United States: NJ Appeals Court Finds Title Agency Misclassified Employees As Independent Contractors

In a decision issued on January 31, 2024, the New Jersey Appellate Division analyzed whether the level of control exercised by a title agent over closers, notaries, and title abstractors rendered them independent contractors or employees for the purposes of contributions under the New Jersey Unemployment Compensation Law and upheld the Commissioner of the New Jersey Department of Labor's determination that the workers were employees, not independent contractors pursuant to the UCL. Your Hometown Title, LLC v. N.J. Dep't of Labor & Workforce Dev., No. A-1168-21, 2024 N.J. Super. Unpub. LEXIS 148 (App. Div. Jan. 31, 2024). This decision is of note to title agents and requires a careful review of their vendor agreements

The Department of Labor Decision

The Department of Labor ("DOL") initiated an investigation into Your Hometown Title, LLC ("YHT") to ascertain whether YHT had tendered the required contributions to the unemployment compensation and state disability benefit funds in accordance with the New Jersey Unemployment Compensation Law ("UCL"). The DOL determined that twelve of the individuals YHT had classified as independent contractors were in fact employees under the law, including title abstractors, notaries, closers, and a cleaner hired to clean the YHT facility.

YHT appealed the decision to the Office of Administrative Law, where the administrative law judge found that eleven of the twelve individuals were independent contractors. Upon review of the administrative law judge's findings, the Commissioner overruled the judge and determined that all twelve employees were "misclassified as independent contractors."

In New Jersey, an employer's obligation to "pay into an unemployment benefits fund under N.J.S.A. 43:21-7, turns on whether its workers are employees or independent contractors." Pursuant to the UCL, a court uses a specific test, commonly called the ABC test, to determine whether a worker is an employee or independent contractor. N.J.S.A. 43:21-19(i)(6)(A)-(C): (A) the individual must be "free from control or direction over the performance of such service"; (B) the service "is either outside the usual course of the business for which such service is performed" or the service is performed outside the regular place of business for that service; and (C) the individual "is customarily engaged in an independently established trade, occupation, profession or business."

As to prong A, the Commissioner relied on YHT's "Independent Vendor Services Agreement," "Vendor Services Agreement," "Witness Only Closer Instructions," and "Notary Signing Agent Code of Conduct" (collectively the "YHT Agreements") to find that the YHT Agreements established an employer-employee relationship because they required the workers to complete their tasks in accordance with the strict guidelines, reporting requirements, and time restraints set for by YHT. The Commissioner noted that the YHT Agreements "reflect a 'substantial degree of control' over the individual engaged with YHT." The Commissioner pointedly rejected YHT's contention that the instructions set forth in the YHTS Agreements are "simply industry 'best practices.'" He reasoned that YHT's decision to issue the YHT Agreements, even if the requirements are industry best practices, "at YHT's sole discretion without any input from the closers, notaries, or title abstractors, coupled with the substantive provisions in these documents, is the 'very essence of direction and control.'"

The Commissioner further determined that YHT had failed to establish prong B as to closers and notary signing agents because they provide services at closing, which is a service performed by YHT in its "usual course of business" and the location of the closing "are locations whether YHT performs 'an integral part of its business.'" In contrast, the Commissioner found that YHT satisfied prong B as to title abstractors because he determined that categorizing the County Clerk's office as YHT's place of business was "unfair."

Finally, as to prong C, the Commissioner held that YHT met its burden for eleven of the twelve workers. Specifically, he determined that the closers, notaries, and title abstractors had their own "legitimate independent business enterprises" and "only earned between one and twenty-eight percent of their Schedule C income" from YHT assignments. The one exception to the Commissioner's finding was an employee who earned eighty-eight percent of her Schedule C income from YHT. YHT appealed the Commissioner's finding.

The Appeal

On appeal, YHT argued that it satisfied the ABC test and the facts at issue are like the facts set forth in Trauma Nurses, Inc. v. New Jersey Department of Labor, 242 N.J. Super. 135, 147 (App. Div. 1990), because the individuals could choose whether to accept an assignment, had no "material 'direction and supervision,'" and "had autonomy." YHT reiterated its contention that the YHT Agreements "simply reiterate industry standards" and asserted that because the individuals are required to maintain their own insurance, they "operate a separate business." As to prong B, YHT claimed that the disputed work occurs outside its place of business, and it does not provide closing and abstracting title services "to the public but hires vendors to perform" the services, rendering them outside YHT's usual course of business. Turning to prong C, YHT asserted that it was the individual's choice to procure the majority of her work from YHT.

The New Jersey Land Title Association ("NJLTA") participated in the appeal as amicus curiae. NJLTA argued that the Commissioner's decision lacked factual support, that "industry standards and codes of conduct are not the same as instructions" and the title agent does not control the timeline of the transactions; the buyer and seller of the property do. Critically, NJLTA asserted that the status of the workers as employees was "negated by virtue of the individuals carrying their own insurance." In contrast, DOL argued that YHT required the individuals to sign agreements and "adhere to role-specific addendums[.]" DOL countered that even if the YHT Agreements "reflect industry standards in practice," it was YHT's decision "to adopt the instructions, thereby mandating compliance with them as a condition of providing services for YHT."

On appeal, the Court reviewed the record below to determine whether "the Commissioner acted in an arbitrary, capricious, or unreasonable manner or that its decision lacked fair support in the record." Further, the Court reiterated that the findings of the assignment law judge "are not binding on the Commissioner." After reviewing the record and relevant controlling law, the Court held that the Commissioner's determination was reasonable.

Specifically, the Court found that YHT had failed to meet prong A and "the Commissioner reasonably classified the closers, notary signing agents, and title abstractors as employees of YHT" because they "were subject to a sufficient degree of control[.]" Like the Commissioner, the Court looked to the YHT Agreements and noted that YHT's "instructions for the title abstractors were detailed in nature" and "specific directions" were provided for a range of tasks, which had "to be completed in strict compliance" with the YHT Agreements. Rejecting YHT and NJLTA's assertion that the YHT Agreements simply set forth industry standards, the court determined that the agreements were "specific vendor services agreement[s]" with detailed requirements set by YHT, "not an outside institution." Finding that YHT had failed to satisfy prong A, the court declined to substantively address the remaining prongs of the ABC test.

In sum, the Court upheld the Commissioner's finding that closers, notaries, and title abstractors were employees for purposes of contributions under the UCL due to the specific "instructions and parameters" set forth in the YHT Agreements. Although focused on the UCL, this decision calls into question the nature of the relationship between title agents and the parties they contract with to do closings and title searches, including whether that relationship is susceptible to additional liabilities based on the language of the constraints and requirements set forth in the vendor agreements. Thus, those agreements should be carefully reviewed to be clear on a vendor's status and responsibilities.

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