Targeted Worker Misclassification Law Takes Effect in Texas

Construction companies across Texas that work on public projects are on notice now that the targeted worker misclassification crackdown passed by the legislature in 2013 has taken effect.

HB 2015 “Worker Classification” was signed into law on June 14, 2013 and became effective on January 1, 2014.  This law is considered by many to be a good first step in the fight against the problem that is especially rampant in residential and commercial construction. But, advocates for workers and for a fair marketplace understand that much more needs to be done in the years to come if the playing field is going to be leveled so that ethical companies will be able to compete.  While putting these penalties in place on public projects will help in the commercial sector, nothing at all will change in residential construction.

The issue arises when companies, by law, are required to pay their workers as employees and incur the costs that go along with that, while other firms lower their costs and increase their profits through simply ignoring the law – paying employees as independent subcontractors.  That leaves those workers on the hook for all of their taxes, health care, etc. That’s not at all to say that there aren't legitimate uses of the independent subcontractor designation, but the IRS has clear definitions for who is a subcontractor and who is an employee.

It is also important to understand that intentional misclassification of employees is already illegal. This isn't about creating new laws. It’s about following the laws as they already exist. Getting people to do that has been especially difficult because there is very little enforcement, and up until now there has been no penalty in Texas for breaking it. It would be similar to getting a speeding ticket that didn't cost you anything. Now, at least there will be consequences for companies caught cheating in this way on public projects.

According to the Texas Construction Association (TCA), the new law “amends the Texas Labor Code to require that employers awarded a contract for public works must ensure that any individual performing services under the contract for that employer is properly classified as an employee or independent contractor.  HB 2015 also requires a subcontractor employer under that contract for public work to classify properly an individual as an employee or independent contractor.  An employer who misclassifies is subject to a $200 fine for each individual misclassified.”

This was proposed by Representative John Davis, R-Houston, and sponsored by Senator Kirk Watson, D-Austin. Davis is a retiring legislator who also pushed for a broader law that would have done much more to deal with the problem. Davis joined with Senator John Carona, R-Dallas, in supporting a proposal to create fines for the misclassification of workers on all projects. That push was met with stiff opposition from the largest home builders who contend their profit model would be disrupted and home prices would rise for Texans if they were subject to fines for misclassification.

Momentum has been building for years and reached a turning point in late 2012 when the Texas Workforce Commission voted unanimously to support a crackdown like the one that has now become law. Prior to that vote, TCA's Michael White testified before the commission that companies cheating by misclassifying their workers can underbid ethical contractors by as much as 25 percent.

Cheaters often get the contracts because they’re cheaper. This system also gives plausible deniability to the owners of the projects. That's why owners must take responsibility for what happens on their jobsites by adopting principles promoted by the Construction Career Collaborative.  Enforcement of the law, coupled with the efforts of C3, are the best ways to ensure a sustainable workforce for the future of the industry.

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