Advisory on “Gig Workers” in Texas Featured in Employee or Independent Contractor?

The Texas Workforce Commission (“TWC”), the agency responsible for administering unemployment benefits and assessing unemployment taxes, recently adopted a rule (“Rule”) pursuant to which certain workers who provide services through app-based businesses and websites cannot be considered “employees” for unemployment insurance purposes.

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.