Employee or Independent Contractor?

Texas Rule on “Gig Workers” Takes Effect

From Epstein Becker Green, Susan Gross Sholinsky, Greta Ravitsky, Kevin R. Vozzo, and Christopher R. Shur provide a great summary of the new rule in Texas for contractors that work through a digital platform. Susan, Greta, Kevin and Christopher write:

Historically, the TWC used a 20-factor test to differentiate between employees (who are eligible for unemployment insurance benefits) and independent contractors (who are not). The 20-factor test focuses on the nature and extent of control that the putative employer exercises over the worker. Under the Rule, “marketplace contractors” who provide services for third parties through a “marketplace platform” are not employees of the marketplace platform—irrespective of their status under the 20-factor test, so long as the required conditions are satisfied.

The TWC has characterized the Rule, approved by a 2-1 vote, as its response to a changing workplace. Although the TWC will continue to evaluate eligibility for unemployment insurance benefits on a case-by-case basis, opponents of the Rule argued that it might incentivize companies to transition to an app-based platform to avoid state unemployment taxes. The TWC countered that the mere existence of a website would not automatically confer marketplace contractor status.

Applicable Definitions

Under the Rule:

  • 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 contractor” means “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.”
  • A “marketplace platform” is defined as 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.

Marketplace Contractor Test

In addition to meeting the definitions summarized above, there are nine conditions that must be satisfied in order for a marketplace contractor to fall under the Rule. If allnine conditions are met, the marketplace contractor will not be considered an employee of the marketplace platform and, therefore, will not be eligible for unemployment insurance. The nine conditions are as follows:

  1. All or substantially all of the money paid to the marketplace contractor is based on a per-job or per-transaction basis.
  2. The marketplace platform does not unilaterally prescribe specific hours during which the contractor must be available to accept service requests from the public (including third-party individuals and entities) submitted through the marketplace platform’s digital network.
  3. The marketplace platform does not prohibit the marketplace contractor from using a digital network offered by any other marketplace platform.
  4. The marketplace platform does not restrict the contractor from engaging in any other occupation or business.
  5. The marketplace contractor is free from control by the marketplace platform as to where and when the contractor works and when the contractor accesses the marketplace platform’s digital network.
  6. 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.
  7. The marketplace contractor is responsible for providing the necessary tools, materials, and equipment to perform the service(s).
  8. The marketplace platform does not control the details or methods for the services performed by the marketplace contractor by requiring the contractor to follow specified instructions on how to perform the services.
  9. The marketplace platform does not require the marketplace contractor to attend mandatory meetings or mandatory training.

Exceptions

The following services are excepted from coverage under the Rule:

  1. services performed by an individual in the employ of a state or any political subdivision of the state, or in the employ of an Indian tribe;
  2. services performed by an individual in the employ of a religious, charitable, educational, or other nonprofit organization;
  3. services performed by marketplace platforms “regulated as Professional Employer Organizations and professional employer services” under Texas law; and
  4. services performed by “temporary employees” and “temporary help firms,” as defined under Texas law.

Other Developments

As stated above, the Rule applies solely for purposes of eligibility for unemployment insurance. The Rule does not affect a worker’s independent contractor status under state or federal wage and hour or anti-discrimination laws.

Read the full story at  Texas Rule on “Gig Workers” Takes Effect

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