As many Minnesota construction industry businesses are aware, the Minnesota legislature changed the independent contractor law related to workers in the construction industry, including replacing the former 9-part test for determining a worker’s status with a 14-part test effective March 1, 2025. The law also makes general contractors potentially liable for all misclassifications of workers by subcontractors in violation of the law.

If the individual is not properly classified, the law provides for significant damages, penalties (up to $10,000 for each individual misclassified as an independent contractor) and compensatory damages for each violation. In addition, owners, officers, or agents of a business may be held individually liable if they “knowingly or repeatedly engaged in any of the prohibited activities” set forth in the law. A business may also be ordered to pay “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 business’s failure to classify, represent, or treat the individual as an employee.

The Minnesota Department of Labor and Industry and the Minnesota Attorney General have authority to enforce the law and consider the following factors in handing down the discretionary penalties: the willfulness and gravity of the violation, any history of past violations, the number of violations, and any economic benefit gained by the person committing the violation.

Certain aspects of the legislative changes were challenged as unconstitutional, with the plaintiffs seeking an injunction against the law’s enforcement. On October 24, 2025, the Eight Circuit Court of Appeals unanimously declined to issue a preliminary injunction against the recent changes to the law relevant to the construction industry. Meaning that businesses in Minnesota must continue to comply with the changes to the independent contractor law.  

The court’s decision serves as a reminder to businesses with workers in the construction industry of the importance of ensuring continued compliance with the law to avoid significant penalties. This means evaluating all construction industry independent contractor relationships and the relationships of any subcontractors under the 14-part test to confirm that workers are properly classified.

In the construction industry, to be considered an independent contractor, an individual operating as a business entity must establish all of the following requirements are met at the time services are provided or performed:

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 building, construction or improvement services;
3. Provides or offers to provide 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:
   1. Holds a federal employer ID number, if required by federal law;
   2. Holds a Minnesota tax ID number, if required by Minnesota law;
   3. Has received and retained 1099 forms for income received for building, construction or improvement services performed, if required by Minnesota or federal law;
   4. Has filed business or self-employment income tax returns including estimated tax filings with the federal IRS and the Minnesota Department of Revenue; and
   5. Has completed and provided a W-9 federal income tax form to the person for whom the services were provided, if required by federal law;
5. Is in good standing with the Minnesota Secretary of State, if applicable;
6. Has a Minnesota unemployment insurance account, if required by the Unemployment Compensation law;
7. Has obtained required workers compensation insurance coverage, if required by the Workers Compensation statute;
8. Holds current business licenses, registrations and certifications, if required by applicable statutes;
9. Is operating under a written contract to provide or perform the specific services for the person that:
   1. Is signed and dated by both an authorized representative of the business entity and of the person for whom the services are being performed;
   2. If fully executed no later than 30 days after the date the work commences;
   3. Identifies the specific services to be performed under the contract;
   4. Provides for compensation from the person for the services provided under the contract on a commission or per job or competitive bid basis and not on any other basis; and
   5. The requirements of item b shall not apply to change orders;
10. Submits invoices and receives payments for completion of the specific services performed under the written proposal, contract or change order in the name of the business entity;
11. The terms of the written proposal, contract or change order provide the business entity control over the means of performing the specific services and the business entity in fact controls the performance of the specific services;
12. Incurs the main expenses and costs relating 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 performed under the written proposal, contract or change order and is responsible for failure to complete the specific services; and
14. May realize additional profit or suffer a loss if costs and expenses to 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.

For now, the new 14-Factor test is in place for independent contractor classification in the construction industry. A business must meet all 14 of these requirements for the worker to be properly classified as an independent contractor. Construction businesses working with independent contractors need to examine those relationships and make sure each independent contractor meets all of the requirements of the 14-Factor test and continues to meet those requirements at each point where the independent contractor is providing work and services for the business. This can be a complicated analysis and process.

Additionally, since subcontractors can be independent contractors and use independent contractors, general contractors need to take necessary steps to confirm the subcontractors meet the 14-part test, including having subcontractors attest that they meet the 14-part test and if they use independent contractors, that those contractors meet the test.

Contact any member of Larkin Hoffman’s Labor & Employment Law Group for assistance with Minnesota’s independent contractor requirements.