Minnesota General Contractors: Legislative Changes for 2024

The 2024 legislative session included many changes that will impact residential contractors.

Worker Classification

Beginning on July 1, 2024, the Minnesota Department of Labor may issue stop work orders and fines for misclassifying employees as independent contractors.  Those fines can even extend personally to the owners of a company that misclassifies its workers.  The test applied will generally follow the unemployment and workers’ compensation statutes which look at a five factor test including the worker’s right to control performance of their work, how workers are paid, who furnishes tools and materials, whether the worker controls the premises where the work is performed, and the right to terminate or discharge the relationship.

While the above changes govern independent contractors in general, the Legislature made specific changes for worker classification in the construction space primarily aimed at construction subcontractors.  It abandoned the prior “9-factor” test and replaced it with a 14-point test beginning on March 1, 2025.  Like the prior 9-factor test , the new 14-point test requires that all factors be met, but includes even more administrative oversight from the general contractor.  Now, an independent contractor is defined as a business entity (LLC, Corp, etc.) that meets these requirements:

(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 a federal employer identification number if required by federal law;

(ii) holds a Minnesota tax identification number if required by Minnesota law;

(iii) has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required by Minnesota or federal law;

(iv) has filed 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, in the previous 12 months;

and

(v) has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed if required by federal law;

(5) is in good standing with the secretary of state, if applicable;

(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) holds current 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 the specific services for the person 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;

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

(iii) identifies the specific services to be provided or performed under the contract;

(iv) provides for compensation from the person for the services provided or performed under the contract on a commission or per-job or competitive bid basis and not on any other basis;

(10) submits invoices and receives payments for completion of the specific services provided or performed under the written proposal, contract, or change order in the name of the business entity. Payments made in cash do not meet this requirement;

(11) 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;

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

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

and

(14) 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.

The statute also requires keeping records a contractor reviewed to determine that all of its independent contractors meet this 14-point requirement for 3 years.  Most contractors will have to change their operating procedures to collect this information from their independent contractors and revise their independent and subcontractor agreements accordingly.

Changes to Insurance Restoration Agreements

Starting July 1, 2024, the Legislature also enacted a bill prohibiting residential contractors from the following:

(1) offering compensation on an insurance restoration project in exchange for:

(i) allowing the residential contractor to conduct an inspection of the covered property;

(ii) making an insurance claim for damage to the covered property; or

(iii) referring the residential contractor’s services to others when insurance proceeds are payable;

(2) provide an insured with an agreement authorizing repairs without also providing a good faith estimate of the itemized and detailed cost of services and materials undertaken pursuant to a property and casualty claim; or

(3) interpret policy provisions or advise an insured regarding coverages or duties under the insured’s policy, or adjust a property insurance claim on behalf of the insured, unless the contractor has a license as a public adjuster under chapter 72B.

Contractors will also have to provide a copy of this statute at the time of contract.  While price agreeable (sometimes called “subject to” or “contingency” contracts) are still allowed under this format, they must now include a good faith estimate at the time of contract.

Non-Solicits

The Minnesota Legislature and FTC banned non-competes recently, but left open non-solicitation clauses.  This year, the Minnesota Legislature narrowed the scope of non-solicits that no service provider (essentially any business) may restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider.  Any existing non-solicits that prohibit this will be unenforceable.

Many construction businesses will need to take action to update their contracts and standard operating procedures.  SJJ Law is fully prepared to assist so that your business can get in compliance before these changes.  Please contact us today for a consultation.