According to some reports, in 2018, the US economy included up to 53 million “gig” workers. Of those 53 million, the report estimates that 10.1 million were assigned as temporary workers by staffing firms, and 7.9 million were “human cloud workers,” which may be better described as workers utilizing online digital platforms to obtain business and provide services to third parties.
The issue of whether these human cloud workers, utilizing online digital platforms, 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. Recently, in an effort to provide some clarity on this topic, the Texas Workforce Commission (“TWC”) recently adopted a rule (“Rule”) pursuant to which certain workers participating in the gig economy that provide services through app-based businesses and websites cannot be considered “employees” for unemployment insurance purposes. 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.”
Previously, the TWC utilized the independent contractor analysis used in Texas Payday Law proceedings for all unemployment issues. Specifically, 40 TAC § 815.134 provides that “the [TWC] 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. In general, those factors can be distilled down to whether direction and control over the activities of the individual exist “under the contract and in fact.” The revised Rule now clarifies the question of how “direction and control” apply in the context of marketplace platform business models.
Under the Rule, there are nine conditions that must be satisfied. If all nine conditions are met, the contractor will not be considered an employee of the marketplace platform and, therefore, will not be eligible for unemployment insurance. The nine conditions are:
- All or substantially all of the money paid to the marketplace contractor is based on a per-job or per-transaction basis.
- 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.
- 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 contractor works and when the 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(s).
- 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.
- The marketplace platform does not require the marketplace 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 Rule is now in effect in the State of Texas and will hopefully help bring some 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 Rule. It is important, however, to reiterate that the Rule applies only to unemployment-related issues, not to other situations regarding the employee/independent contractor analysis under state and federal wage and hour and discrimination laws.
About Harrison Oldham
Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.
Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://