Minnesota’s Responsible Contractor Law has now been effective for three years. The law applies to publicly owned construction projects in Minnesota valued at $50,000 or more. The law aims to keep contractors with serious violations of certain labor standards laws off of public projects. Since the law went into effect, almost three hundred contractors have been excluded from public work under its provisions.
Of particular interest is the law’s impact on independent contractor misclassification. Misclassifying employees as independent contractors is a pervasive and increasing problem in numerous industries. By misclassifying employees as independent contractors employers are able to achieve significant cost savings by avoiding certain tax liabilities related to their employees, and to avoid other costs of employees, such as providing employee benefits, unemployment insurance, workers compensation coverage, and more. These savings provide a significant cost advantage for unscrupulous employers as they manage to avoid many of the costs of doing business that law-abiding contractors legitimately incur. This practice also undermines state programs such as unemployment and workers compensation insurance as payments are not being made into these systems for misclassified employees. The practice also has a negative impact on state revenues because in many cases income taxes are not being remitted for misclassified employees at all.
The scope of independent contractor misclassification is large, and likely increasing. The problem is particularly pervasive in the construction industry due to the cost advantages discussed above resulting in bidding advantages for contractors who engage in this behavior. Fortunately, Minnesota’s Responsible Contractor Law provides one mechanism to combat this behavior in public construction. In the construction industry Minnesota has a specific and strict statutory test to determine if an individual is a legitimate independent contractor. Violations of this statutory test can result in a contractor receiving an administrative or licensing order that generally carries a monetary penalty.
Importantly, however, receiving one of these administrative or licensing orders that has become final renders a contractor ineligible under the Responsible Contractor Law for a period of three years. This is an important tool in keeping contractors who engage in this behavior off of public projects where low bid requirements might make the unlawful cost cutting they achieve by misclassifying employees an even more substantial advantage. For more information on the Responsible Contractor Law, and a list of contractors who are ineligible for public work under the law, visit www.ResponsibleMN.org.
