The state’s workforce commission quietly advanced a rule that exempts a new class of workers from unemployment insurance coverage.
by Justin Miller
January 31, 2019
A Texas state agency has quietly thrown itself into the middle of one of the most heated policy debates on the future of work: Are the workers who fuel the gig economy — Uber drivers, Postmate couriers, online freelancers — independent contractors or are they employees entitled to certain benefits and protections?
In early December, the Texas Workforce Commission tentatively approved a rule by a 2-1 vote that defines workers hired through an app as “marketplace contractors” ineligible for unemployment insurance. A 30-day public comment period ended last week, and the agency could soon implement the rule.
The proposal seemed to come out of nowhere. Caught off guard, labor watchdogs like the Workers Defense Project now suspect that shadowy industry interests lobbied the commission to craft an employer-friendly regulation, one that lets economic “disruptors” off the hook for paying into the state’s unemployment insurance fund and provides them shelter in the face of growing legal threats.
The rule not only would stack the deck against workers, they argue. It would also explicitly create a special carveout for out-of-state gig employers and put more pressure on Texas’ small business owners trying to compete.
Though the provenance of the rule isn’t clear, Workers Defense Project says it appears to have the fingerprints of gig economy companies.
“We don’t know who put the [Workforce Commission] up to it. We don’t know who helped write the rule. … We do know that when they got to Texas, someone decided that instead of having a transparent and open process, it made more sense to make those changes in the dark of night,” Jose Garza, executive director of the Workers Defense Project, told the Observer.
During a July meeting, Texas Workforce Commission officials alluded to conversations with an unnamed stakeholder about the need for a “marketplace contractor” rule.
During a meeting that month, Commissioner Ruth Hughs said that she was “receiving interest” in the agency providing “some clarity on the gig economy and the classification of workers in that particular industry, and the marketplace contractor industry.” Hughs ordered the agency to draft a rule “that addresses the employment status of marketplace contractors.”
Commissioner Julian Alvarez echoed Hughs’ concerns in the July meeting. “We’re hearing more and more jobs are [in the] gig economy,” he said. The agency’s executive director at the time chimed in, “You and I have had several conversations. We’ve been talking to the same person, I think, for a couple of years now.”
The agency is being tight-lipped about the impetus of the rule and did not make any commissioners available for an interview. Asked about potential industry influence in the promotion or drafting of the rule, Communications Director Lisa Givens said, “Neither staff nor the Commissioners use outside sources when drafting proposed rules.”
Moreover, Workers Defense points to a push within the past year by Handy, an app-based cleaning and maintenance company, to advance legislation in several states that creates similar — albeit more expansive — exemptions specifically for “marketplace contractors.”
“This whole thing is a big Texas-sized whodunnit,” Garza said.
The agency says it’s simply doing its job by providing legal clarity for employers and workers in a burgeoning sector of the economy.
“We want to ensure that current rules regarding employment status determination sufficiently address this newer employment model,” Givens said in a statement.
The rule, if enacted, would essentially create a special class of worker classification called a “marketplace contractor” — that is, someone who is hired through a “digital network” (i.e. an app) to work for a “marketplace platform.”
That language is similar to legislation pushed in several other states by Handy, the cleaners-for-hire app. The company recently embarked on an aggressive campaign to convince lawmakers in business-friendly state legislatures to define gig workers on “marketplace platforms” as independent contractors. The company did not respond to questions about whether they had any involvement in the TWC rule.
Over the past two years, Arizona, Florida, Indiana, Iowa, Kentucky, Tennessee and Utah have all approved similar “marketplace contractor” laws, according to a report by the National Employment Law Project. In Florida, the language was snuck in page 100 of a lengthy tax bill by a powerful state lobbyist. Legislation in at least four other states failed.
But there has never been an effort to advance their agenda through state agencies, national labor experts say. In that way, the gig economy industry could be testing a new stealth strategy in Texas. Labor advocates suspect that perhaps the industry’s representatives thought they’d face less resistance if they just went through a state commission rather than operate in the spotlight of the Legislature.
Handy does not appear to ever have had a registered lobbyist in Texas, according to the state lobbyist registration database.
Alvarez was the lone commissioner to vote against the rule in the December meeting. “I would prefer that we allow the Legislature to address this issue,” Alvarez said. “Our current rules have worked well for Texas workers and employers while allowing for innovation in a growing economy.” Commissioners have not indicated when they will take up the rule for final approval.
This wouldn’t be the first time that Texas has sided with Silicon Valley in a tumultuous battle over rights afforded to the labor force behind the country’s most popular apps. After a prolonged standoff between major cities, including Houston and Austin, and the rideshare giants Uber and Lyft, Texas Governor Greg Abbott signed a law in 2017 that preempts local ordinances regulating rideshare companies. Importantly, the law specifically defined drivers for a “transportation network company” as independent contractors.
But the favorable state law didn’t come cheap. Over a few years, the companies spent millions of dollars in the state plying legislators with campaign contributions and assembling an army of lobbyists. By 2017, Uber spent as much as $1.5 million on 26 lobbyists to wine and dine Texas lawmakers, according to a report by Texans for Public Justice.
It’s all part of a broader effort by powerful Silicon Valley “disruptors” to undermine longstanding labor standards under the guise of adapting to a new economy, critics say.
While other states’ “marketplace contractor” legislation has carved out broader exemptions for benefits such as a minimum wage, overtime and workers’ compensation, the Texas Workforce Commission’s new rule specifically pertains to unemployment insurance eligibility. That’s an area where the gig industry has run into some big legal challenges, according to Ceilidh Gao, senior staff attorney for the National Employment Law Project.
“There’s a real focus in the industry to fight back [on unemployment obligations]. UI is part of a package of payroll costs that employers really don’t want to pay,” Gao said. Under current state law, employers must pay taxes into the state unemployment insurance fund on the first $9,000 of an employee’s annual wages. The rule would except employers from paying into the fund for “marketplace contractors.”
Furthermore, the Texas rule’s definition of “marketplace platform” specifically advantages companies that exclusively operate via app and do not operate brick-and-mortar stores in the state, Gao says. “This is a clear special interest regulation.”
Advocates worry the rule could create a slippery slope. “If they changed the rule in this narrow space about who is and who is not an employee, I think it’s ludicrous to believe that that’s where they’re going to stop,” said Garza, of the Workers Defense Project. He says there’s nothing stopping a business moving its operations to an online platform and hiring its workers through an app as a way to avoid paying out benefits.
Meanwhile, some legislators are concerned that the commission has circumvented the state’s deliberative legislative process. “It caught me by surprise. Why the weren’t we notified as legislators?” state Representative Ramon Romero, D-Fort Worth, told the Observer.
“[The commissioners] don’t have to look very far to see where the rules are made,” he said, pointing a couple blocks over to the Capitol’s pink dome.