BILL ANALYSIS

C.S.H.B. 2989

By: Deshotel

Business & Industry

Committee Report (Substituted)

BACKGROUND AND PURPOSE

A study of large construction projects in a major metropolitan area in Texas concluded that almost 40 percent of construction workers involved in those projects either were working "off the books" or were misclassified by their employers as independent contractors, resulting in close to $9 million a year in lost revenue in a single area of the state as a result of unpaid state unemployment insurance taxes and federal taxes. For the entire state, such losses become enormous.  Another concern is that such employers, by not following the law, achieve a competitive advantage in bidding and divert work from employers who do pay taxes, overtime, and workers' compensation premiums for their workers.  Further, off-the-books payments may occur in tandem with other crimes such as conspiracy, money laundering, and grand theft.  If law enforcement agencies were better able to share information about these violations, the applicable laws could be better enforced.

C.S.H.B. 2989 seeks to protect construction businesses from unlawful competition by establishing requirements relating to the classification of workers, improved enforcement, and better sharing of information about violators among the Texas Workforce Commission and law enforcement agencies.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Texas Workforce Commission in SECTION 1 of this bill.

ANALYSIS

C.S.H.B. 2989 amends the Labor Code to establish the Workplace Fraud Prevention Act,  provides for a short title for purposes of citing its provisions, makes its provisions inapplicable to a common law or statutory action for tort liability, and specifies that the bill's provisions do not change or affect the common law interpretation of independent contractor status as it relates to tort liability or a workers' compensation claim. 

C.S.H.B. 2989 requires a contractor to properly classify an individual performing construction services as an employee.  The bill  makes it a violation of the bill's provisions for a contractor to fail to properly designate an individual as an employee of the contractor; for a person to knowingly form or assist in the formation of a corporation, partnership, limited liability corporation, or other business entity, or pay or collect a fee for use of such an entity, for the purpose of facilitating a violation of the bill's provisions; or for a person to knowingly assist, aid, or conspire with an individual in committing a violation of those provisions.

C.S.H.B. 2989 requires the Texas Workforce Commission (TWC) to provide a toll-free telephone number and Internet website for use by the public in reporting violations of the bill's provisions and provides that information obtained by the TWC is confidential. The bill requires the TWC to investigate, in a timely manner, any credible complaint made through the telephone hotline or the website that contains the name and contact information of the person alleged to have committed a violation, the job site location at which the alleged violation occurred, and a description of the alleged violation.

C.S.H.B. 2989 requires a contractor or other person, if the TWC determines that the contractor or other person is in violation of the bill's provisions, to pay to the TWC a penalty in an amount not to exceed $500 per individual who is not properly designated as an employee of the contractor for the first violation and $5,000 per individual for each subsequent violation of that requirement. The bill requires the contractor or other person to pay the TWC a penalty not to exceed $500 for the first violation of the bill's prohibitions against knowingly forming or assisting in the formation of a corporation, partnership, limited liability corporation, or other business entity, or paying or collecting a fee for use of a corporation, partnership, limited liability corporation, or other business entity, for the purpose of facilitating a violation of the bill's provisions or knowingly assisting, aiding, or conspiring with an individual in committing a violation of those provisions, and $5,000 for each subsequent violation of either of those prohibitions. The bill makes any penalty issued under the bill's provisions applicable to a successor business entity that has one or more officers in common with the original employer and is engaged in the same or similar business activity. The bill requires an administrative penalty to be imposed in the same manner as the TWC imposes an administrative penalty under other law.

C.S.H.B. 2989 requires the TWC, if the TWC determines that a contractor or other person has violated the bill's provisions, to initiate enforcement proceedings under the Texas Unemployment Compensation Act to collect unpaid unemployment taxes plus interest; notify the Texas Department of Insurance of the violation and any possible violations of the Insurance Code; and notify the attorney general and any other appropriate prosecuting authority of any possible violation of other law. The bill authorizes the TWC to enter into interagency agreements with another state agency and adopt any rules necessary to administer the bill's provisions relating to notification of violations.

C.S.H.B. 2989 requires the TWC to issue an annual report regarding compliance with and enforcement of the bill's provisions and specifies the information to be included in the report. The bill requires the TWC to submit the report annually to the governor and legislature.

C.S.H.B. 2989 requires a contractor to post in a conspicuous location on the job site in English and Spanish a notice stating that every individual working for a contractor has the right to be properly classified by the contractor as an employee or independent contractor if the individual meets the requirements under the Workplace Fraud Prevention Act and directing any person who believes the person or someone else has not been properly classified to contact the TWC.

C.S.H.B. 2989 requires a contract between the state or a political subdivision of the state and a contractor performing construction services to require the contractor to submit an affidavit attesting that the contractor meets specified requirements relating to the proper classification of employees or independent contractors, compliance with the requirements of the state directory of new hires, and eligibility for contracting with the state or a political subdivision of the state.  The bill requires such a contract to require that a contractor performing construction services pursuant to the contract follow the provisions of the bill. The bill provides that a violation of its provisions related to the contract requirements is grounds for rescission of the contract by the state or political subdivision. The bill establishes that a contractor who knowingly provides a false affidavit under the bill's provisions is subject to the penalty of perjury for the first violation and requires the contractor to be barred from contracting with the state or a political subdivision of the state for three years on a subsequent violation.

C.S.H.B. 2989 establishes the workplace fraud prevention enforcement fund to fund the enforcement of the bill's provisions, requires the TWC to administer the fund, and provides that the fund consists of money appropriated to the fund by the legislature and any administrative penalties collected for violations of those provisions.

C.S.H.B. 2989 defines "construction," "contractor," "employee," "independent contractor," and "performing service."

EFFECTIVE DATE

September 1, 2011.

COMPARISON OF ORIGINAL AND SUBSTITUTE

C.S.H.B. 2989 differs from the original in the definition of "employee" by specifying that the term refers to an individual who provides a service for wages or under an express or implied contract of hire, with certain exceptions, whereas the original defines the term as an individual who performs any service for wages or under a contract for hire, whether written, oral, express, or implied, and who is subject to all taxes, obligations, benefits, and entitlements of an employee under state and federal law, with certain exceptions.  The substitute contains a definition not included in the original for "independent contractor."

C.S.H.B. 2989 differs from the original by requiring a contractor to properly classify an individual performing construction services as an employee, whereas the original requires a contractor to properly classify such individuals as an employee or independent contractor. The substitute omits provisions included in the original establishing the evidence that constitutes improper classification for an employee or independent contractor and the grounds for presuming that an individual performing construction services for a contractor is an employee and not an independent contractor.

C.S.H.B. 2989 differs from the original, in the requirement that a contractor or other person who the Texas Workforce Commission (TWC) determines has violated the bill's provisions pay an administrative penalty, by omitting the specification included in the original that the TWC's determination is made after a notice and hearing. The substitute differs from the original by setting the administrative penalty at an amount not to exceed $500 per individual who is not properly designated as an employee of the contractor for the first violation; $5,000 per individual for each subsequent violation; $500 for the first violation of the bill's prohibition against knowingly forming or assisting in the formation of a business entity or paying or collecting a fee for use of a business entity for the purpose of facilitating a violation of the bill's provisions, or against knowingly assisting, aiding, or conspiring with an individual in committing a violation of those provisions; and $5,000 for each subsequent violation of either of those prohibitions, whereas the original sets the cap on an administrative penalty at $500 for the first violation of the bill's provisions and $5,000 for each subsequent violation and specifies that, for purposes of determining a penalty, each individual improperly designated as an employee constitutes a separate violation.

C.S.H.B. 2989 differs from the original by including as a condition for making any penalty issued under the bill's provisions applicable to a successor business entity that the successor business entity is engaged in the same or similar business activity as the original employer, a condition not included in the original, and omitting the condition included in the original that the successor business entity is in violation of the bill's provisions. The substitute contains a provision not included in the original requiring an administrative penalty to be imposed in the same manner as the TWC imposes an administrative penalty under other law. The substitute differs from the original in nonsubstantive ways.