Minnesota 2024 Legislative Session Update: New Independent Contractor Test for Construction Employees and Expanded DOLI Power to Issue Stop Orders in the Construction Industry

By Martin D. Kappenman - Peters & Kappenman, P.A.

June 28, 2024

Construction employers should be aware of the new independent contractor test for construction employees and the broadening of power for the commissioner of labor and industry (“Commissioner”) to issue stop work orders on construction sites, both of which are set to be effective on March 1, 2025.
 
New Independent Contractor Test
This new fourteen (14) factor independent contractor test applies to all persons providing or performing building construction or improvement services. Under the statute, an individual must meet all fourteen (14) of these factors in order to be labeled an independent contractor.
A person providing or performing building construction or improvement services is an independent contractor only if the individual is operating as a business entity that meets ALL of the following requirements at the time the services were performed:

1.    established and maintained separately from and independently of the person for whom the services were provided or performed;
2.    owns, rents, or leases equipment, tools, vehicles, materials, supplies, office space, or other facilities that are used by the business entity to provide or perform building construction or improvement services;
3.    provides or performs, or offers to provide or perform, the same or similar building construction or improvement services for multiple persons or the general public;
4.    is in compliance with all of the following:
   o    holds a federal employer identification number if required by federal law;
   o    holds a Minnesota tax identification number if required by Minnesota law;
   o    has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required by Minnesota or federal law;
   o    has filed business or self-employment income tax returns, including estimated tax filings, with the federal Internal Revenue Service and the Department of Revenue, as the business entity or as a self-employed individual reporting income earned, for providing or performing building construction or improvement services, if any, in the previous twelve (12) months; and,
   o    has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed if required by federal law;
5.    is in good standing;
6.    has a Minnesota unemployment insurance account if required;
7.    has obtained required workers' compensation insurance coverage if required;
8.    holds current business licenses, registrations, and certifications if required;
9.    is operating under a written contract to provide or perform the specific services for the person that:
   o    is signed and dated by both an authorized representative of the business entity and of the person for whom the services are being provided or performed;
   o    is fully executed no later than thirty (30) days after the date work commences (does not apply to change orders);
   o    identifies the specific services to be provided or performed under the contract; and,
   o    provides for compensation from the person for the services provided or performed under the contract on a commission or per-job or competitive bid basis and not on any other basis.
10.    submits invoices and receives payments for completion of the specific services provided or performed under the written proposal, contract, or change order in the name of the business entity. Payments made in cash do not meet this requirement;
11.    the terms of the written proposal, contract or change order provide the business entity control over the means of providing or performing the specific services, and the business entity in fact controls the provision or performance of the specific services;
12.    incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order;
13.    is responsible for the completion of the specific services to be provided or performed under the written proposal, contract or change order and is responsible, as provided under the written proposal, contract or change order, for failure to complete the specific services; and,
14.    may realize additional profit or suffer a loss, if costs and expenses to provide or perform the specific services under the written proposal, contract or change order are less than or greater than the compensation provided under the written proposal, contract, or change order.

As of July 1, 2024, employers are prohibited from: (1) failing to correctly classify employees; (2) failing to report or disclose to any person or government agency who is an employee when required to do so; and, (3) requiring or requesting employees to enter into agreements or complete any documents that misrepresents the employee’s status as an independent contractor. While employers can be held liable for this misclassification, the new statute also provides for individual and successor liability, along with penalties including compensatory damages (the value of supplemental pay the misclassified employee should have received) and a penalty of up to $10,000 for each misclassification. This makes it increasingly important for employers to ensure that they are following the 14 factor test above once it is effective.

Stop Orders
The statute reads, “The commissioner may issue a stop work order requiring cessation of all business operations of a person at one or more of the person's workplaces and places of business or across all of the person's workplaces and places of business.”
 
These stop work orders may be issued to any person who the Commissioner has determined, based on an inspection or investigation, has:

1.    violated the applicable law;
2.    committed one or more violations of chapter 176, 177, 181, 181A, 182, 268, 270C, 202.2 or 363A;
3.    has submitted false or misleading information to any state agency in connection with activities for which the permit, license, registration, or certificate was issued, or in connection with the application for the permit, license, registration, or certificate;
4.    allowed the alteration or use of the person's own permit, license, registration, or certificate by another person;
5.    within the previous five years, was convicted of a crime in connection with activities for which the permit, license, registration, or certificate was issued;
6.    violated:
   o    a final administrative order,
   o    a final stop work order issued,
   o    injunctive relief, or
   o    a consent order, order to comply, or other final order issued by the Commissioner or the commissioner of human rights, employment and economic development, or revenue;
7.    delayed, obstructed, or otherwise failed to cooperate with a commissioner's investigation, including a request to give testimony, to provide data and information, to produce documents, things, apparatus, devices, equipment, or materials, or to enter and access all areas of any property;
8.    retaliated in any manner against any employee or person who makes a complaint, is questioned by, cooperates with, or provides information to the commissioner;
9.    engaged in any fraudulent, deceptive, or dishonest act or practice; or
10.    performed work in connection with the permit, license, registration, or certificate or conducted the person's affairs in a manner that demonstrates incompetence, untrustworthiness, or financial irresponsibility;
11.    provided or performed building construction or improvement services without being registered as a person who provides or performs building or construction services in the state of Minnesota, if required;
12.    required an individual who is the person’s employee to register as a person who provides or performs building or construction services in the state of Minnesota, if required;
13.    engaged another person to provide or perform building construction or improvement services if the other person is required to be registered as a person who provides or performs building or construction services in the state of Minnesota and is not registered; or
14.    failed to comply with a final notice, final administrative order, or final licensing order issued by the Commissioner or a final order to comply.

The stop work orders are effective upon their issuance and remain in effect until they are lifted by the commissioner. The Commissioner may lift a stop work order, “upon finding that the person has come into compliance with the applicable law, has come into compliance with a final order or notice of violation issued by the commissioner, has ceased and desisted from engaging in any of the [prohibited] activities… and has paid any remedies, damages, penalties, and other monetary sanctions, including wages owed to employees…, to the satisfaction of the commissioner, or if the Commissioner or appellate court modifies or vacates the order.”
 
A civil penalty of $5,000 per day may be issued by the Commissioner against a person for each day that the person conducts business operations in violation of a stop work order. In addition, once a stop work order becomes final, “any of the person's employees affected by a stop work order… shall be entitled to average daily earnings from the person for up to the first ten days of work lost by the employee because of the issuance of a stop work order.” In addition, the commissioner’s lifting of a stop work order may be conditioned on payment of wages to employees.

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