New TWC Rule Reclassifies App-Based Company Workers

The Texas Workforce Commission has approved a controversial new rule applicable to “gig economy” workers that would change regulations for app-based companies that hire contractors.  In a “gig economy” (a.k.a. “freelancer economy” or “sharing economy”) workforce conditions are such that short-term jobs and temporary contracts are common.  This new TWC rule change is particularly impactful for those who work for companies such as Uber, Lyft, DoorDash and the like offering home repair, food delivery, and ride-share services through digital apps.

The rule, passed by the Texas Workforce Commission despite significant public opposition, would classify these workers as independent contractors. This designation would allow the companies that hire gig workers to avoid paying unemployment taxes.  If these app-based companies are not required to pay unemployment taxes, gig workers are not eligible to receive unemployment benefits.

TWC Rules Change Process

One app-based company, Handy, spent months lobbying the Commission to make this change that would directly benefit it and other app-based services. Similar lobbyists in other states like Georgia and Colorado tried to pass like provisions through the state legislature but were unsuccessful. While Texas is the first to make such changes through a commission, some states like Florida, Arizona, and Tennessee have implemented similar rules.

The Texas Workforce Commission has spurned any implication that lobbyists directly impacted their decision and its rule-making process. That process included 30 days of public comment before adopting the rule. During that comment period, those opposing the legislation said that the new independent contractor rule could incentive companies to abandon brick-and-mortar businesses to avoid paying state unemployment taxes.

However, the lone vote on the Commission who opposed implementing the new rule believes this is a legislative issue. Commissioner Julian Alvarez said “This will only create more confusion, not clarity for Texas employers. 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.”

Rule Change Harms Workers & Traditional Competitors

The new independent contractor rule faces opposition amongst small business owners who are concerned that the change will make it harder for them to compete with app-based services. The AFL-CIO in their statement on the new rule articulately stated that, “the rules would put traditional businesses at a serious competitive disadvantage.”

When changes like this – that can have direct and ripple effects – come about, it is important to have knowledgeable employment and business attorneys by your side to assist you in navigating the ever-changing regulatory environment.  For counsel on the proper classification of temporary employees or contractors at your organization, contact the attorneys at Simon|Paschal PLLC.

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