
In retrospect, Henry says, the agents would have fared better had they originally contested the case in Ontario. For example, she believes they would not have been considered liable since they were salaried employees of Mawhinney and not independent contractors.
She also accuses Agent’s Equity of “not caring to know the real story, and turning a deaf ear” to the agents.
But Jim Trainer, owner of Agent’s Equity, says he is not the villain. “We’ve been painted in New Brunswick as the demons from Ontario,” when the company “is simply asking for its money back for the advances it gave based on the signed contracts of each agent.”
He says the situation is clear-cut, and that the company used the same documentation with the ex-Mawhinney agents it has been using for more than 20 years.
On its website, Agent’s Equity describes itself as “the leading provider of commission financing services for Realtors in Canada – with over $175 million in gross commissions purchased.” The company works with major franchises like Re/Max and Royal LePage.
Trainer says Agent’s Equity did not know the Mawhinney agents were salaried employees and may not have dealt with the firm had it known.
“All we’d done is advance some funds as directed in writing. (The broker) played the game using them as pawns and ran up the bill with us.”
In addition to the money owed by the agents, Agent’s Equity is owed $172,000 for advances it provided Mawhinney on the broker side – money it can’t recoup.
Trainer says Agent’s Equity’s reputation has been sullied in New Brunswick when it’s really a third party who is at fault. “It’s been a dreadful situation for us and I can only imagine what it’s like for the agents. We want to work out a reasonable accommodation with them. We’re not trying to be the bad guy here.”
Henry owes about $6,000 to Agent’s Equity, while the other agents owe between $1,900 and $8,200, plus court and interest costs. Because of the costs, they are not attempting to contest the Court of Appeal decision to the Supreme Court.
Most of the agents involved are still in the business, except for one whose only sale was caught up in the legal situation. “That was just devastating for her,” says Henry, who is now an associate broker with Royal LePage Atlantic and a director of the Saint John Real Estate Board.
For his part, Mawhinney is said to be buying and renovating properties, and renting or flipping them. He is no longer licensed to sell real estate.
Henry urges agents to have contracts checked and to be careful about signing contracts that do not give them the right to be bound by the laws of the province in which they reside. “The lesson here is to question a little bit, and make sure you know what it is that you’re doing,” she says.
