Texas looking to decrease number of misclassified workers

Several proposals would fine businesses as much as $1,000 per misclassified employee.

Businesses are increasingly using independent contractors as a means to accomplish goals without incurring the costs associated with full-time employees.

However, it is against the law to misclassify an employee as an independent contractor in order to avoid workers' compensation payments, unemployment insurance, and other costs. Simply classifying a worker as an independent contractor does not mean that worker is not an employee.

Litigation associated with worker misclassification is increasing in Texas. If a workers classified as independent contractors argue they are de facto employees, Texas courts will look to:

  • The degree of control exercised on the worker
  • The relationship between the worker and the business
  • The skill and initiative required of the job
  • The permanency or impermanency of the job

According to the Texas Workforce Commission, Texas employers incorrectly classified approximately 35,000 workers as independent contractors. Many of these workers came from the health care and construction industries, although a worker in any business could potentially be misclassified.

New bill increases penalties for employers

Under current law, employers may face civil penalties, lawsuits, and other costs related to worker misclassification. In 2013, Texas enacted a law that allows the Texas Workforce Commission to fine a business involved in a government contract $200 for each misclassified worker.

Employee rights' groups are attempting to further toughen penalties against employers who misclassify workers. The state House of Representatives is currently considering HB 434, which if it passes would fine employers $100 for each misclassified construction worker, including employers solely in the private sector. Repeat offenders would receive a $1,000 fine per misclassified worker.

A similar bill is in the state Senate would apply to all industries. The bills are receiving pushback, however, especially in the construction industry, as industry experts argue the cost of increasing regulation would push up home prices for consumers.

Independent contractor or employee?

Independent contractors can play a vital role for any employer. Using independent contractors is certainly not against the law. However, knowing when a worker is an independent contractor versus an employee is important to the bottom line of any business, whether or not proposed legislation increasing regulation of worker classification passes.

Businesses with questions regarding Texas worker classification laws should contact Key Harrington Barnes, PC. The experienced attorneys at Key Harrington Barnes can help businesses in a variety of civil litigation and employment law matters, including advisement and representation on worker classification issues.

To take a proactive stance and avoid costly litigation or future fines, contact our office for a consultation regarding legal options and next steps.

Keywords: Employee misclassification, wage and hour violations, employer defense.