Texas Workforce Commission Issues Proposed Rules Excluding Certain Gig Workers From the Definition of “Employment” Under Texas Unemployment Laws
The issue of whether workers who utilize online digital platforms to obtain business and deliver services to third parties are employees or independent contractors has already been subject to much debate and litigation. In the growing gig economy, questions surrounding these issues can create uncertainty for both businesses and gig workers.
Currently, the Texas Workforce Commission (TWC) utilizes the independent contractor analysis used in Texas Payday Law proceedings for unemployment issues. Specifically, 40 TAC § 815.134 provides that “the Commission shall use the guidelines referenced in § 821.5 . . . for use in determining employment status.” Section 821.5 utilizes a 20-part common law test to evaluate the employment status of an individual.T
The TWC recently issued a proposed rule that would clarify the employment status of certain gig workers for purposes of Texas unemployment laws. Specifically, in December 2018, the TWC published a proposed amendment to Section 815.134 of Chapter 40 of Texas Administrative Code to define when a gig worker would not be considered an employee for purposes of unemployment taxes and benefits. The TWC’s purpose was “to develop an employment status analysis for workers who use a marketplace platform’s digital network to conduct their own independent businesses.” Specifically, employment status is generally predicated on determining whether direction and control over the activities of the individual exist “under the contract and in fact.” The proposed rule seeks to clarify the question of how “direction and control” apply in the context of marketplace platform business models.
The proposed rule provides certain definitions related to the business models involved:
- A “digital network” is defined as “an online-enabled application, software website, or system offered by a marketplace platform for the public to use to find and contact a marketplace contractor to perform one or more needed services.”
- A “marketplace platform” is a business entity operating in the state that (1) “uses a digital network to connect marketplace contractors to third-party individuals or entities seeking the type of service or services offered by the marketplace contractors”; (2) “accepts service requests from the public only through its digital network, and does not accept service requests by telephone, facsimile, or in person at physical retail locations”; and (3) “does not perform the services offered by the marketplace contractor at or from a physical business location that is operated by the platform in the state.”
- A “marketplace contractor” is defined as “any individual, corporation, partnership, sole-proprietorship, or other entity that enters into an agreement with a marketplace platform to use the platform’s digital network to provide services to third-party individuals or entities seeking the type of service or services offered by the marketplace contractor.”
The proposed rule then identifies the specific conditions under which a marketplace contractor would be treated as “not in employment” for purpose of the unemployment laws. Those conditions, as set forth in the rule and quoted here, are the following:
- “All or substantially all of the payment paid to the contractor shall be based on the performance of services or per-job basis”;
- “The marketplace platform does not unilaterally prescribe specific hours during which the marketplace contractor must be available to accept service requests from third-party individuals or entities submitted through the marketplace platform’s digital network”;
- “The marketplace platform does not prohibit the marketplace contractor from using a digital network offered by any other marketplace platform”;
- “The marketplace platform does not restrict the contractor from engaging in any other occupation or business”;
- “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”;
- “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”;
- “The marketplace contractor is responsible for providing the necessary tools, materials, and equipment to perform the service or services”;
- “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.”
Excepted from coverage under the rule are (1) “[s]ervices performed in the employ of a state or any political subdivision of the state, or in the employ of an Indian tribe; (2) “[s]ervices performed by an individual in the employ of a religious, charitable, educational, or other organization”; (3) “[s]ervices performed by marketplace platforms regulated as Professional Employer Organizations and professional employer services” under Texas law; and (4) “[s]ervices performed by temporary employees and temporary help firms as defined” under the Texas law.
The new rules, if adopted, will bring predictability to what has been a confusing situation for many employers, businesses, and individuals. Many of the current rules regarding employment status do not take into account the nature of the gig economy and platforms such as those described by the proposed rules. It is important to note that the proposed rules would apply to unemployment-related issues only, not to other situations regarding the employee/independent contractor analysis under state and federal wage and hour and discrimination laws.