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Do Notaries Meet the ABCs of California’s New Workers’ Rights Law?

California’s new worker classification law threatens the livelihood of California Notaries who stand to lose the benefits of owning and operating their own Notary Signing Agent businesses. It does not now exempt them from the law but requires them to pass an “ABC” test for them to be considered independent contractors.

This article will examine each prong of the “ABC” test to determine if NSAs pass the test. But before we do, we must make an important clarification. The new law does not apply to “mobile” Notaries who offer notarial services directly to the public and who are paid for those services by the public. It applies only to Notaries who have contracted with hiring companies to perform notarial services for the hiring companies’ customers. This describes the contracting arrangement under which Notary Signing Agents operate.

The ‘A’ Test

Part “A” of the “ABC” test says that in order to be an independent contractor, a person must be 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.

The “A” test is based on the multifactor tests applied in the 1989 S. G. Borello & Sons, Inc. v. Department of Industrial Relations case. The Borello case was used before January 1, 2020, to classify independent contractors.

The California Department of Industrial Relations summaries 13 factors of the Borello case. They include whether the worker holds themselves out as being engaged in a business distinct from the employer, whether the employer or worker supplies the tools and the place of work, whether the worker has invested in the business, whether the work is usually done under the direction of the employer or without supervision, the method of payment, whether by time or by the job, the degree of permanence of the working relationship and whether the service provided requires a special skill.

To meet the “A” test, these and the other factors must be considered. Since using the Borello multifactor test was the primary way workers were classified before January 1, 2020, most Notaries operating under contracts with hiring entities under Borello would qualify as independent contractors under prong “A” of the “ABC” test.

The ‘B’ Test

The “B” test is the hardest to satisfy. It requires the worker to perform work that is outside the usual course of the hiring entity’s business.

To determine that Notaries are independent contractors, a hiring entity must establish that the usual course of its business is not to provide notarial services or signing services for mortgage loan transactions. The table below describes several types of companies that hire Notaries and a description of their usual course of business.

Hiring Entity

Usual Business

Title company

Insure titles; close real estate transactions

Escrow company

Close escrows for real estate transactions

Document signing service

Schedule NSAs for real estate transactions

Lender

Sell loans

Estate planning law firm

Provide legal advice in estate planning

Identity management service provider

Provide digital certificates to customers

 

In each of the examples, the hiring entity’s usual course of business is different from the services Notaries and NSAs provide. For example, an estate planning law firm’s usual course of business is to provide legal estate planning services. These services might include the drafting of wills, trusts, and powers of attorney. Some of these documents may require notarization. The firm may dispatch Notaries who are geographically dispersed throughout the state to assist clients in signing their documents because it does not provide notarial services.

Hiring entities also may show that Notaries satisfy the “B” test because it is not a Notary’s usual course of business to notarize any one type document. It does not matter to Notaries what the document purports to do. A Notary may have agreements in place with any of the hiring entities identified above, and others not identified, to notarize documents unique to their businesses. What is “usual” is for the Notary to perform the notarial act, which itself may differ depending on the type of document and client.

Finally, in the loan signing context specifically, it is important to note that NSAs do not explain documents or answer borrowers’ legal or financial questions. This is the work title companies, escrow offices, document signing services, and lenders do. In fact, hiring entities do not want NSAs to answer borrower questions.

The ‘C’ Test

The “C” test requires a hiring entity to prove a worker is customarily engaged in an independently established business of the same kind as that involved in the work performed.

Hiring entities can demonstrate that Notaries satisfy this test by showing:

  • Notaries have legally formed their businesses.
  • Notaries have obtained business licenses in the jurisdictions they serve.
  • Notaries routinely advertise their independent business services to the public and hiring companies.
  • Notaries have a base of clients through offering services directly to the public and to other hiring entities.

To satisfy this test, the key is whether the Notary is engaged in an independently established business, not whether the Notary could have one. At a minimum, companies will need to conduct greater due diligence into a prospective Notary’s business upon engagement to ensure they properly classify them. Notaries will need to take the clearly identifiable steps mentioned above to properly establish their independent businesses for them to land contracts with hiring entities.

What’s At Stake

While California’s new law is in its early stages of implementation, there is clearly much at stake for hiring entities, Notaries, and the public.

Hiring businesses must do greater investigation into the qualifications and business experience of the Notaries they hire to properly classify them as independent contractors, so that they do not incur the hefty penalties per violation in the new law.

Notaries must take concrete steps to establish their independent businesses or find that they will not meet the heightened requirements to work as independent contractors. And, there is always the possibility that the courts or a regulator will rule that Notaries do not meet the ABC test to be considered independent contractors despite the arguments that they do.

The public may find it increasingly difficult to obtain services from a Notary if more Notaries are classified as employees. There likely will be fewer Notaries to provide notarial services to consumers in the mortgage finance and other vertical sectors. As employers exert greater control over their schedules, Notaries may find they have less time to provide direct Notary services to the public on their own time.

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