Attorney General Ellison, lawmakers, and other leaders commend legislature for passing bill to combat employer misclassification fraud

May 20, 2024 (SAINT PAUL) — Today, Minnesota Attorney General Keith Ellison, state Senator Claire Oumou Verbeten, state Representative Emma Greenman, Minnesota Department of Labor and Industry Commissioner Nicole Blissenbach, and Burt Johnson from the North Central States Regional Council of Carpenters commended the Minnesota legislature for passing a landmark bill to combat employer misclassification fraud.

Employer misclassification fraud happens when an employer incorrectly classifies a full-time employee as an independent contractor, resulting in that employee losing access to important rights, benefits, and protections, like overtime pay, workers compensation, earned sick and safe time, and more. The legislation fighting misclassification fraud passed the House and Senate on Sunday.

The new legislation helps combat employer misclassification fraud in the following ways:

• Creating an Intergovernmental Misclassification Enforcement and Education Partnership to allow the various government agencies tasked with combatting misclassification fraud to share information and coordinate investigations. This will also make it easier for victims of misclassification fraud to report violations of the law.
  • There are currently five government agencies responsible for investigating misclassification fraud and punishing violators: the Departments of Labor and Industry, Revenue, Commerce, and Economic Development and the Attorney General’s Office. The partnership created by the bill gives misclassified workers a single place to report possible violations of the law to all five of those agencies and improves data-sharing and coordination between those agencies.
• Increasing the penalties for repeat offenders to ensure that those penalties provide meaningful deterrence and are not simply seen by bad actors as part of the cost of doing business.
• Improving the independent contractor test for those performing building construction or improvement services with a focus on two core questions: is the asserted independent contractor a separate and legitimate business entity, and is the contractual relationship a legitimate business-to-business transaction?
• Creating a private right of action for victims of employer misclassification fraud, which will allow victims of misclassification fraud to go to court themselves to ensure they receive the wages, rights, and benefits they are owed.

“I am very happy the Minnesota legislature acted to help workers afford their lives by giving us new, effective tools to fight employer misclassification fraud,” said Attorney General Ellison. “Misclassification fraud is an affront to working people because it robs workers of the rights that come with employment, like a minimum wage and overtime pay. It also denies misclassified workers of the benefits that come with being a legitimate independent contractor, like the ability to set their own rates and decide who they do business with. This bill was recommended by the task force I started last year, and I’m particularly pleased it gives workers themselves the power to bring lawsuits against an employer they believe is committing misclassification fraud. This is a big victory for working people across our state.”

"With the passage of this legislation, we are taking an important step in empowering workers and safeguarding their hard-earned rights,” said Senator Oumou Verbeten. “This legislation sends a loud and clear message to bad faith actors in our state: there will be consequences for exploitation in the workplace. I am so grateful to the AG's team, Rep Greenman, Commissioner Blissenbach and the rest of the Employer Misclassification Task Force for their work in passing this much needed legislation."

“All workers deserve economic security and protections of earning minimum wage, overtime, and unemployment insurance when you get laid off and workers compensation when you get hurt on the job,” said Representative Greenman. “But when irresponsible employers don’t play by the rules, workers get hurt, law-abiding businesses can't compete, and safety net protections like unemployment insurance are put at risk. This legislation ensures Minnesota has the legal and enforcement tools to turn the tide on the problem of misclassification fraud to protect workers, law-abiding businesses, and the Minnesota public for generations to come.”

“I commend our legislators for taking a stand against worker misclassification fraud,” said Nicole Blissenbach, Department of Labor and Industry Commissioner. “The new legislation replaces today’s piecemeal response to misclassification with a ‘whole of government’ approach. It strengthens deterrence, enforcement, consequences and helps DLI combat misclassification across all industries.”

“There is no bigger threat to middle class wages and benefits for workers than the growing business model of employee misclassification fraud, which is designed to shift costs and risks from construction employers and onto the backs of construction trade workers,” said Burt Johnson, General Counsel for the North Central States Regional Council of Carpenters. “This legislation increases penalties and establishes essential interagency cooperation to empower construction workers to speak out and to deter employers from attempting to gain an unethical competitive advantage when bidding against law abiding employers.

Passage of this important legislation follows the release of a report from the Office of Legislative Auditor, which found that misclassification fraud is a growing problem in Minnesota. The report specifically cited the need for improved coordination between government agencies and quicker action in resolving instances of misclassification fraud, both of which are addressed in this new legislation. Additional information about what the new law does to protect workers from misclassification fraud can be found in House Research’s summary of the legislation.

Background

On July 6, 2023, Attorney General Ellison formed a task force to study the issue of worker misclassification and its impacts on workers, the business community, and the public at large; explore best practices in policy and enforcement from examples based in Minnesota and in other states and jurisdictions; and propose a set of recommendations for both enforcement and regulatory reform.

The task force is co-chaired by Representative Greenman and Rod Adams, Executive Director of the New Justice Project, and both Senator Oumou Verbeten and Commissioner Blissenbach served on it as well. Task force members represent a wide cross-section of Minnesotans affected by misclassification fraud, including representatives from labor, the business community, and state agencies responsible for enforcing laws against misclassification, including the Departments of Revenue, Labor and Industry, and Economic Development.

The task force’s work is ongoing. Thus far, it has spent half a year holding meetings across the state to hear testimony from Minnesotans about misclassification and its impact and to discuss the best path forward to combat misclassification fraud. Last month, on a vote of 14-0 with 1 absence, the task force adopted a policy proposal for the legislature, which the legislation that passed on Sunday is based on.