Worker misclassification debate starts anew at the Texas Capitol

Capital Building Austin Texas Government Building Blue Skies

The Texas Capitol building in Austin.

The issue of worker misclassification promises to loom large once again during the next session of the Texas Legislature – and not just as it relates to the construction industry.

Misclassification happens when businesses pretend their labor is being done on a subcontracting basis when by law the people doing the work should be compensated as employees.

There are, of course, many legitimate uses of contract labor but the problem arises when some companies abuse the subcontractor designation specifically to avoid payroll taxes, workers’ compensation insurance, and other benefits that have traditionally been part of an employer-employee relationship. In construction, businesses that misclassify their workers can often underbid their competitors by as much as roughly 30 percent.

During a hearing of the Texas House Business and Industry Committee, lawmakers appeared divided on whether ride sharing companies like Uber and Lyft should be able to designate their drivers as independent subcontractors.

Quorum Report, Texas’ largest political newsletter, reported that the committee’s chairman, Rep. Renee Oliveira, was troubled by the way Uber and Lyft operate even though he said he is neutral on the issue for now:

As chair of Business & Industry, Oliveira said he’s spent years listening to the misclassification of employees as independent contractors. That classification allows business owners to dodge obligations like Social Security, overtime pay, health insurance and unemployment insurance.

“No business should gain a competitive advantage by avoiding taxes,” Oliveira said. “I’m trying to understand why we identify them as independent contractors when you regulate the scope and course of their mission and everything they do.”

Unlike some other businesses, companies like Uber have argued they’re not really employers at all – but instead they are simply a “platform for commerce.”


Ride hailing app Uber ceased operations in Austin after badly losing an municipal election.

Again, from Quorum Report:

Sarfraz Maredia, Uber’s Texas manager, said New York City had more than 100,000 people certified to drive cabs when Uber arrived, allowing Uber to simply be one in a number of platform options for new and existing drivers. By comparison, Houston, the other city where fingerprinting was added, was far different, with only 2,500 licensed taxi drivers.

“I don’t think (the commercial platform) will work,” Maredia said. “There isn’t the same baseline of vehicles to hire. They’re already revisiting that in New York, to look at doing the same thing through the state.”

Rep. Eddie Rodriguez, D-Austin, pressed Maredia on whether Uber was a simple software application – as rideshare companies insist – or something bigger and broader.

“It’s a platform for commerce. It’s not just an application,” Rodriguez said. “Sure, you don’t own the cars, but isn’t it a little bit more than an app? It’s an important app. I get it. I used it here in Austin before y’all decided to go.”

It’s not yet clear exactly how this will impact the ongoing debate over worker misclassification in the construction industry. However, one certainty is that lawmakers cannot create one set of rules about this topic for one industry without ramifications for all other industries. There will be policy ripple effects no matter how this gets worked out.

In 2013, then-Gov. Rick Perry signed a law cracking down on the practice on government construction projects. In 2015, the Legislature passed a law that makes it harder for people to avoid child support payments by becoming subcontractors. Construction Citizen will continue to track how the issue is developing ahead of the 2017 session of the Texas Legislature.

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