Treatment of independent contractors modification

A bill for an act

relating to labor and industry; modifying treatment of independent contractors;

amending Minnesota Statutes 2024, section 181.723, subdivisions 4, 7.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2024, section 181.723, subdivision 4, is amended to read:

Subd. 4.

Independent contractor.

(a) An individual is an independent contractor and

not an employee of the person for whom the individual is providing or performing services

in the course of the person's trade, business, profession, or occupation only if the individual

is operating as a business entity that meets
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all of
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the following requirements
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based upon the

totality of the circumstances:
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at the time the services were provided or performed:
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(1) was 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:

(i) holds
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or has applied for
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a federal employer identification number if required by federal

law;

(ii) holds
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or has applied for
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a Minnesota tax identification number if required by

Minnesota law;

(iii) has
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received and retained
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or will receive
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1099 forms for income received for building

construction or improvement services provided or performed, if required by Minnesota or

federal law;

(iv) has
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filed
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or will file
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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
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, in the

previous 12 months
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; and

(v) has
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completed and provided
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or will complete and provide
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a W-9 federal income tax

form to the person for whom the services were provided or performed if required by federal

law;

(5)
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is in good standing as defined by section
5.26
, if applicable
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has registered with the

secretary of state, if required
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;

(6) has a Minnesota unemployment insurance account if required by chapter 268;

(7) has obtained required workers' compensation insurance coverage if required by

chapter 176;

(8)
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holds current
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has applied for and received
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business licenses, registrations, and

certifications if required by chapter 326B and sections
327.31
to
327.36
;

(9) is operating under a written contract to provide or perform
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the specific
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services
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for

the person
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that:

(i) 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;

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(ii) is fully executed no later than 30 days after the date work commences;

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(iii)
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(ii)
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identifies the
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specific
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services to be provided or performed under the contract;
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and
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(iv)
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(iii)
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provides for compensation from the person for the services provided or performed

under the contract on a commission
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or
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,
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per-job
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or
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,
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competitive bid
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, or time and material
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basis
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and not on any other basis
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;
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and
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(v) the requirements of item (ii) shall not apply to change orders;

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(10) submits invoices and receives payments for completion of the
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specific
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services

provided or performed under
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the
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a
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written proposal, contract, or change order in the name

of the business entity. Payments made in cash do not meet this requirement;

(11)
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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
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has a

written proposal, contract, or change order whose terms provide the business entity control

over the means of providing or performing the specific services, and under which the business

entity in fact controls the provision or performance of those specific services
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;

(12) incurs the main expenses
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and costs related to providing or performing
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related to
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the
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specific
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services
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being performed
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under the written proposal, contract, or change order;

(13) is responsible for the completion of the
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specific
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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
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specific
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services;

and

(14)
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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
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has the business entity's success or failure dependent on the relationship of

the business entity's receipts relative to expenditures
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.

(b)(1) Any individual providing or performing the services as or for a business entity is

an employee of the person who engaged the business entity, unless the business entity
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,

through the totality of the circumstances,
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meets
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all of
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the requirements under subdivision

4, paragraph (a).

(2) Any individual who is determined to be the person's employee is acting as an agent

of and in the interest of the person when engaging any other individual or business entity

to provide or perform any portion of the services that the business entity was engaged by

the person to provide or perform.

(3) Any individual engaged by an employee of the person, at any tier under the person,

is also the person's employee, unless the individual is providing or performing the services

as or for a business entity that
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, through the totality of the circumstances,
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meets the

requirements of subdivision 4, paragraph (a).

(4) Clauses (1) to (3) do not create an employee-employer relationship between a person

and an individual if: (i) there is an intervening business entity in the contractual chain

between the person and the individual that meets the requirements of subdivision 4, paragraph

(a); or (ii) the person establishes that an intervening business entity treats and classifies the

individual as an employee for purposes of, and in compliance with, chapters 176, 177, 181,

181A, 268, 268B, 270C, and 290.

Sec. 2.

Minnesota Statutes 2024, section 181.723, subdivision 7, is amended to read:

Subd. 7.

Prohibited activities related to independent contractor status.

(a) The

prohibited activities in paragraphs (b) and (c) are in addition to the activities prohibited in

sections
326B.081
to
326B.085
.

(b) An individual providing or performing building construction or improvement services

shall not represent themselves as an independent contractor unless the individual is operating

as a business entity that
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, through the totality of the circumstances,
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meets
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all
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the requirements

of subdivision 4, paragraph (a).

(c) A person who provides or performs building construction or improvement services

in the course of the person's trade, business, occupation, or profession shall not:

(1) as a condition of payment for services provided or performed, require an individual,

who is an employee pursuant to this section, to register as a construction contractor under

section
326B.701
, or to adopt or agree to being classified, represented, or treated as an

independent contractor or form a business entity. Each instance of conditioning payment

to an individual who is an employee on one of these conditions shall constitute a separate

violation of this provision;

(2) fail to classify, represent, or treat an individual who is an employee pursuant to this

section as an employee in accordance with the requirements of any of the chapters listed in

subdivision 3. Failure to classify, represent, or treat an individual who is an employee

pursuant to this section as an employee in accordance with each requirement of a chapter

listed in subdivision 3 shall constitute a separate violation of this provision;

(3) fail to report or disclose to any person or to any local, state, or federal government

agency an individual who is an employee pursuant to subdivision 3, as an employee when

required to do so under any applicable local, state, or federal law. Each failure to report or

disclose an individual as an employee shall constitute a separate violation of this provision;

(4) require or request an individual who is an employee pursuant to this section to enter

into any agreement or complete any document that misclassifies, misrepresents, or treats

the individual as an independent contractor or otherwise does not reflect that the individual

is an employee pursuant to this section. Each agreement or completed document shall

constitute a separate violation of this provision; or

(5) require an individual who is an employee under this section to register under section

326B.701
.

(d) In addition to the person providing or performing building construction or

improvement services in the course of the person's trade, business, occupation, or profession,

any owner, partner, principal, member, officer, or agent who engaged in any of the prohibited

activities in this subdivision knowingly or repeatedly may be held individually liable.

(e) An order issued by the commissioner to a person for engaging in any of the prohibited

activities in this subdivision is in effect against any successor person. A person is a successor

person if the person shares three or more of the following with the person to whom the order

was issued:

(1) has one or more of the same owners, members, principals, officers, or managers;

(2) performs similar work within the state of Minnesota;

(3) has one or more of the same telephone or fax numbers;

(4) has one or more of the same email addresses or websites;

(5) employs or engages substantially the same individuals to provide or perform building

construction or improvement services;

(6) utilizes substantially the same vehicles, facilities, or equipment; or

(7) lists or advertises substantially the same project experience and portfolio of work.

(f) If a person who has engaged an individual to provide or perform building construction

or improvement services that are in the course of the person's trade, business, profession,

or occupation, classifies, represents, treats, reports, or discloses the individual as an

independent contractor, the person shall maintain, for at least three years, and in a manner

that may be readily produced to the commissioner upon demand, all the information and

documentation upon which the person based the determination that the individual met all

the requirements under subdivision 4, paragraph (a), at the time the individual was engaged

and at the time the services were provided or performed.

(g) The following damages and penalties may be imposed for a
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willful
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violation of this

section:

(1) compensatory damages to the individual the person failed to classify, represent, or

treat as an employee pursuant to this section. Compensatory damages include but are not

limited to the value of supplemental pay including minimum wage; overtime; shift

differentials; vacation pay; sick pay; and other forms of paid time off; health insurance; life

and disability insurance; retirement plans; saving plans and any other form of benefit;

employer contributions to unemployment insurance; Social Security and Medicare and any

costs and expenses incurred by the individual resulting from the person's failure to classify,

represent, or treat the individual as an employee;

(2) a penalty of up to $10,000
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for each individual
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if
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the person failed to classify, represent,

or treat
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an individual
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as an employee pursuant to this section;

(3) a penalty of up to $10,000 for
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each violation of
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violating
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this subdivision; and

(4) a penalty of $1,000 for any person who delays, obstructs, or otherwise fails to

cooperate with the commissioner's investigation. Each day of delay, obstruction, or failure

to cooperate constitutes a separate violation.

(h) This section may be investigated and enforced under the commissioner's authority

under state law.