UPDATE:  2/26/25

The CMBA Government Affairs Committee met Tuesday, February 18th to get more information from the Minnesota Department of Labor and Industry (DLI) about the state's new 14-point independent contractor tests set to kick-in March 1st.

However, DLI officials pulled-out at the last minute, leaving some 50 meeting participants wondering how to get clear answers about compliance, enforcement, liability, costs and penalties. Instead, DLI officials indicated they would post a pre-recorded presentation by the end of February, and then entertain only written questions with only a day or two before the new tests would go into effect.

With DLI a no-show, CMBA members attending the meeting spent the time listing-out their questions, concerns and frustrations. CMBA sent those directly to DLI with a request for timely responses to each issue.

The following are DLI's responses to each question:

1. “Why weren't the current 9 points for independent contractor adequate?” While many of the updated 14 elements are the same or substantially similar to the earlier nine elements, there were certain barriers to effective enforcement. Those barriers were addressed in the updates. For example, as noted in some of the below questions, under the updated law, contracts must be written and payments must be made in a method other than cash.
   
   
2. “Are supplier subcontractors who provide materials included?Does a builder have to document them too?”  Minnesota Statute § 181.723 only applies to those providing or performing building construction or improvement services, but does not apply to the manufacture, supply, or sale of products, materials, or merchandise. (See subd. 2)
   
   
3. “Does it matter if the subcontractor is incorporated?  Does that meet the 14 tests and subpoints?”  Being an incorporated entity may be an indicator that the subcontractor is operating as a business entity. The business entity (subcontractor) must still meet the 14 elements. (See subd. 4 (a))
   
   
4. “Are there loopholes, or will this be enforced evenly and statewide?”  This law, similar to the prior version of Minn. Stat. sec. 181.723, applies to those providing or performing building construction or improvement services. There are certain exceptions, noted in Subd. 2 of section 181.723 and in some of the below questions, such as those who supply materials. Those exceptions existed in the prior version of the law.
   
   
5. “If you are working with a supplier off a price list for materials (as opposed to unique bids/pricing for each project), how does that fit (test #14)?  Is a "blanket" contract OK and does it also cover the suppliers materials sources?”  This question seems to be addressing those that only supply materials. The test does not apply to those who only supply materials. (See subd. 2 of Minn. Stat. sec. 181.723).
   
   
6. “Can we no longer pay in cash?”  Minn. Stat. section 181.723, subd. 4(10) requires that, to be considered an independent contractor, a business entity submit invoices and receive 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.
   
   
7. “Do I have to verify tax filing information for each one of my subcontractors?”  The law does not require contractors to collect any specific records to verify the statutory requirements of the independent contractor test at Minnesota Statutes section 181.723, subd. 4, are met; however, record and other documentation verification is a best practice. The law does require that contractors retain all the information and documents they based any independent contractor determination on for at least three years and that this information be maintained in a manner where it can be readily produced to DLI upon demand. The extent to which a contractor chooses to require documents for verification of statutory requirements is a question of risk tolerance and may be informed by factors such as repeated business relationships. Contractors may consider checking publicly available information, such as the Secretary of State website or a portfolio of work contained on a subcontractor's website. Contractors may also consider requesting representative proof of compliance with other requirements of the independent contractor test such as tax or insurance requirements.
   
   
8. “Materials - Single delivery to one site supplying multiple job sites: General contractor's liability?”
9. “Materials -  Multiple deliveries, one to each job site: Subcontractor's (supplier's) liability?”  For questions 8 and 9, the test does not apply to those who only supply materials. (See Minn. Stat. section 181.723, subd. 2).
   
   
10. “It's not clear how DLI will apply these new 14+ tests.  Can DLI walk us through the decision-making tree so we can make sure we are accurately and consistently complying?”  The Department analyzes each situation on a case-by-case basis in accordance with the statute. The best practice to ensure consistent compliance is to be familiar with the test and ensure that hired entities or workers meet each element of the test or are treated as an employee. The Department has several resources posted on our website.
    
    
11. “What assurance do we have DLI will use mistakes as 'educational opportunities' (instead of immediately imposing the stiff fines and penalties contained in the state law)?  The law contains no such discretion.”  The law contains discretion, and the Department must consider certain factors before determining fines or penalties. Those factors include willfulness of the violation, the gravity of the violation including damage to workers, history of past violations, the number of violations, the economic benefit gained by the person allowing or committing the violation, and other factors. See Minn. Stat. § 14.045, subd. 3.
    
    
12. “General contractor doing remodeling:  Already tough to find project-specific subs (carpenters, drywall, tiling, cabinetry, painting, etc.).  Need a contract with each one?  Will lose many subs who don't want to deal with more complexity and bureaucracy.”  It is correct each independent contractor must be operating under a written contract.
    
    
13. “How does this impact the cost and affordability of needed housing in Minnesota? This will drive up the cost of building new housing at the very time when policymakers are making the building of more and more affordable housing a top priority.”  This question is beyond the scope of the Department of Labor and Industry’s authority.
    
    
14. “Can I put a separate line-item on my bills and invoices specifying a surcharge covering the costs of complying with these new tests?”  This question is beyond the scope of the Department of Labor and Industry’s authority. The misclassification law does not regulate what surcharges or fees are negotiated between businesses or parties.
    
    
15. “Was this law and these new tests driven by workers comp issues?  Unions motivated to go after non-union builders?  Why are we doing this?  DLI can't adequately enforce the existing requirements, let alone these more complex and burdensome new ones.”  This question is beyond the scope of the Department of Labor and Industry’s authority.
    
    
16. “Why are Minnesota's regulations and requirements so much more than other (surrounding) states?”  This question is beyond the scope of the Department of Labor and Industry’s authority.
    
    
17. “If we flag ‘bad operators’ to DLI, will DLI enforce?  Frustrations that enforcement is currently inconsistent.”  DLI welcomes complaints from anyone with knowledge of violations of the laws that we enforce.
    
    
18. “Proving that the other subcontractor filed taxes – does that mean you need a copy of their tax return or how personal do you need to get? This would be invasive to ask – how do you confirm”  Please see response to question 7 above.
    
    
19. “Also, a lot of smaller companies don’t get written quotes from their partners as they know through their partnerships and relationships how much those items cost, just a point that was brought up, not necessarily a question, but the time and energy to transition these basic processes will increase costs to builders. Paperwork is a bottleneck.”  The law doesn’t require written quotes, but does require a written contract be signed by an authorized representative of both parties and that it be fully executed no later than 30 days after the work commences (except for change orders) in order for a subcontractor to meet the requirements of the test.

Lawsuit hearing update, Feb. 26:
The construction trades filed a federal lawsuit to block implementation of the new tests. There was a federal court hearing on the matter Wednesday, February 26th. Our colleagues at Housing First Minnesota attended the hearing which wrapped-up mid-afternoon.  The judge is expected to rule in the next few days on whether or not to impose a Temporary Restraining Order (TRO) that would block implementation of the new independent contractor tests. The lawsuit alleges the new Minnesota law violates a federal stipulation that states cannot exceed federal requirements.

PLEASE NOTE:  It will take a few days for the federal judge to decide on whether or not to impose a TRO, so, in the meantime, the new independent contractor tests will become effective this Saturday, March 1st. State officials urge our members to contact DLI Labor Standards Division (see contact information below), and/or consult with an attorney knowledgeable in labor standards, to answer questions about how best to comply with the new rules.  (CMBA offers this information to help its members prepare to comply, and is not responsible for members' compliance or any determinations of non-compliance.)

CMBA members still wonder why the state needed this new set of independent contractor tests. The tests were part of a Worker Misclassification law passed in 2024, a union-backed initiative apparently targeting large builders for allegedly skirting the state's existing independent contractor tests.

Some builders and subcontractors have commented that the complexity, uncertainty and liabilities associated with the new tests could cause them to close their doors.  One CMBA member also noted, "This is going to drive-up the cost of building badly needed housing, even as lawmakers say they want more affordable housing."  Most indicated they will continue to do their best to "do what's right" and comply as best they can.

CMBA actively opposed the bill during the 2024 Minnesota Legislative Session, has published several articles about the new independent contractor tests, and held three meetings on the topic, including one last October featuring three leading DLI officials on the matter.

"We know DLI did not pass the law," said CMBA Government Affairs Consultant, Steve Gottwalt. "But they have provided almost no clarity in addressing these major concerns of contractors and subcontractors who simply want to comply and do their jobs."  He said CMBA welcomes additional questions, comments or concerns from members, and will work to get answers from DLI.

Pre-recorded presentation is available and can be viewed here: Construction worker misclassification | Minnesota Department of Labor and Industry

For more information:  Steve Gottwalt, steve@cmbaonline.org, 952-923-5265.

Members are also urged to contact the DLI Labor Standards Division: dli.laborstandards@state.mn.us, 651-284-5075, https://www.dli.mn.gov/misclassification-construction, or email Michelle.Fournier@state.mn.us.

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