HBA-ATS C.S.H.B. 1184 76(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 1184
By: Hilbert
Licensing & Administrative Procedures
4/19/1999
Committee Report (Substituted)


BACKGROUND AND PURPOSE 

A professional employer organization (PEO) may be generally defined as an
organization that contracts with a business to handle employee- related
matters such as personnel management, health benefits, workers'
compensation claims, payroll, payroll tax compliance, and unemployment
insurance claims.  The PEO's contractual obligation is to assume employer
rights, responsibilities, and risk, in effect establishing and maintaining
an employer relationship with the workers assigned to its clients.  For
example, typical duties undertaken and obligations incurred by a PEO
include: assigning workers to client locations and assuming responsibility
as an employer for specified purposes of the workers assigned to the client
locations; reserving a right of direction and control of the employees;
paying wages and employment taxes of the employee out of its accounts;
reporting, collecting, and depositing employment taxes with state and
federal authorities; and retaining a right to hire, reassign, and fire the
employees. 

The contractual allocation and sharing of employer responsibilities between
the PEO and the client means that they are co-employers.  As co-employers
the parties may share responsibility for some obligations, but, in general,
the terms of the contract determine the responsibilities and obligation of
each party.  Typically, the PEO ensures that worksite employees are
provided with a workplace that is safe, conducive to productivity, and
operated in compliance with employment laws and regulations. In addition,
the PEO may provide worksite employees with workers' compensation
insurance, unemployment insurance, and a broad range of employee benefits
programs. 

C.S.H.B. 1184 redefines "staff leasing services" to include professional
employer organization services and "staff leasing services company" to
include a professional employer organization. Under this bill, an insurance
certificate for workers' compensation insurance held by a license holder
constitutes proof of workers' compensation coverage for it and the client
company for all employees of the license holder assigned to the client
company.  The state and its political subdivisions are required to accept
the insurance certificate as proof of workers' compensation coverage under
Chapter 406 (Workers' Compensation Insurance Coverage), Labor Code.
However, the state or its political subdivision is authorized to require
the client company, if it has employees who are not assigned employees
under a staff leasing services agreement, to furnish separate proof of
workers' compensation insurance coverage for those employees. 

In addition, this bill designates the responsibilities retained by a client
company under a contract with a staff leasing services company.  A client
company is responsible: for the direction and control over assigned
employees to conduct its business, to discharge any applicable fiduciary
duties, or to comply with any licensure, regulatory, or statutory
requirements; the goods and services produced by it; and the acts, errors,
or omissions of the assigned employees committed within the scope of its
business.  In addition, a contract between a license holder and a client
company must provide that the license holder shares with the client company
the right of direction and control over employees assigned to a client's
worksite, the right to hire, fire, discipline, and reassign the assigned
employees, and the right of direction and control over the adoption of
employment and safety policies and the management of workers' compensation
claims, claim filings, and related procedures. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the Texas Department of Licensing and
Regulation in SECTION 6 (Section 91.021, Labor Code) of this bill. 
 
SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subdivisions (14) and (15), Section 91.001, Labor Code,
as follows: 

(14) Redefines "staff leasing services" to include professional employer
organization services. 

(15) Redefines "staff leasing services company" to include a professional
employer organization.  

SECTION 2.  Amends Section 91.002(b), Labor Code, to provide that each
person who offers staff leasing services, rather than each license holder,
are subject to Chapter 91 (Staff Leasing Services) and the rules adopted by
the commissioner of licensing and regulation (commissioner). 

SECTION 3.  Amends Subchapter A, Chapter 91, Labor Code, by adding Sections
91.005, 91.006, and 91.007, as follows: 

Sec. 91.005.  APPLICATION OF CERTAIN PROCUREMENT LAWS.  Provides that with
respect to a bid, contract, purchase order, or agreement entered with the
state or a political subdivision of the state, a client company's status or
certification as a small, minority-owned, disadvantaged, or woman-owned
business enterprise or as a historically underutilized business, is not
affected because it has entered into an agreement with, or uses the
services, of, a license holder. 

Sec. 91.006.  WORKERS' COMPENSATION COVERAGE.  Provides that an insurance
certificate for workers' compensation insurance held by a license holder
constitutes proof of workers' compensation coverage for it and the client
company for all employees of the license holder assigned to the client
company.  Requires the state and a political subdivision of this state to
accept the insurance certificate described under this section as proof of
workers' compensation coverage under Chapter 406 (Workers' Compensation
Insurance Coverage), Labor Code.  Authorizes the state or its political
subdivision to require the client company, if it has employees who are not
assigned employees under a staff leasing services agreement, to furnish
separate proof of workers' compensation insurance coverage for those
employees. 

Sec. 91.007.  APPLICATION OF LABOR RELATIONS LAWS.  Provides that Chapter
91 does not relieve a client company of a right, obligation, or duty under
Chapter 101 (Labor Organizations), Labor Code, the federal National Labor
Relations Act (29 U.S.C. Section 151 et seq.), the federal Railway Labor
Act (45 U.S.C. Section 151 et seq.), and any other law governing labor
relations. 

SECTION 4.  Amends Sections 91.015(c) and (d), Labor Code, as follows:

(c) Requires the Texas Department of Licensing and Regulation (department)
to provide an applicant at least 30 days after the date of the notice to
address the reasons for the denial. Authorizes the commissioner to grant an
additional 30 days to remedy the reasons for the denial for good cause and
on a showing of a good faith effort to remedy the reasons for the denial. 

(d) Provides that the removal, demotion, or discharge of a controlling
person in response to a notice from the department, rather than a response
to an order of the department, is an affirmative defense to a claim brought
by that individual. 

SECTION 5.  Amends Section 91.019(a), Labor Code, to expand the issuance of
a limited license to a person who seeks to offer limited staff leasing
services in this state.  Deletes language describing the person as
domiciled in another state and licensed or registered as a staff and
leasing service company in that state.  

SECTION 6.  Amends Section 91.021, Labor Code, by adding Subsection (d), as
follows: 
 
(d) Requires the department, in assessing an administrative penalty
(penalty), to consider the severity of the violation, whether the violation
was willful or intentional, whether the license holder acted in good faith
to avoid or mitigate the violation, whether the license holder has engaged
in similar violations in the past, and the penalties previously assessed by
the department against other license holders under this chapter.  Requires
the department, by rule, to establish a written enforcement plan that
provides notice to license holders of the specific ranges of penalties that
apply to specific alleged violations and the criteria by which the
department determines the amount of a proposed penalty. 

SECTION 7.  Amends Section 91.032, Labor Code, as follows:

(a) Provides that a contract between a license holder and a client company
must provide that the license holder shares, as provided by Subsection (b),
with the client company, rather than reserves (for the license holder), the
right of direction and control over employees assigned to a client's
worksite.  Provides that the license holder must share, as provided by
Subsection (b), with the client company, rather than retain (for the
license holder), the right to hire, fire, discipline, and reassign the
assigned employees.  Provides that the license holder must share, as
provided by Subsection (b), with the client company, rather than retain
(for the license holder), the right of direction and control over the
adoption of employment and safety policies and the management of workers'
compensation claims, claim filings, and related procedures. 

(b) Designates the responsibilities retained by a client company under a
contract with a license holder, notwithstanding any other provision of
Chapter 91.  A client company is responsible for the direction and control
over assigned employees to conduct its business, to discharge any
applicable fiduciary duties, or to comply with any licensure, regulatory,
or statutory requirements; the goods and services produced by it; and the
acts, errors, or omissions of the assigned employees committed within the
scope of its business. 

SECTION 8.Effective date: September 1, 1999.
  Makes application of Sections 91.015(c), 91.021(d), and 91.032
prospective. 

SECTION 9.Emergency clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

C.S.H.B. 1184 modifies the original bill in SECTION 1 by redefining "staff
leasing services" by deleting "and PEO services" from the proposed addition
of "professional employer organization services" to the definition in
existing Section 91.001(14), Labor Code.  Likewise, the substitute
redefines "staff leasing services company" by deleting "or PEO" from the
proposed addition of "professional employer organization" to the definition
in existing Section 91.001(15), Labor Code. 

C.S.H.B. 1184 modifies the original bill in SECTION 2 by making a
nonsubstantive change. 

C.S.H.B. 1184 modifies the original bill in SECTION 3 by redesignating
proposed Section 91.004(d), Labor Code, as proposed Section 91.005, Labor
Code, and by providing that a client company's status is not affected
because the client company enters into an agreement with a license holder,
rather than a licensed staff leasing services company, or uses the services
of a license holder, rather than a licensed staff leasing services company.
The substitute also makes nonsubstantive changes. 

The substitute also modifies the original by redesignating proposed Section
91.004(e), Labor Code, as proposed Section 91.006, Labor Code, and by
providing that the certificate of insurance showing that a license holder,
rather than a licensed staff leasing services company, maintains a policy
of workers' compensation insurance constitutes, rather than is required to
be, proof of workers' compensation insurance for it and the client company.
The substitute also makes conforming and nonsubstantive changes. 

 The substitute also adds proposed Section 91.007, Labor Code, to provide
that Chapter 91 (Staff Leasing Services) does not relieve a client company
of a right, obligation, or duty under Chapter 101 (Labor Organizations),
Labor Code, the federal National Labor Relations Act (29 U.S.C. Section 151
et seq.), the federal Railway Labor Act (45 U.S.C. Section 151 et seq.),
and any other law governing labor relations. 

C.S.H.B. 1184 modifies the original bill in SECTION 4 (in existing Section
91.015(c), Labor Code) by requiring the Texas Department of Licensing and
Regulation (department) to provide an applicant at least 30 days after the
date of the notice, rather than to provide an applicant 30 calendar days,
to address, rather than correct, the reasons for the denial.  The
substitute also authorizes the commissioner of licensing and regulation
(commissioner), rather than the executive director, to grant an additional
30 days to remedy the reasons for the denial for good cause and on a
showing of good faith effort to remedy the reasons for the denial, rather
than to correct the application.  The substitute also makes nonsubstantive
changes. 

The substitute also modifies existing Section 91.015(c), Labor Code, to
make a nonsubstantive change. 

C.S.H.B. 1184 modifies the original bill in SECTION 6 by deleting the
proposed addition of Section 91.021(e) to require all hearings conducted
under the authority of Chapter 91 to be conducted by the State Office of
Administrative Hearings. 

The substitute also modifies proposed Section 91.021(d) by requiring the
department, in assessing an administrative penalty, rather than fines and
penalties, to consider the severity of the offense, whether the violation
was willful or intentional, whether the license holder, rather than the
staff leasing services company, acted in good faith to avoid or mitigate
the violation, whether the license holder, rather than the staff leasing
services company, has engaged in similar violations in the past, and the
penalties, rather than the fines and penalties, previously assessed by the
department  against other license holders, rather than other staff leasing
services companies, under Chapter 91.  The substitute also makes conforming
and nonsubstantive changes. 

C.S.H.B. 1184 modifies the original bill in SECTION 7 (in existing Section
91.032, Labor Code) by redesignating proposed Subsection (A) as Subsection
(a) and by deleting proposed conforming and nonsubstantive changes the
original would have made to existing Section 91.032.  In Subsection (a),
the substitute modifies existing Section 91.032 by providing that a
contract between a license holder and a client company must provide that
the license holder shares, as provided by proposed Subsection (b), with the
client company, rather than reserves (for the license holder), the right of
direction and control over employees assigned to a client's worksite.  The
substitute also provides that the license holder must share, as provided by
proposed Subsection (b), with the client company, rather than retain (for
the license holder), the right to hire, fire, discipline, and reassign the
assigned employees.  The substitute also provides that the license holder
must share, as provided by proposed Subsection (b), with the client
company, rather than retain (for the license holder), the right of
direction and control over the adoption of employment and safety policies
and the management of workers' compensation claims, claim filings, and
related procedures. 

The substitute also modifies proposed Subsection (B) by redesignating it as
Subsection (b) and by deleting the condition that the exercise of the
direction and control over assigned employees is exclusively the client
company's if the client company would not be able to conduct its business
without such exclusive control. 

C.S.H.B. 1184 modifies the original bill by deleting the text of SECTION 8,
which would have amended Section 91.043(a), Labor Code, to make a
conforming change.  The substitute redesignates SECTION 10 (effective date)
of the original to SECTION 8 of the substitute.  The substitute also
replaces the text of SECTION 9 (making application of the Act prospective
for all staff leasing services companies and license holders) of the
original with the provisions, in SECTION 8 of the substitute, that make
application of Sections 91.015(c), 91.021(d), and 91.032 prospective. 

C.S.H.B. 1184 modifies the original bill by redesignating SECTION 11
(emergency clause) of the original to SECTION 9.