Paying Commissions to a Former Agent: When to Pay the Agent Directly vs. Their New Broker

Quick answer

When Ashby & Graff owes a commission or referral fee to an agent who used to be licensed under us:

If the agent is not currently employed by another broker → we can pay the agent directly.
If the agent is currently employed by a new broker → we must pay the new employing broker, not the agent.

This applies regardless of when the underlying agreement was signed,.

The rule

California Business & Professions Code §10137 prohibits a real estate salesperson from accepting compensation for licensed activity from anyone other than their employing broker. The corresponding restriction on brokers is that compensation for licensed activity may only be paid to:

Another broker;
A salesperson licensed under the paying broker; or
A broker of another state.

Violations are filed under "Unlawful Employment or Payment of Compensation" and are one of the most commonly cited grounds for DRE discipline. Both the paying broker and the receiving licensee are exposed.

The narrow former-agent allowance

The DRE's Spring 2012 Real Estate Bulletin ("Unlawful Employment and Payment of Compensation") clarified that when a salesperson formerly employed by a broker is not presently employed by a different broker, the broker may pay the fee directly to that former agent. The licensed activity tether goes back to when the work was performed under that broker, and there's no new employing broker the payment must route through.

This guidance has not been reversed, narrowed, or modified in any DRE bulletin, regulation, or statutory amendment in the years since. It remains the operative interpretation.

The critical word is "presently." The allowance turns on the agent's current license affiliation at the time of payment — not on when the underlying referral or commission agreement was signed, not on when the work was performed, and not on whether the agent was unaffiliated at any point in between.

The two scenarios in practice

Scenario A: Former agent is unaffiliated

The agent left Ashby & Graff and has not hung their license under another broker. Their license may be on inactive status, or they may simply not be currently employed.

What we do: Pay the agent directly. Issue a 1099 at year-end as appropriate.

Scenario B: Former agent is now licensed under a new broker

The agent left Ashby & Graff and is now affiliated with another brokerage. This is the case even if their move was recent, even if the underlying agreement predates the move, and even if the new broker says they don't want the funds.

What we do: Pay the new employing broker. How that broker then settles up with the agent on their end is governed by the agent's employment agreement with that brokerage and is not our concern. Our §10137 obligation ends at the new employing broker. 1099 would come from the new broker.

Edge case: License has lapsed entirely

If the former agent's license has expired or been surrendered, the analysis changes. A fee for what was licensed activity generally cannot be paid to an unlicensed person at all (B&P §§10137, 10138). The narrow "finder's fee" exception only covers a bare introduction with no involvement in the transaction. Escalate to brokerage counsel before disbursing.

Edge case: Broker-associate

A licensed broker working under another broker (a broker-associate) is treated differently. They can be compensated by either a former or current employing broker, subject to the terms of their current employment agreement. This article does not cover broker-associates.

References

Cal. Bus. & Prof. Code §10137 — Unlawful Employment or Payment of Compensation
Cal. Bus. & Prof. Code §§10130, 10138, 10139 — Unlicensed activity and related provisions
DRE Real Estate Bulletin, Spring 2012 — "Unlawful Employment and Payment of Compensation"
DRE Real Estate Bulletin, Winter 2016 — "What California Real Estate Licensees Should Know About the California Real Estate Law and the Federal RESPA Before Claiming, Demanding, Receiving, or Paying Compensation… for a Referral(s)"
DRE/DFPI Licensee Advisory, June 30, 2025 — Commission Disbursement Authorizations