Minnesota's new law ramps up risks for misclassifying contractors – find out what HR must do to stay compliant
Minnesota’s new contractor rules survived a major legal challenge, leaving HR teams in construction facing stricter standards and bigger risks for worker misclassification.
On October 24, 2025, the Eighth Circuit Court of Appeals upheld Minnesota’s 2024 overhaul of how construction companies must classify independent contractors. The law replaced a nine-part test with a tougher 14-part checklist, raising the bar for compliance and documentation in the industry.
The Minnesota Chapter of Associated Builders and Contractors, the Builders Association of Minnesota, and J & M Consulting, LLC led the charge against the law, arguing it’s too vague and exposes employers to hefty fines. Their lawsuit claimed the requirements around written contracts, invoicing, and expense responsibility were unclear, and that penalties – up to $10,000 per misclassified worker – could cripple businesses.
Under the new statute, every independent contractor in construction must have a written contract signed within 30 days of starting work. Payments must be processed through the contractor’s business entity, and the contractor is required to handle the main expenses and costs of their services. The law also insists that contractors have a real opportunity to make a profit or take a loss, rather than simply receiving a set fee for their work. These requirements are designed to draw a sharper line between employees and independent contractors, but they also introduce new administrative hurdles and the potential for costly mistakes.
The Minnesota Department of Labor and Industry and the state’s Attorney General have been given broad powers to enforce the law. They can issue fines, stop-work orders, and even pursue misdemeanor charges against companies that fail to comply. Employers do have the right to contest enforcement actions through administrative appeals, but the looming threat of significant penalties and the complexity of the law have left many construction businesses uneasy about their compliance status.
Despite these concerns, the courts sided with the state. The Eighth Circuit found that the law provides enough clarity for employers to understand what is required. The judges also pointed out that, so far, no fines have actually been issued under the new rules, making it premature to say whether the penalties are excessive. The decision means the law remains in effect while the broader legal challenge continues.
The ruling sends a strong signal that Minnesota is taking worker classification seriously and is prepared to back up its rules with tough enforcement. Construction companies are now under pressure to review their contractor agreements, tighten their compliance procedures, and ensure every aspect of their operations aligns with the new requirements. The days of informal arrangements and handshake deals are quickly fading, replaced by a regulatory environment that demands precision and accountability.
This case highlights a growing trend in employment law: states are stepping up efforts to regulate independent contractor relationships, particularly in industries like construction where misclassification has been a persistent issue. With courts showing a willingness to uphold these tougher standards, companies across the country may soon find themselves facing similar challenges. Staying ahead of these changes will be crucial for anyone managing a workforce in today’s evolving legal landscape.
