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Airbnb property manager accused of violating law asks Pa. Supreme Court to weigh in on gig economy

Do people who manage Airbnb and HomeAway listings in today's gig economy need to first become a real estate broker in Pennsylvania to do business? One woman is asking the state's highest court.

New Jersey resident Sally Ladd has a case before the Pennsylvania Supreme Court. She worked for years helping clients manage their Airbnb listings, until a state investigator told her she was in violation of Pennsylvania regulations.
New Jersey resident Sally Ladd has a case before the Pennsylvania Supreme Court. She worked for years helping clients manage their Airbnb listings, until a state investigator told her she was in violation of Pennsylvania regulations.Read moreCourtesy of Institute for Justice

It’s a question that has repeatedly been argued and tested in today’s sharing economy: Can long-standing laws be applied to jobs and industries that have changed astronomically?

Amid a national wave of attempts to regulate the trillion-dollar gig economy, one New Jersey woman is asking Pennsylvania’s highest court to weigh in.

Since North Jersey resident Sally Ladd was forced to shut down her vacation-home property management business in the Pocono Mountains in 2017, the Somerset County woman has sought clarity from Pennsylvania’s Supreme Court on how entrepreneurs can carve out modern versions of work amid decades-old laws. In 2017, Ladd filed a lawsuit against several Pennsylvania Department of State agencies, including the Real Estate Commission, alleging that they unconstitutionally impeded her ability to earn a living in the gig economy as a short-term property manager.

The case was heard before the court’s seven justices in Philadelphia last month.

The crux of Ladd’s case centers on her work involving home-sharing platforms — popular yet controversial websites such as Airbnb and HomeAway, which enable travelers to rent out entire homes or rooms within them, rather than booking hotels. According to court documents and interviews, Ladd operated a small-scale Poconos property management company using such home-sharing platforms between 2013 and 2016, acting as someone who, behind the scenes, marketed the properties, managed bookings, and collected payments.

At her business’ height, Ladd said, she managed properties for about five homeowners simultaneously, listing their vacation rentals on websites such as Airbnb, as well as on the website for the company she created, Pocono Mountain Vacation Properties. She responded to inquiries from prospective renters, facilitated the signing of rental agreements, collected payments, returned security deposits, and arranged for cleaning and maintenance services between visits. At the end, she took a cut of the rent that a client received — typically pocketing 20 to 25%.

The idea came to her after she successfully managed and rented out two Poconos properties that she owned herself.

“People started contacting me to ask if I managed properties because really there was nobody who was doing that up there,” Ladd said. Plus, she added, it came at the perfect time: Recently laid off from a digital marketing job, Ladd, then approaching her 60s, suddenly had the opportunity to set her own schedule, work from New Jersey, and earn a regular income in her years before retirement.

“I wasn’t looking for this business," Ladd, now 63, said. “It just found me."

Then, in 2017, court documents state, Ladd received a call: A Department of State investigator told her that she had been reported for the “unlicensed practice of real estate." And she was in violation of the state’s Real Estate Licensing and Registration Act.

Ladd wasn’t a licensed real estate broker or salesperson in Pennsylvania. And the kind of work she did fit the description under state law. According to the licensing act, a broker is defined as anyone who “manages" real estate and “undertakes to promote” rentals. A salesperson, similarly, “collects rent for the use of real estate” and assists in property management.

Pennsylvania regulations require that real estate brokers complete 240 hours of real estate education, work for three years as a licensed salesperson, and take an exam in order to obtain a license. Less lengthy yet similar requirements exist to become a salesperson.

“I knew that I couldn’t be buying and selling real estate without a real estate license, but I didn’t know that just to do weekend rentals and summer rentals [on Airbnb], there was the same requirement,” Ladd said. She did some research and concluded that the licensing requirements were too burdensome for what she does. Fearing any kind of repercussions for violating state regulations, Ladd decided to shut down her business.

Then she decided to sue.

Represented by attorneys from Philadelphia-based Dilworth Paxson and the Institute for Justice, a Virginia-based public-interest libertarian law firm, Ladd argued in a 2017 complaint that the state’s “arbitrary, irrational, and protectionist legislation” prevent her from pursuing “her chosen occupation.”

“Forcing Sally to become a licensed real-estate broker merely to manage short-term vacation rentals does not protect the public from any real danger,” said the complaint, written by attorneys including Josh Windham, of the Institute for Justice. Rather, it "serves only to protect traditional brokers from honest competition.”

Attorneys for the state have argued in subsequent court filings that Ladd’s lawsuit was unnecessary. The state never took formal action against her — Ladd chose to shut down her business — and, they wrote last year, “Ladd’s claims regarding possible enforcement were speculative.” Additionally, attorneys for the state’s Real Estate Commission and the Department of State’s Bureau of Professional and Occupational Affairs said that Ladd’s argument was legally insufficient. The real estate licensing act, they said, is a valid use of the state’s regulation power.

A spokesperson for the Department of State declined to comment.

The case between Ladd and the Commonwealth comes at a time when government has been grappling with how to regulate the gig industry, which has rapidly swelled over the years, creating new occupations and lifestyles. Recently, California passed a bill to regulate platforms such as Uber and Lyft, requiring many businesses to hire workers as employees, not independent contractors. The law will give workers basic labor rights, such as access to benefits.

Yet questions remain about how deep-rooted laws can be reconciled with new, more modern jobs, such as Ladd’s.

In June 2018, the Pennsylvania Commonwealth Court ruled in the state’s favor, arguing that Pennsylvania’s real estate licensing act is constitutional. If the court were to argue in Ladd’s favor, a Commonwealth Court judge wrote, it would “upend the legitimacy” of the state’s professional licensing requirements.

Ladd appealed.

At a hearing before the Pennsylvania Supreme Court last month, Windham, Ladd’s attorney, argued that it’s not that Ladd can’t be regulated. Rather, he said, the current licensing requirements for what Ladd was doing are far too burdensome.

Justice Max Baer seemed to express some concern with that argument. “I don’t understand how we write this without opening Pandora’s box,” Baer said. “You’re a person who wants to set up a business doing nothing but checking blood pressure, but you have no medical license at all. … You are somebody who wants to set up a business doing … sideburns, but you have no barber’s license."

Later in the hearing, however, Baer’s perspective slightly changed: “Isn’t it possible that she’s ahead of the curve?” Baer asked. “Maybe what’s happened here is that she’s created a new profession because of sites like Airbnb and the legislature hasn’t caught up with it.”

A decision is expected within the next few months. If Ladd is successful, the case would be remanded back to the Commonwealth Court.