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Industry Opposition Leads to Likely Demise of Worker Classification Bill

Advocacy groups and business owners urged lawmakers to crack down on companies that misclassify their employees for tax and immigration purposes. But in the final days of the session, the measures have run out of steam.

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Proposals that would have cracked down on employers who knowingly misclassify construction employees and contribute to an ever-growing undocumented workforce are likely dead this session.

It’s an indication, some lawmakers and advocacy groups say, that despite political rhetoric to the contrary, the state’s Republican majority isn’t willing to change the status quo in industries that use low-skilled immigrant labor.

Senate Bill 676, by state Sen. John Carona, R-Dallas, and House Bill 1925, by state Rep. John Davis, R-Houston, would have restricted what lawmakers and business owners say is a loophole that allows employers to misclassify their employees as independent contractors or subcontractors, also called “1099” employees. Employers sometimes use that classification to avoid paying payroll taxes, overtime and workers' compensation. But it also allows employers to avoid learning whether their employees are legally authorized to work in this country.

The bills would have levied fines ranging from $100 to $1,000 on employers for each employee that was misclassified. More than 300,000 workers in Texas, or about 40 percent, are misclassified as independent contractors, according to a January study conducted by the University of Texas at Austin and the Workers Defense Project, a nonprofit advocacy group that supports immigration reform and fair labor practices. About 50 percent of all construction workers, the report also found, are undocumented.

Misclassification results in about $54 million in lost unemployment tax revenue and about $1.06 billion in lost federal income tax revenue, according to the study.

Carona’s bill stalled in the Senate Committee on Economic Development and Davis’ bill, despite being unanimously voted out of the House Committee on Economic Development and Small Business, never received a full vote in that chamber. Davis said that while smaller construction companies supported the bill, larger homebuilders like Perry Homes and David Weekley Homes opposed it. Representatives from both companies registered opposition to the bill during a committee hearing last month.

Lawmakers can still attach their proposals to other measures moving through the Legislature, but only if the proposals are similar in content. Davis conceded that chances for his bill are slim with fewer than two weeks left in the session. He added that he doesn’t view it as an immigration bill but as a best-practices measure that is simple to follow.

“I am a roofing contractor myself, and so I just view it as making sure everyone plays by the same rules,” Davis said. “It’s just a heads-up deal.”

Others, however, see the proposal as purely an immigration issue.

“Of course it’s an immigration issue, but it’s hidden under this umbrella of playing on an even field,” said state Rep. Eddie Rodriguez, D-Austin. He supported Davis' bill and helped vote it out of committee. But he said that big businesses who oppose the measure had ultimately won out.

Emily Timm, a policy analyst with the Workers Defense Project, said opponents in the construction industry worried changing the status quo would damage their bottom lines. But she said that under the current system, taxpayers and businesses that follow the rules lose out.

“Those costs are built in to what Texas taxpayers have to pick up when workers who are misclassified get injured on the job,” she said. “We have to pay for the hospital tab.”

State Rep. Paul Workman, R-Austin, who also serves on the Economic Development and Small Business Committee and supports Davis’ bill, said there is only so much states can do to address employment and immigration issues until the federal government acts.

“If we can get the federal government to pass a guest worker program that’s meaningful, then we can do a lot more on the misclassification issue,” said Workman, who founded Workman Commercial Construction Services.

Timm agreed that federal reform is needed, but she said that shouldn’t be an excuse.

"Saying we can’t address an issue that is real important to Texas until the federal government acts is kind of side-stepping the issue,” she said.

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