TL;DR: Pending lawsuit could delay some misclassification measures, but contractors should keep preparing for March to come in like a lion.
Many Minnesota building contractors have spent the winter wondering whether March would “come in like a lion” due to recent legislation targeting misclassification in the construction industry. Passed in the final hour of the 2024 legislative session as part of a massive omnibus bill, §181.723 promised a crackdown on builders who use independent contracting as a labor model, thereby avoiding the costs of employment benefits and increased workers compensation premiums.
As part of a larger effort to combat misclassification across the state economy, the construction specific statute and related laws passed in the omnibus bill established an enforcement partnership among multiple state agencies and granted the commissioner of DLI sweeping investigative and enforcement powers. Key components of the laws, set to take effect on March 1st, establish a new 14-point independent contractor “litmus test,” increasing a contractor’s recordkeeping requirements for proving IC status, as well as granting the commissioner expanded powers to issue stop work orders to companies suspected of violations or who fail to provide requested documentation. In addition to the ability to shut down work, the law empowers the commissioner to impose hefty penalties: up to $10,000 per violation and $1000 a day for failure to provide documents.
Proponents of the laws assert that these measures will ensure that the benefits of the social safety net will extend to a segment of the workforce previously excluded, while opponents counter that the normative labor practices of the industry have developed because undocumented workers comprise a large share of the construction workforce. Thus, even a modicum of effective enforcement would assure that the very workers the government purports to be defending would be rendered jobless.
What's happening now?
The lawsuit, filed February 12th, challenges the constitutionality of the law on several grounds, alleging that the criteria of the 14-point test are unreasonably vague, the penalties unreasonably steep, and that the omnibus bill itself violates the “single subject and title clause” of the Minnesota State Constitution.
These complaints will come before U.S. District Court at a hearing set for February 26th at 2 pm. During this emergency injunction hearing, the Court may issue a stay (a temporary pause) on the law before the 14-point provision goes into effect on March 1, 2025. It is important to note, however, that this hearing may not change anything immediately. Contractors should still treat March 1st as the effective date of the misclassification law. Moreover, any delay in implementing the new independent contractor test would not alter any of the numerous other compliance statutes passed simultaneously, nor would it halt implementation of the commissioner’s expanded “stop work order” powers set to become active on the same date.
For more information on what is included in the law that (for now) is set to go into effect on March 1st, check out our previous posts.
Misclassification Law Transforms the MN Construction Industry
Encouraging Developments for MN Independent Contractors – NSLG
If you need assistance with this law or assistance with your construction business, please reach out.
