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The ABCs every California NSA must know

There are many things Notary Signing Agents have told the NNA they love about their jobs. As Notaries Public and committed public servants, they love helping people achieve and maintain the dream of home ownership. They have a sense of worth that comes from knowing they make a difference in peoples’ lives. And, they love the freedom of working for themselves.

It is this last love of an NSA’s professional life that has been threatened by a new California law. It is important to understand the “ABCs” of this new law, because it will make it harder than ever before for a California NSA to provide loan signing services as an independent contractor.

California Assembly Bill 5

Assembly Bill 5, a landmark bill affecting worker rights, was passed by the California Legislature in the summer of 2019, signed by the Governor shortly thereafter, and took effect on January 1, 2020.

The Legislature stated that in passing AB 5 its intent was to place into California statute the 2018 California Supreme Court decision in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Dynamex provided delivery services. Until 2004 it had classified its delivery drivers as employees, but then decided it would be more profitable to reclassify them as independent contractors. Two Dynamex workers represented a class of Dynamex independent contractors who sued to obtain employee benefits they had lost.

The public face of AB 5 targeted Uber, Lyft, Postmates, and similar “gig worker” companies policymakers accused of misclassifying workers. But their real goal did not stop there. They wanted to create a working environment in California where most workers are treated and compensated as employees.

The ABCs of working for yourself

Before the Dynamex decision, California employers used case law to assess whether workers were employees or independent contractors. The most important case, S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello), laid down multiple factors to determine if an employer exercised control over workers. It was the Borello case that allowed NSAs to operate as independent contractors until now.

But in Dynamex and under AB 5, Borello was replaced by a simpler “ABC” test that now requires a hiring entity — in the NSA’s world, title and escrow companies, signing services, mortgage brokers, and vendor management companies — to classify a worker as an employee unless they can prove the worker passes the “ABC” test. The tests are:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Prong “A” is the Borello test. If a worker meets the multifactor test under Borello — and most NSAs do — the worker satisfies test “A.”

Of the three tests, “B” is the toughest to meet. In Dynamex, the Supreme Court gave examples where prong “B” is satisfied, such as a retail business hiring a plumber to fix leaky pipes or an electrician to install a new electrical line. Both clearly perform services that are outside the retail shop’s usual course of business. But the Court ruled that Dynamex’s workers failed the “B” test because they performed work — delivery services — that was within the usual course of Dynamex’s business.

Prong “C” requires an independent contractor to have individually established a business of the same nature as the work performed by taking steps to establish and promote the business through incorporation, licensure, advertisements, and routine offerings to provide the services of the business to the public or a number of customers. The Court said that an employer may well be attempting to evade the benefits of employment through misclassification if it simply designates as an independent contractor a worker who has not taken these concrete steps.

Practical implications for Notary Signing Agents

There are two important practical consequences that Notary Signing Agents should carefully think about.

First, it only takes failing one prong of the “ABC” test for an NSA’s hiring company to be required to classify an NSA as an employee, but it requires passing all three to prove an NSA is an independent contractor. That is a tall order.

Second the “ABC” test shatters several assumptions Notary Signing Agents may hold about the independent contractor model under which they have worked for so long:

(1)   It does not matter an NSA may want to be classified as an independent contractor.

(2)   Signing an independent contractor’s agreement with a hiring company does not make an NSA an independent contractor.

(3)   The number of hours worked for a signing service or title or escrow company in a week or month does not prove an NSA is an independent contractor.

(4)   An NSA could work for several companies and still be classified as an employee.