Safety at Work
Saint Paul, MN (WorkersCompensation.com) – The National Federation of Independent Businesses (NFIB) has joined a coalition of business organizations to challenge Minnesota’s independent contractor rules.
NFIB represents more than 300,000 to 350,000 across the country. The organization joined a lawsuit filed by the Minnesota Chapter of Associated Builders and Contractors, Inc. (MNABC), Builders Association of Minnesota, and J&M Consulting, LLC.
In 2024, Minnesota passed legislation that expanded its nine-point test to determine if a worker is an employee or an independent contractor to 14 points. To qualify as an independent contractor, a worker must have a written contract; provide their own tools, equipment and materials; perform services for multiple clients; operate through a separate business entity; submit invoices and receives payment in the name of the business entity; maintain all the necessary business licenses, registrations and certifications; maintains independent control of how the work is performed; maintains their own workers’ compensation insurance unless they are exempt; has a federal Employer Identification Number and a Minnesota tax ID; has filed business or self-employment tax returns for the past 24 months; has provided a W-9 form; has a significant investment in their business; and has a Minnesota unemployment insurance account.
Employers who violate the classification of workers face fines of up to $10,000 for each instance of misclassification, plus $1,000 per day for anyone who interferes with an investigation being conducted by state officials, as well as back taxes, and penalties equal to 3% of the worker’s wages.
Not long after the legislation was passed as part of the state’s 2024 Jumbo Omnibus Bill, construction companies filed suit against the state saying the law is too vague and exposes employers to hefty fines. In the lawsuit, the Minnesota Chapter of Associated Builders and Contractors, the Builders Association of Minnesota, and J&M Consulting, LLC said the requirements for written contracts, invoicing and expense responsibility were unclear and that the penalties of up to $10,000 per misclassified worker could cripple businesses. They claimed the test was overly onerous, the organizations filed suit in federal court and claimed that the new test requirements were not in step with how employer interactions with independent contractors actually work and that the fines violated provisions under the Eighth Amendment. After failing to procure a preliminary injunction in lower court, they moved the case into the Eighth Circuit Court of Appeals.
The appeals court upheld the law finding that the law provides enough clarity for employers to understand what it requires. The judges also said that since no fines have actually been issued under the new law, it was premature to say whether the penalties are burdensome.
“This court assumes, without deciding, that heightened scrutiny applies. Even then, people of ordinary intelligence have a reasonable opportunity to understand the meaning of these words and phrases,” the court said in its ruling. “First, many are commonly used and understood. And second, the Contractors may clarify the meaning of the Act by their own inquiry of (Minn. Department of Labor and Industry.)
The suit the NFIB joined also said the 14-point test imposes extreme financial and criminal penalties for small businesses if they categorize workers wrong, but attacked the law from a different angle – its constitutionality.
“The strict and sweeping changes to Minnesota’s independent contractor classification laws that were enacted as part of the monstrous 2024 Jumbo Omnibus Bill have left Minnesota’s small business community in an impossible position,” Jon Boesche, NFIB’s Minnesota State Director said. “The level of responsibility that this statute places on small businesses is preposterous. They can either do their best to comply with this confusing regulatory scheme and face crushing monetary penalties for good-faith classification mistakes, or they can forsake the use of independent contractors altogether. Neither of these options are viable.”
However, the NFIB lawsuit said the contractor test violates the Minnesota Constitution. The suit contends that the bill violates what is known as the Single Subject and Title Clause, because it includes many different subjects and has no clear title. Because of that, the organizations claim that the independent contractor statute is unlawful and that the courts should prevent it from being enforced.
“After going through a ‘metamorphosis’—lasting just a few hours—what started out as a roughly forty-page tax omnibus bill became the 1,400-plus page Jumbo Omnibus, spanning over a dozen unrelated subjects, which Governor Walz signed into law,” the suit said. “Judge Castro noted ‘if there has even been a bill without a common theme and where ‘all bounds of reason and restraint seem to have been abandoned,’ that is [the Jumbo Omnibus], and if there has ever been a time for the ‘draconian result of invalidating the entire law,’ that time is now.”
