New Minnesota Law Combats Worker Misclassification

A new Minnesota law gives workers new relief from one major form of wage theft. Once the new law goes into effect on July 1, 2024, employees can sue employers for misclassifying them as independent contractors. This major expansion of workers’ rights creates a powerful tool for employees and their attorneys to use to fight the scourge of misclassification.

Misclassification occurs when employers hire somebody and call them an independent contractor while treating them like an employee. Many employment laws don’t apply to independent contractors. Misclassification therefore gives employers free reign to deny their workers’ rights and benefits while controlling them like an employee.   

Employees lose millions of dollars in wages and benefits every year because employers misclassify them as independent contractors. Businesses don’t have to pay independent contractors minimum wage, overtime, or shift differentials. They don’t have to pay payroll taxes on their wages. They don’t have to contribute to those workers’ unemployment insurance or workers’ compensation benefits programs. They can deny the workers access to paid time off, health insurance, and retirement savings plans. They can even avoid liability for discrimination, harassment, and retaliation against those workers. They can save big money through misclassification. Unsurprisingly then, the Minnesota Attorney General’s Office found that as many as 20 percent of Minnesota employers misclassify employees as independent contractors.

Historically, misclassified workers have had few options for addressing this problem. Except in rare, industry-specific circumstances, employees could not sue an employer for misclassifying them. Instead, misclassification usually served as a shield wielded by employers seeking to avoid accountability for violating workers’ rights.

Minnesota’s new law changes that. For the first time in state history, the law provides an independent remedy for all misclassified workers. Misclassified employees can now sue their employers to obtain compensation based on their misclassification alone.

The law identifies tests for determining whether a worker is an employee or an independent contractor. Those tests largely follow traditional legal tests of employment, which focus on the degree of control an employer has over a worker. A worker’s status depends on their specific circumstances. When those circumstances show an employer misclassified the worker as an independent contractor, the new law holds them accountable for it.

The law creates opportunities for misclassified employees to obtain substantial compensation. A broad provision allows misclassified workers to obtain compensatory damages caused by their misclassification. “Compensatory damages” means money that makes a person whole after their rights are violated. The statute identifies several forms of compensatory damages available to misclassified workers: “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; savings 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.” This list is not exhaustive, so misclassified employees can seek damages for other harms caused by misclassification, like emotional distress or missed opportunities to pursue employment law claims unavailable to independent contractors.

    The new law promises to come in handy in several circumstances. If Susie missed out on overtime wages because her employer misclassified her, she can sue to recover them. If her employer also denied her access to employer-sponsored health insurance because of her misclassification, she can sue for the premiums she paid for out of her own pocket. If she would have earned PTO if correctly classified, she can sue for the value of that too. The list goes on and on. Susie could easily recover tens of thousands of dollars in damages. The court can also impose civil penalties on employers who violate the new law.

    Whereas misclassified employees in Minnesota had no real remedy and simply had to learn to live with their unlawful treatment, they now have ample reason to seek accountability by suing for violations of this new law. Misclassification causes real harms, and the law now offers real remedies for them.

        MacDonald Hoague & Bayless’s Minneapolis office represents workers in all kinds of situations, including misclassification. If you work in Minnesota and have been misclassified, give us a call. We would be happy to talk with you about your situation to determine if legal action is right for you. You can reach us at 612.349.2720.