New Labor Rule Means Gig Economy Workers In Texas Can't Get Unemployment Benefits

Apr 9, 2019

The state’s labor regulator on Tuesday approved a controversial new rule on gig economy workers – a rule opponents say will have far-reaching implications for these workers going forward.

Approved on a 2-1 vote, the rule from the Texas Workforce Commission exempts app-based companies that hire contractors – like TaskRabbit or DoorDash – from paying state unemployment insurance taxes for those workers. The three-member commission gave initial approval for the rule in December.

Labor unions and workers advocates say the new rules were tailor-made by lobbyists from a firm called Handy. The agency has defended its rule-making process, saying it is well within its legislatively appointed rights to rule on employment matters and that, per state law, it allowed 30 days of public comment before initially adopting the rules. Opponents have said the rules could incentivize companies to abandon brick-and-mortar businesses to avoid paying those state unemployment taxes, but Commissioner Ruth Hughs pushed back on that argument shortly before the commission's vote.

"Time and again, people might think that the mere existence of a website is going to change the status, and I know that's not that case," she said.

Commissioner Julian Alvarez, the lone dissenting vote, called for the agency to postpone its vote and organize listening sessions to address the concerns of workers and advocates. Alvarez also suggested the Texas Workforce Commission follow the suggestion of the Department of Labor and let state lawmakers address the issue, rather than the TWC.

"This will only create more confusion, not clarity for Texas employers," he said. "Many workers may be reclassified as independent contractors under these proposed rules, and these rules may have a major effect on those who are most vulnerable – landscapers, housekeepers and general laborers."

Fidel Guzman, a construction worker and member of the Workers Defense Project, told the commission the rule would reclassify many construction workers as independent contractors, leaving them without those protections for wage theft and discrimination on job-sites.

Hughs emphasized the rule would not apply to issues surrounding wage theft and employee discrimination cases.

Bill Beardall, executive director for the Equal Justice Center, testified against the rule, saying it would lead to a misclassification of workers because the formula uses only nine factors to classify employment, rather than the 20 factors in the IRS' definition of employment. He also said the state's unemployment tax benefits the state's economy, as it allows out-of-work Texans to avoid welfare or other safety-net programs.

"This is a benefit for the entire state and this one subset of business – online, digital employers – shouldn't be carved out and given a special interest set of rules that's favorable to them and is different from what other employers have to comply with," Beardall said.

The commission maintains that it will determine an employee's reclassification on a case-by-case basis.

That suggestion of special interest influence over the rule-making process has dogged the commission since it first approved the rules on a preliminary vote in December. Workers Defense filed a public information request for communications between Hughs and Handy, which showed she sought advice and was briefed by two lobbyists working for the firm before the rules were made. The nonprofit says that communication violated state ethics laws, because the lobbyists failed to register properly with the Texas Ethics Commission – a detail first reported by The Texas Observer. Workers Defense also says Hughs, who was appointed to lead the autonomous commission by Gov. Greg Abbott, was in communication with Abbott's office about the rule change.

The rule will be submitted to the Texas Secretary of State and put in the Texas Register. It goes into effect 20 days after that submission.

Clarification – An earlier draft of this story suggested Uber would be regulated by these labor rules. The commission says Lyft and Uber are regulated by the Texas Occupations Code.