The Lone Star state’s Workforce Commission adopted a rule that workers hired through apps are independent contractors
California lawmakers recently approved a bill widely expected to reclassify gig workers from independent contractors to employees – drastically changing, some say, the business models for companies such as Uber and Lyft that classify many of their workers as independent contractors.
But, earlier this year, decision makers in Texas went in the opposite decision and the Lone Star state’s Workforce Commission adopted a rule that workers hired through apps are independent contractors for the purpose of qualifying for unemployment.
Some say the Texas rule creates a third employment classification – marketplace contractor – that is neither an employee nor an independent contractor, and one that, in a tech-heavy setting, operates under different rules from either of the two longstanding worker classifications.
Independent contractors, often called “gig workers” when they are hired through an app or for a tech company, are a significant part of the American economy. An August 2018 Gallup poll found that 36% of U.S. workers are involved in the gig economy.
Gig workers are exempt from traditional employee protections such as minimum wage, overtime requirements, unemployment insurance, and worker’s compensation requirements and have to take care of paying taxes quarterly on their income to the appropriate taxing authority.
Many of the nation’s fastest-growing companies, several of them based in California, are heavily dependent on gig workers to perform much of the work that their companies do. Uber, Lyft, Instacart, TaskRabbit, and Handy are some well-known gig companies.
Uber and Lyft reportedly lobbied against the California bill and have said, according to The Hill, that the “law’s key provisions” do not apply to its drivers and that they will “funnel millions of dollars” into a ballot measure intended to overturn the law.
The Texas rule also faced opposition. Handy, a global company where consumers hire workers for home cleaning and handyman services through their app or website, lobbied for rules that would limit its responsibility to provide worker’s compensation and other employment benefits while the Texas rule was under consideration, Texas Standard has reported.
California lawmakers throw a monkey wrench in the gig economy
The California law, Assembly Bill 5, presumes that a worker is an employee, potentially changing the employment classification of millions of workers in the Golden State.
It classifies a person providing labor or services as an independent contractor if that person:
- Is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in actual fact
- Performs work that is outside the hirer’s core business
- Is customarily engaged in “an independently established trade, occupation or business of the same nature as the work performed for the hiring entity
Doctors, surgeons, dentists, lawyers, and commercial fishermen, among others, are exempted from the new law’s requirements.
The California measure becomes effective on January 1, 2020.
The California legislation codified a ruling from the state’s top court where the court adopted a new standard to determine whether a worker is an employee or an independent contractor. Much to the dismay of California employers whose staffing included a significant contingent of independent contractors, the court scrapped an existing standard that leaned toward finding that a worker was an independent contractor and came up with a rule that made it easier for workers classified as independent contractors to successfully claim they are employees who were entitled to minimum wage, unemployment compensation, worker’s compensation, and other benefits.
Texas authority rules that gig workers can be independent contractors
The Texas rule basically takes a different tack and classifies on-demand workers who are hired for jobs through digital apps as independent contractors as long as all of 9 factors are met and a contract is in place.
Legal experts say the factors are not that different from the “right to control” test often used to determine if a worker is an employee or an independent contractor. If an employer control over a worker, then the worker is presumed to be an employee, not an independent contractor.
Rule 815.134 “Employment Status: Employee or Independent Contractor” notes that it is providing guidelines for use in determining the employment status of “marketplace platform contractors.”
The rule says a marketplace platform is a business operating in the state that uses a digital network to connect marketplace contractors to the public, including third-party individuals and entities, seeking the type of service or service offered by marketplace contractors. In most instances, this would include rideshare drivers and delivery drivers, among others, hired through an app.
The conditions that must be met are:
- That all or most of the payment made to the contractor is done on a per-job or transaction basis; and
- The marketplace platform does not require specific hours during which the marketplace contractor must be available to accept service requests from the public submitted through the marketplace platform’s digital network; and
- The marketplace platform does not forbid the marketplace contractor from using a digital network offered by any other marketplace platform; and
- The marketplace platform does not restrict the contractor from engaging in any other occupation or business; and
- The marketplace contractor is free from control by the marketplace platform as to where and when the marketplace contractor works and when the marketplace contractor accesses the marketplace platform’s digital network; and
- The marketplace contractor bears all or substantially all of the contractor’s own expenses that are incurred by the contractor in performing the service or services; and
- The marketplace contractor is responsible for providing the necessary tools, materials, and equipment to perform the service or services; and
- The marketplace platform does not control the details or methods for the services performed by a marketplace contractor by requiring the marketplace contractor to follow specified instructions governing how to perform the services; and
- The marketplace platform does not require the contractor to attend mandatory meetings or mandatory training.
There are exceptions. The rule does not apply to services performed for the state or a political subdivision of a state, Indian tribes, religious, charitable, and educational organizations, services performed by marketplace platforms regulated as professional employer organizations and services performed by temporary employees and temporary help firms.
The TWC rule became effective on April 29, 2019.
Marketplace contractor laws in other states
California and the Lone Star State aren’t the only states to grapple with the issue. Over the past couple of years, Arizona, Florida, Indiana, Tennessee, and Utah have approved marketplace contractor laws that treat gig workers as independent contractors, according to NELP’s Rebecca Smith.
Federal lawmakers are also looking at the gig economy. Rep. Andy Biggs (R-AZ) re-introduced a bill early this year, “Protect The Gig Economy Act,” that would, among other things, protect the “gig economy” and small businesses that operate through contractor services from the threat of class action litigation. The bill hasn’t seen much action since its introduction.