Newly enacted Minnesota employment laws have substantially enhanced the remedies available to workers who have been misclassified by their employers, including the imposition of civil penalties and damages. As of July 1, 2024, employers may be subject to civil penalties if they are found to have misclassified their employees as independent contractors or otherwise fail to recognize them as such. And a related civil-action provision will give each and every aggrieved worker the opportunity to initiate suit against their employer if they believe that they have been misclassified in some way, potentially opening the floodgates of increased employment litigation for underprepared employers and businesses. While this new legislation aims to deter employers from mislabeling working relationships in order to evade costs relating to minimum wage, overtime, insurance, and more, employers and workers alike should aim to understand the scope and applicability of these new laws.
Violations
Under this new legislation, an employer or company owner may be found civilly liable if they (1) fail to classify an individual as an employee if an individual meets that definition, (2) fail to report an individual as an employee when they are so compelled under an applicable law, or (3) require a worker to execute any agreement that mistakenly classifies the worker as an independent contractor. Critically, liability does not depend on a finding that the misclassification was known or intentional; even accidental or clerical mistakes in employee classification could lead to liability. Additionally, employers in the construction industry have been provided with 14 new factors to weigh when determining a worker’s classification, taking effect March 1, 2025.
The New Penalties for Misclassification
Employees who are misclassified may claim damages related to overtime, shift differentials, vacation and sick pay, health, life and disability insurance, retirement plans, and any other cost or expense stemming from the misclassification. An offending employer may be required to pay up to $10,000 in penalty fees per misclassified employee for each violation and $1,000 per day in delay fees if they refuse to cooperate. Each individual misclassification will count as a separate violation of the new law, so large employers may run afoul of very high amounts in fines if several employees are found to have been misclassified. The new legislation also contains a civil action provision that allows an allegedly aggrieved employee to immediately bring an action for damages to the district court.
Guidance for Employers
Because these newly enacted employment laws impose what is essentially strict liability on Minnesota employers to ensure that they comply with the employee-classification requirements of Minnesota law, it is crucial employers and owners of businesses take steps to understand these changes and seek guidance to resolve uncertainties in individual cases. Employers and company owners should be explicit in performance contracts with workers about the means and manner in which work is to be done, and state whether the employer retains control over either aspect. If an employer suspects they may have misclassified any of their workers, they should correct this error as soon as possible to mitigate potential compensatory damages and penalty fines. They should also be aware of any unique rules governing independent contractor status within their specific industry.
Guidance for Employees
Employees will be well served to examine their performance contracts for their classification as either employee or independent contractor and ask at the outset of their start date about how their employer intends to classify them. If an independent contractor feels that an outsized amount of control on a project is being exerted on them by an employer, they should report a violation to the commissioner of the Department of Labor and Industry. If unsure about their legal classification, employees should seek out an attorney that is familiar with employment law and employment litigation to advise them of their rights, and to assist in enforcing them.
We Can Assist
The recent legislative updates in Minnesota underscore the heightened importance of proper worker classification, bringing significant risks for both employers and employees. Whether you are an employer seeking to secure compliance, or an employee concerned about potential misclassification, Henson Efron is prepared to provide the skilled legal guidance you need. Our team is dedicated to safeguarding your rights and helping you navigate these complex changes effectively. Contact us today to discuss your specific situation.
The purpose of this article is merely to provide general information and should not be construed as legal advice.
