Rule Would Let Companies Deny Many Workers in Texas Employment Benefits

Texas AFL-CIO Opposes Workforce Commission Proposal That Could Convert Some Gig Economy Workers Into ‘Marketplace Contractors’

The Texas AFL-CIO has formally opposed a pending rule that would give employers who conduct business via digital networks blanket authority to deny basic employment benefits to employees simply by calling them “marketplace contractors.” 

The Texas Workforce Commission voted to publish the rule proposal in December and could enact it later this month. 

“Under cover of the holiday season, the Texas Workforce Commission attempted to pull the rug out from under working families in Texas,” Texas AFL-CIO President Rick Levy said. “The TWC sought in one administrative swoop to relieve employers of their obligations to pay toward Social Security and Medicare, Workers’ Compensation, Unemployment Insurance and overtime pay. They also put at risk health coverage, paid holidays, paid sick leave, retirement plans and other commonplace terms of employment that Texans take for granted.”

“Political appointees shouldn’t get to declare the gig economy a separate world in which workers take on all the risk and a business’s obligations to workers vanish,” Levy said. “When it comes to the needs of working families, it does not matter whether customers enter via the front door, the mail box or a computer.”

Levy said because of the importance of the issue, the Texas AFL-CIO and its allies will be fighting the adoption of this rule at the commission and, if necessary, in court.

Below is the Texas AFL-CIO comment to the Texas Workforce Commission opposing the rule. The comment period ends Jan. 21. ________________________

Comments by the Texas AFL-CIO, representing Texas workers, on the proposed amendments to Subchapter C, Tax Provisions, 40 TAC §815.134of Chapter 815, relating to Unemployment Insurance

The Texas Workforce Commission (TWC), gave preliminary approval to rules that could disrupt the existing system for determining the employment status of many working Texans, triggering a 30-day comment period in the Texas Register that ends Jan. 21, 2019. The state agency proposes to allow certain companies to designate workers as “marketplace contractors,” rather than “employees,” if the employer uses “digital networks” to conduct its business. In other words, businesses that manage their workforce similar to how Uber and Lyft manage their drivers can declare employees independent “marketplace contractors.”  

While the proposal purports to affect only Unemployment Insurance, the rule could serve as a license for companies to convert their business model to digital platforms (i.e., website or online phone apps) to classify workers as independent contractors for ALL purposes. In the normal course of business, a worker is not likely to challenge that designation. Workers risk the loss of mandatory benefits that include a half-portion of Social Security and Medicare taxes, overtime pay, Unemployment Insurance, retirement and health insurance benefits, and Workers’ Compensation. In addition, once workers are determined to qualify as “marketplace contractors,” they may well lose employment benefits that businesses elect to offer to compete for workers.

The proposed rules represent bureaucratic overreach into activity that rightfully belongs to the Texas Legislature or the federal government.

Neither the Texas Workforce Commission, which voted for this proposal on a 2-to-1 vote, nor any other state agency possesses the authority to change the definition of “employee” in Texas. A policy change of this magnitude should be deliberated upon by elected officials. The TWC hangs its hat on its self-declared “broad authority” to adopt, amend, or repeal such rules as it deems necessary for the effective administration of TWC services and activities.” Establishing a new employment status for Texas workers, in addition to “employee” and “independent contractor,” in our view, exceeds this rule-making authority. 

A recent example of the Texas Legislature’s exercise of its jurisdictional power over worker status in the gig economy is House Bill 100 from the 85thLegislature’s regular session. The bill addressed transportation network companies, particularly Uber and Lyft. After much deliberation, the Legislature required the following of digital network companies employing independent contractors:

obtaining and maintaining a permit;
payment of fees;
digital identification of the contractor;
electronic receipts;
confirmation that the contractor is at least 18 years of age;
criminal background checks of contractors; and
protection of consumer information.

 The TWC would require none of these items of proof in the proposed rule.

In addition, the Texas AFL-CIO believes the rule would further victimize undocumented workers in an unregulated, underground economy.  In our view, immigrant workers should have the full panoply of workplace rights. By not requiring web-based businesses to maintain proof of legal citizenship, permanent residency, or valid employment authorization for “marketplace contractors,” the rule will create an incentive to hire undocumented workers while shedding all liability for issues related to their immigration status, along with the cost of benefits.

Bills enacting the Texas Workforce Commission’s proposed rules have passed in several states (Arizona, Florida, Indiana, Iowa, Kentucky, Tennessee, and Utah), and failed in others (Alabama, California, Colorado, North Carolina and Georgia). But in all of these cases, the appropriate government body—the state legislature--deliberated over the issue – something that has not taken place in Texas.

The commission wrongly concludes that small businesses will not see an adverse impact from the rule. By creating an unjust path to rock-bottom employment costs, the rules would put traditional businesses at a serious competitive disadvantage.

Finally, Chapter 821.5 of the TWC’s Payday Rules codifies the common law test for determining employment status. The rule already in place – one that does not conflict with current law – is adequate to determine the employment status of workers in the gig economy. 

For all of these reasons, the Texas Workforce Commission should drop completely its proposed changes to Chapter 815 relating to Unemployment Insuranceof the Texas Administrative Code.