Misclassification

On May 20, 2024, the Minnesota legislature passed a groundbreaking bill aimed at tackling the prevalent issue of employer misclassification fraud. This pervasive problem, which affects workers across Minnesota and many other states, involves employers incorrectly classifying workers as independent contractors rather than employees. This misclassification allows employers to evade paying employee benefits, protections, and compensation such as overtime pay, workers’ compensation, earned sick and safe time, and more.

Key Provisions of the New Law

The new Minnesota law grants misclassified employees the right to sue for proper classification as employees if they can prove they meet the state’s recognized tests under workers’ compensation or unemployment laws. For all industries except construction, Minnesota’s Department of Labor and Industry (DOLI) uses the state’s Workers’ Compensation or Unemployment Compensation test to determine if a worker is an independent contractor or employee. These tests focus on five factors:

1. The right to control the means and manner of performance.
2. The mode of payment.
3. The furnishing of tools and materials.
4. Control over the premises where the work was done.
5. The right of discharge.

For Workers’ Compensation, DOLI also refers to 34 different tests based on the industry in which the individual works. See 5224 – MN Rules Chapter.

The general tests to determine proper classification often include the following criteria:

1. The company controls the means and manner in which the worker performs their job.
2. The work performed is essential to the company’s business.
3. The worker is not required to make any independent investment in the work.
4. The company provides the primary tools and resources necessary to complete the work.
5. The worker has limited ability to make any profit or suffer any loss.

If these factors indicate employee status rather than independent contractor status, the law ensures proper classification and provides for damages equivalent to the benefits and compensation the worker would have received if not misclassified. Additionally, the law imposes a $10,000 penalty for each violation. Employers who misclassify a large number of workers may face class action lawsuits, exposing them to substantial liability including compensatory damages, back pay, benefits, penalties, and attorney fees and costs.

Commonly Misclassified Positions

The following types of positions are often misclassified:

• • Rideshare
  • Food delivery
  • Graphic design
  • Freelance writers
  • Delivery drivers
  • Social media management
  • Construction workers
  • Sales reps
  • Administrative support
  • Cleaning staff
  • Content creators
  • IT professionals
  • Healthcare workers

Advocacy and Expertise

Josh Newville, Head of Halunen Law’s Employment Law Litigation Group, expressed strong support for the new legislation, stating, “Employment misclassification hurts working men and women by denying them the basic benefits of employment they are entitled to, such as minimum wage, overtime pay, and benefits like health care, retirement, disability coverage, and sick time. This new law empowers misclassified employees to seek all the benefits they deserve and ensures employers bear the costs of such actions.”

Halunen Law is prepared to represent individuals and small groups of employees alleging claims under the amended law and is also well-equipped to handle employee misclassification cases on a class-wide basis. The firm played a pivotal role in the FedEx Driver Misclassification Litigation, the largest nationwide drivers’ misclassification class action ever filed in the United States. This case, which spanned over 32 states, settled after more than a decade of litigation for $466,000,000. Halunen Law is prepared to pursue these cases in Minnesota, which now boasts the strongest misclassification law in the country, offering the most significant remedies of any state.

Conclusion

The passage of this new law marks a significant victory for workers in Minnesota, providing them with robust legal tools to challenge misclassification and secure the benefits and protections they rightfully deserve. Employers must now carefully evaluate their classification practices to avoid substantial penalties and legal actions.

Josh Newville is a tenacious litigator who has handled high-profile cases, secured millions of dollars for his clients, and won victories at the Minnesota Supreme Court and the U.S. Court of Appeals. As Halunen Law’s Employment Litigation Group Leader, Josh brings a commitment to excellence and more than a decade of experience to the firm’s Employment Law team.

Employee misclassification has become a huge problem in the United States. Employers who want to increase profits by not paying withholding and other taxes and escaping liability for workers’ compensation and unemployment claims will often claim that their workers are ‘independent contractors’ or ‘consultants’ (ICs), even though these people perform jobs that go to the heart of the employer’s business.

As an example, it has become almost automatic for operators of trucking, courier, and delivery services to use only independent contractor drivers. Why? The answer is simple- they save hundreds, maybe millions, of dollars each year by stiffing workers of benefits like 401(k) matches, insurance coverage, overtime, etc.

For many years now companies have largely gotten away with this intentional misclassification by requiring workers to sign agreements with arbitration clauses and class action waivers. When workers challenged misclassification they were required to do it individually, rather than as part of a larger group of workers, and had to submit their claim to an arbitrator rather than a judge (arbitrators often coming from the ranks of lawyers that defend corporations). As a result, it became almost impossible to succeed in these types of cases. However, the tide has finally turned.

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