Following a growing trend across the U.S., a new law in Minnesota is designed to crack down on contractors who “misclassify” workers as 1099-based independent contractors. The law, which became effective Jan. 1, 2009, requires that independent contractors in the construction industry obtain a certificate from the Minnesota Department of Labor and Industry (MDLI). Without the certificate, Minnesota will classify the worker as an employee. That means the worker would be subject to the Minnesota laws, rules, and regulations that govern the employee/employer relationship, including workers’ compensation, unemployment insurance, wage and hour, and occupational safety and health.

To obtain the certificate requires submitting a detailed application, paying a fee, providing supporting documents, and signing a sworn statement that the applicant meets a list of nine criteria that certify that he or she is a genuine independent contractor (see www.doli.state.mn.us/ic). Moreover, contractors who hire independent contractors must verify that the worker holds a current certificate, and certificates must be renewed every two years.

Seeking Legal Counsel

The MDLI is authorized to impose a $5,000 fine for each violation of the law. A greater concern is the potential for increased litigation from the private sector when lawyers begin to realize that they can use this law as a jumping off point when representing workers in the construction industry against an employer. One saving grace is that if the contractor hires the worker through a business entity structure (such as hiring John Jones Installation Services Inc. instead of hiring John Jones the individual), then the Minnesota law should not apply.

While no other state has yet adopted this type of law, many have moved or are moving aggressively toward making the structuring of an independent contractor relationship exceedingly difficult. Now more than ever, contractors should consult with legal counsel before wading into this area.

—Kevin M. Tierney is an attorney with Johanson Berenson LLP (www.homeimprovementlaw.com), a national law firm specializing in the representation of contractors and the home improvement industry. He may be contacted at 703.759.1055 or [email protected].

This article is for informational purposes only and should not be construed as legal advice.