TL;DR

A handful of significant alterations to HF 4444 in recent days have improved the outlook for MN independent contractors. Although the fundamentals of the bill remain the same, and MN independent contractors still need clarification in multiple areas, the newest version seems to reflect contributions from folks who know how to run a business or frame a doorway. The April 10th revision recognizes contract options beyond fixed-price and incorporates change orders, for example. Relaxed, refined, and rejected language has tempered some of the most problematic components of the proposed legislation.

Here are the most noteworthy changes from 4444 as introduced, briefly:

1. Rollout of key section in phases: new jobs as of August 1st; all jobs on January 1st
2. Contract restriction to only fixed-price/flat fee lifted: Cost-plus, labor & materials, and labor contracts no longer prohibited
3. A compliant business anywhere in the “contractual chain” effectively insulates those above them from fines/penalties/employer status
4. IC “incurs the main expenses” no longer listing everything, e.g. “materials”
5. New provisions for change orders
6. Failure to provide documentation quickly enough no longer automatically makes a subcontractor into an employee
7. Personal liability for violations specifically targeting “superintendent, supervisor, foreperson,” etc.” trimmed back to “owner, partner, principal, member, officer, or agent”
8. Successor liability for violations similarly pared down
9. Reduced tax paperwork/records burden

All MN independennt contractors need to understand this bill and get ahead of it. Read on for a more detailed breakdown of the positive changes listed above and serious problems that remain.

Evolution of 4444: Deeper Analysis

Construction contractors preparing to navigate an industry-wide shakeup promised by HF 4444 should note a few encouraging changes. Significant alterations evince attempts to reconcile the objectives of the bill with economic and practical realities of the industry. Amendments tempering and clarifying liability language are a step in the right direction. Reduced paperwork obligations are always welcome news. Other tweaks demonstrate that at least some legislators recognize the difficulties many businesses will face simply understanding the hurdles of an expanded “IC test”, much less conforming to them, which won’t magically happen overnight.

Although the bar for achieving and maintaining compliance will stay high, and potential penalties for non-compliance will remain severe, the amended bill as of April 10th constitutes a marked improvement over the original 4444.

Rollout and Enforcement Schedule

Initial concerns that the new requirements could become enforceable immediately upon passage sent a shockwave through the industry, eliciting fears of sudden job site inspections and widespread work stoppages as contractors scrambled to understand and conform with the new 14-point IC test. Thankfully, the prospect of getting blindsided dissipated quickly with the 2nd version of the bill. It defined a three-phase rollout schedule for the “Misclassification of Construction Employees” section (outlined below).

• Phase I: Business as usual throughout Spring and into Summer. Construction contractors can operate under current contracts and begin new projects under existing IC rules regardless of the date of 4444’s passage.
• Phase II: As of August 1st, work under existing contracts may proceed subject to the old IC requirements but all projects initiated after July of 2024 will be subject to the new ones.
• Phase III: On New Year’s Day 2025, the law takes full effect for all contracts and jobs in progress.*
• 181.723: “Misclassification of Construction Employees”

The centerpiece of HF 4444, this section includes the daunting new MN independent contractors compliance checklist and an extensive list of specific prohibitions. An imposing set of enforcement “teeth” outlines potentially massive damages & penalties and extends liability to employees, successors, and other contractors.

*Although the construction-specific section (and related “stop-work order” section) take effect in phases, legislators specifically designate several parts of the bill “effective the day following final enactment.” Curiously, however, they leave enactment date(s) undefined for several important sections. One of these is the first (and extremely impactful) section regarding “Misclassification of Employees” generally. Lack of designation either way makes it impossible to determine whether these sections will take effect immediately. Legislators may intend to specify in a future version of the bill.

Contracts, Change Orders, and Expenses

The original bill restricted all construction contracts to “stipulated sum, lump sum, or fixed price”, specifically excluding all cost-plus, labor, labor and materials contracts, and “any other type of​ contract… calculated in​ whole or in part based on an hourly rate, unit rate, or any basis other than a stipulated sum,​ lump sum, or fixed-price”. MN independent contractors see the patently obvious problems with this sort of restriction. Not only would it hamstring the industry by disregarding practical market realities, it would elevate risk (and therefore cost) for everyone from homeowner to principal to sub, while violating freedom of contract in the process. Thankfully, reality set in. The new language “provides for compensation… on a commission or per-job or competitive bid basis and not on any other​ basis.” That certainly leaves room for interpretation, but it’s difficult to construe as excluding cost-plus or labor & materials contracts.

New provisions for change orders reflect the reality of the industry as well. Repeated references to “the written proposal, contract, or change order” clearly imply restrictions, though. As far as the State of Minnesota is concerned, the only proper change order will be a written and signed change order.

One criterion for IC status requires that contractors “incur the main expenses and costs” of the work they perform. In the original 4444, this specifically included "labor, tools, materials, vehicles, equipment, supplies, office space or other facilities, and overhead expenses and costs.” By eliminating the laundry list (“materials,” in particular), the newest iteration recognizes a practical component of construction contracting. ICs do “incur the main expenses” of the work they perform, but market realities dictate operations, and this sensible change becomes addition by subtraction.

IC vs Employee

The original draft of 4444 left many in the industry extremely worried that penalties from a contractor in violation would radiate outward to everyone involved, no matter how distantly. The prospect of duplicate fines -up to $10K a pop- for something a sub of a sub may have done (or not done to the commissioner’s satisfaction) could have paralyzed the industry. Necessary clarification provided in the April 10^th revision should set some minds at ease. Now, a compliant IC anywhere in the “contractual chain” effectively insulates those above them from fines, penalties, and suddenly discovering that they have “employees” they’ve never met. GC’s and IC’s along the chain must still face the task of vetting their subs for compliance, but once that’s accomplished they need not fear improperly vetted subs further down the line.

Phased rollout or not, the new compliance rules will take time for ICs to understand and implement. The first draft declaration:

“Failure to produce all information​ and documentation within the time prescribed by the commissioner's demand shall result​ in the person's waiver of the defense that the individual is an independent contractor.​”

…wasn’t just impractical, it was absurd. For many MN independent contractors, this sounded dangerously close to: “Your papers are not in order, Kamerade. Case closed. Come with me.” Eliminating that authoritarian, business-killing language opens the door for ICs to demonstrate good faith efforts. Contractors need a path to establishing compliance even if paperwork is delayed or errors require correction.

Personal and Successor Liability

Ominous. Personal liability for violations specifically targeting “superintendent, supervisor, foreperson, Facebook friends, 3rd grade teacher, etc.” have been trimmed. Personal liability now applies only to “owner, partner, principal, member, officer, or agent.” The same list applies to successor liability after revision. The new language suggests an intent to focus more on ownership than employees. State agencies, however, could plausibly construe "agent" to apply to virtually anyone. We can call this a ‘positive development’ in theory, but the streamlined wording may be only that in practice.

It's the Small Victories

There’s no question that the 3^rd iteration of HF 4444 is more IC-friendly. How much more friendly mostly depends on one’s interpretation (and ultimately the Commissioner’s interpretation) of numerous vague or undefined provisions. But contractors should focus on the bright side. For example: trimming tax record requirements from two years down to one might sound like a drop in the bucket. Compared to the overall compliance requirements, we could call it irrelevant. We could also choose to call it a FIFTY PERCENT reduction in tax paperwork. Better is better.

Read the full bill and track its progress here

Check out our initial analysis of 4444 here.