Most construction contracts include a provision stating that the contractor or subcontractor is an independent contractor and not an employee of the owner or contractor. That should settle the matter, right? Wrong. Depending on the context and jurisdiction, such contractual provisions may mean little or nothing at all.
Check State Laws
In 2024, the Minnesota Legislature passed a law that contains 14 mandatory requirements for a construction contractor to qualify as an independent contractor under the state labor laws. Among other requirements, the contractor must:
- Have federal and state tax ID numbers;
- Receive and retain Form 1099s;
- Have certain types of unemployment and workers’ compensation insurance;
- Have control over the means of performing the work;
- Have a written contract that is fully executed no later than 30 days after work commences; and
- Submit written invoices.
Contractors in Minnesota who do not satisfy all these and other requirements are considered employees. The state may assess fines of up to $10,000 per violation against those who misclassify their contractors and subcontractors as independent contractors.
In Minnesota ABC v. Blissenbach, the Minnesota Chapter of the Associated Builders and Contractors (ABC) challenged the new law in federal court arguing that it was unconstitutional. ABC alleged several common practices that the law arguably proscribes, including not executing written subcontracts within 30 days of beginning work and paying subcontractors without receiving an invoice. The district court rejected ABC’s constitutional challenge, and just last week, the Eighth Circuit Court of Appeals affirmed. The Eighth Circuit held that the law was not unconstitutionally vague and did not violate the Excessive Fines Clause of the U.S. Constitution. As a result, the law remains in effect and may be enforced by the Minnesota Department of Labor and attorney general.
Takeaways
The Blissenbach decision is a good reminder to consult state law regarding the classification of independent contractors for purposes of complying with state employment laws.
