Bill Text: MN SF1653 | 2011-2012 | 87th Legislature | Introduced

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Independent contractors provisions modification; labor and industry technical conforming provisions

Spectrum: Bipartisan Bill

Status: (Passed) 2012-05-14 - Secretary of State Chapter 295 [SF1653 Detail]

Download: Minnesota-2011-SF1653-Introduced.html

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A bill for an act

relating to labor and industry; clarifying employee classification of independent
contractors; providing pilot project for contractor registration;amending
Minnesota Statutes 2010, sections 181.723, subdivisions 1, 3, 4, 7, 15, 16,
by adding subdivisions; 326B.081, subdivision 3; Minnesota Statutes 2011
Supplement, section 181.723, subdivision 5; repealing Minnesota Statutes 2010,
section 181.723, subdivisions 6, 8, 9, 10, 11, 12, 14, 17; Minnesota Rules,
parts 5202.0100; 5202.0110; 5202.0120; 5202.0130; 5202.0140; 5202.0150;
5202.0160.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

    Section 1. Minnesota Statutes 2010, section 181.723, subdivision 1, is amended to read:
    Subdivision 1. Definitions. The definitions in this subdivision apply to this section.
    (a) "Person" means any individual, limited liability corporation company, limited
liability partnership, corporation, partnership, incorporated or unincorporated association,
sole proprietorship, joint stock company, or any other legal or commercial entity.
    (b) "Department" means the Department of Labor and Industry.
    (c) "Commissioner" means the commissioner of labor and industry or a duly
designated representative of the commissioner who is either an employee of the
Department of Labor and Industry or person working under contract with the Department
of Labor and Industry.
    (d) "Individual" means a human being.
    (e) "Day" means calendar day unless otherwise provided.
    (f) "Knowingly" means knew or could have known with the exercise of reasonable
diligence.
    (g) "Document" or "documents" includes papers; books; records; memoranda; data;
contracts; drawings; graphs; charts; photographs; digital, video, and audio recordings;
records; accounts; files; statements; letters; e-mails; invoices; bills; notes; and calendars
maintained in any form or manner.
(h) "Business entity" means a person other than an individual or a sole proprietor.

    Sec. 2. Minnesota Statutes 2010, section 181.723, subdivision 3, is amended to read:
    Subd. 3. Employee-employer relationship. Except as provided in subdivision
4, for purposes of chapters 176, 177, 181A, 182, and 268, as of January 1, 2009 2013,
an individual a worker who performs services for a person that are in the course of the
person's trade, business, profession, or occupation is an employee of that person and that
person is an employer of the individual worker.

    Sec. 3. Minnesota Statutes 2010, section 181.723, subdivision 4, is amended to read:
    Subd. 4. Independent contractor. An individual (a) A worker is an independent
contractor and not an employee of the person for whom the individual worker is
performing services in the course of the person's trade, business, profession, or occupation
only if (1) the individual holds a current independent contractor exemption certificate
issued by the commissioner; and (2) the individual is performing services for the person
under the independent contractor exemption certificate as provided in subdivision 6. The
requirements in clauses (1) and (2) must be met in order to qualify as an independent
contractor and not as an employee of the person for whom the individual is performing
services in the course of the person's trade, business, profession, or occupation. the worker
is registered with the Department of Labor and Industry, if required under subdivision
4a, and the worker:
(1) maintains a separate business with the worker's own office, equipment, materials,
and other facilities;
(2)(i) holds or has applied for a federal employer identification number or (ii) has
filed business or self-employment income tax returns with the federal Internal Revenue
Service if the worker has performed services in the previous year;
(3) is operating under contract to perform the specific services for the person for
specific amounts of money and under which the worker controls the means of performing
the services;
(4) is incurring the main expenses related to the services that the worker is
performing for the person under the contract;
(5) is responsible for the satisfactory completion of the services that the worker has
contracted to perform for the person and is liable for a failure to complete the services;
(6) receives compensation from the person for the services performed under the
contract on a commission or per-job or competitive bid basis and not on any other basis;
(7) may realize a profit or suffer a loss under the contract to perform services for
the person;
(8) has continuing or recurring business liabilities or obligations; and
(9) the success or failure of the worker's business depends on the relationship of
business receipts to expenditures.
(b) If a worker is an owner or partial owner of a business entity, the worker is an
employee of the person for whom the worker is performing services in the course of the
person's trade, business, profession, or occupation, and is not an employee of the business
entity in which the worker has an ownership interest, unless:
(1) the business entity meets the nine factors in paragraph (a);
(2) invoices are submitted in the name of the business entity;
(3) the business entity is registered with the secretary of state, if required; and
(4) the business entity is registered with the Department of Labor and Industry,
if required under subdivision 4a.

    Sec. 4. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
to read:
    Subd. 4a. Registration pilot project. (a) The commissioner shall implement a pilot
project, effective July 1, 2012, for the registration of persons who perform public or
private sector commercial or residential building construction or improvement services
as described in subdivision 2. The purpose of the pilot project is to evaluate whether the
information obtained through registration assists the Department of Labor and Industry,
the Department of Employment and Economic Security, and the Department of Revenue
to enforce laws related to misclassification of employees. The commissioner shall
issue a report to the legislature no later than January 1, 2014, on recommendations for
amendments to the registration program, including reasonable registration fees to be used
to aid in enforcing misclassification laws. The commissioner must not charge a fee for
registration under the pilot project, but may take the enforcement action specified in
subdivision 8a. The pilot project shall expire on June 30, 2014, unless extended by the
legislature.
(b) Except as provided in paragraph (c), any person who performs construction
services in the state on or after September 15, 2012, must register with the commissioner
as provided in subdivision 5 before performing construction services for another person.
The requirements for registration under this subdivision are not a substitute for, and do
not relieve a person from complying with, any other law requiring that the person be
licensed, registered, or certified.
(c) The registration requirements in this subdivision do not apply to:
(1) a person who, at the time the person is performing the construction services,
holds a current license, certificate, or registration under chapter 299M or 326B;
(2) a person who holds a current independent contractor exemption certificate
issued under this section that is in effect on September 15, 2012, except that the person
must register under this section no later than the date the exemption certificate expires, is
revoked, or is canceled;
(3) a person who has given a bond to the state under section 326B.197 or 326B.46;
(4) an employee of the person performing the construction services, if the person
was in compliance with laws related to employment of the individual at the time the
construction services were performed;
(5) an architect or professional engineer engaging in professional practice as defined
in section 326.02, subdivisions 2 and 3;
(6) a school district or technical college governed under chapter 136F; or
(7) a person providing construction services on a volunteer basis, including but not
limited to Habitat for Humanity and Builders Outreach Foundation, and their individual
volunteers when engaged in activities on their behalf.

    Sec. 5. Minnesota Statutes 2011 Supplement, section 181.723, subdivision 5, is
amended to read:
    Subd. 5. Registration application. To obtain an independent contractor exemption
certificate, the individual must submit (a) Persons required to register under subdivision 4a
must submit electronically, in the manner prescribed by the commissioner, a complete
application and the certificate fee required under subdivision 14 according to paragraphs
(b) to (d).
    (a) (b) A complete application must include all of the following information about
any individual who is registering as an individual or a sole proprietor, or who owns 25
percent or more of a business entity being registered:
    (1) the individual's full legal name and title at applicant's business;
    (2) the individual's residence business address and telephone number;
    (3) the individual's business name, address, and telephone number; percentage of the
applicant's business owned by the individual; and
    (4) the services for which the individual is seeking an independent contractor
exemption certificate;
    (5) (4) the individual's Social Security number;.
    (6) the individual's or the individual's business federal employer identification
number, if a number has been issued to the individual or the individual's business;
    (7) any information or documentation that the commissioner requires by rule that
will assist the department in determining whether to grant or deny the individual's
application; and
    (8) the individual's sworn statement that the individual meets all of the following
conditions:
    (i) maintains a separate business with the individual's own office, equipment,
materials, and other facilities;
    (ii) holds or has applied for a federal employer identification number or has filed
business or self-employment income tax returns with the federal Internal Revenue Service
if the person has performed services in the previous year for which the individual is
seeking the independent contractor exemption certificate;
    (iii) operates under contracts to perform specific services for specific amounts of
money and under which the individual controls the means of performing the services;
    (iv) incurs the main expenses related to the service that the individual performs
under contract;
    (v) is responsible for the satisfactory completion of services that the individual
contracts to perform and is liable for a failure to complete the service;
    (vi) receives compensation for service performed under a contract on a commission
or per-job or competitive bid basis and not on any other basis;
    (vii) may realize a profit or suffer a loss under contracts to perform service;
    (viii) has continuing or recurring business liabilities or obligations; and
    (ix) the success or failure of the individual's business depends on the relationship of
business receipts to expenditures.
    (b) Individuals who are applying for or renewing a residential building contractor or
residential remodeler license under sections 326B.197, 326B.802, 326B.805, 326B.81,
326B.815, 326B.821 to 326B.86, 326B.87 to 326B.885, and 327B.041, and any rules
promulgated pursuant thereto, may simultaneously apply for or renew an independent
contractor exemption certificate. The commissioner shall create an application form
that allows for the simultaneous application for both a residential building contractor
or residential remodeler license and an independent contractor exemption certificate.
If individuals simultaneously apply for or renew a residential building contractor or
residential remodeler license and an independent contractor exemption certificate using
the form created by the commissioner, individuals shall only be required to provide, in
addition to the information required by section 326B.83 and rules promulgated pursuant
thereto, the sworn statement required by paragraph (a), clause (8), and any additional
information required by this subdivision that is not also required by section 326B.83 and
any rules promulgated thereto. An independent contractor exemption certificate that is in
effect before March 1, 2009, shall remain in effect until March 1, 2013, unless revoked by
the commissioner or canceled by the individual.
    (c) Within 30 days of receiving a complete application and the certificate fee, the
commissioner must either grant or deny the application. The commissioner may deny
an application for an independent contractor exemption certificate if the individual has
not submitted a complete application and certificate fee or if the individual does not
meet all of the conditions for holding the independent contractor exemption certificate.
The commissioner may revoke an independent contractor exemption certificate if the
commissioner determines that the individual no longer meets all of the conditions for
holding the independent contractor exemption certificate, commits any of the actions
set out in subdivision 7, or fails to cooperate with a department investigation into the
continued validity of the individual's certificate. Once issued, an independent contractor
exemption certificate remains in effect for four years unless:
    (1) revoked by the commissioner; or
    (2) canceled by the individual.
    (d) If the department denies an individual's original or renewal application for
an independent contractor exemption certificate or revokes an independent contractor
exemption certificate, the commissioner shall issue to the individual an order denying or
revoking the certificate. The commissioner may issue an administrative penalty order to
an individual or person who commits any of the actions set out in subdivision 7. The
commissioner may file and enforce the unpaid portion of a penalty as a judgment in
district court without further notice or additional proceedings.
    (e) An individual or person to whom the commissioner issues an order under
paragraph (d) shall have 30 days after service of the order to request a hearing. The
request for hearing must be in writing and must be served on or faxed to the commissioner
at the address or facsimile number specified in the order by the 30th day after service of
the order. If the individual does not request a hearing or if the individual's request for a
hearing is not served on or faxed to the commissioner by the 30th day after service of the
order, the order shall become a final order of the commissioner and will not be subject to
review by any court or agency. The date on which a request for hearing is served by mail
shall be the postmark date on the envelope in which the request for hearing is mailed. If
the individual serves or faxes a timely request for hearing, the hearing shall be a contested
case hearing and shall be held in accordance with chapter 14.
(c) A complete application must also include the following information:
(1) the applicant's legal name; assumed name filed with the secretary of state, if any;
designated business address; physical address; telephone number; and e-mail address;
(2) the applicant's Minnesota tax identification number, if one is required or has
been issued;
(3) the applicant's federal employee identification number, if one is required or
has been issued;
(4) evidence of the active status of the applicant's business filings with the secretary
of state, if one is required or has been issued;
(5) whether the applicant has any employees at the time the application is filed;
(6) the names of all other persons with an ownership interest in the business entity
who are not identified in paragraph (b), and the percentage of the interest owned by each
person, except that the names of shareholders with less than ten percent ownership in a
publicly traded corporation need not be provided;
(7) information documenting compliance with workers' compensation and
unemployment insurance laws;
(8) a certification that the person signing the application has: reviewed it; determined
that the information provided is true and accurate; and determined that the person signing
is authorized to sign and file the application as an agent of the applicant. The name of the
person signing, entered on an electronic application, shall constitute a valid signature of
the agent on behalf of the applicant; and
(9) a signed authorization for the Department of Labor and Industry to verify the
information provided on or with the application.
(d) A registered person must notify the commissioner within 15 days after there is a
change in any of the information on the application as approved. This notification must
be provided electronically in the manner prescribed by the commissioner. However, if
the business entity structure, legal form of the business entity, or business ownership has
changed, the person must submit a new registration application and registration fee, if
any, for the new business entity.
(e) The registered person must remain registered while providing construction
services for another person. The provisions of sections 326B.091 and 326B.094 to
326B.097 apply to this section.

    Sec. 6. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
to read:
    Subd. 5a. Web site. (a) The commissioner shall develop and maintain a Web site
on which applicants for registration can submit a registration application. The Web site
shall be designed to receive and process registration applications and promptly issue
registration certificates electronically to successful applicants.
(b) The commissioner shall maintain the certificates of registration on the
department's official public Web site, which shall include the following information:
(1) the registered person's legal business name, including any assumed name, as
filed with the secretary of state;
(2) the person's business address designated on the application; and
(3) the effective date of the registration and the expiration date.

    Sec. 7. Minnesota Statutes 2010, section 181.723, subdivision 7, is amended to read:
    Subd. 7. Prohibited activities. (a) The prohibited activities in this subdivision are
in addition to those prohibited in sections 326B.081 to 326B.085.
    (a) (b) An individual shall not:
    (1) perform work as an independent contractor who meets the qualifications under
subdivision 6 without first obtaining from the department an independent contractor
exemption certificate;
    (2) perform work as an independent contractor when the department has denied or
revoked the individual's independent contractor exemption certificate;
    (3) transfer to another individual or allow another individual to use the individual's
independent contractor exemption certificate;
    (4) alter or falsify an independent contractor exemption certificate;
    (5) misrepresent the individual's status as an independent contractor; or
    (6) make a false material statement, representation, or certification; omit material
information; or alter, conceal, or fail to file a document required by this section or any
rule promulgated by the commissioner under rulemaking authority set out in this section.
hold himself or herself out as an independent contractor unless the individual meets the
requirements of subdivision 4.
    (b) (c) A person who provides construction services in the course of the person's
trade, business, occupation, or profession shall not:
    (1) require an individual through coercion, misrepresentation, or fraudulent means to
adopt independent contractor status or form a business entity;
    (2) knowingly misrepresent that an individual who has not been issued or misclassify
a worker as an independent contractor exemption certificate or is not performing services
for the person under an independent contractor exemption certificate is an independent
contractor; or
    (3) contract with or perform construction services for another person without first
being registered if required by subdivision 4a; or
(4) make a false material statement, representation, or certification; omit material
information; or alter, conceal, or fail to file a document required by this section or any
rule promulgated by the commissioner under rulemaking authority set out in this section.
contract with or pay another person to perform construction services if the other person
is not registered if required by subdivision 4a. All payments to an unregistered person
for construction services on a single project site shall be considered a single violation. It
is not a violation of this clause:
(i) for a person to contract with or pay an unregistered person if the unregistered
person was registered at the time the contract for construction services was entered into; or
(ii) for a homeowner or business to contract with or pay an unregistered person if
the homeowner or business is not in the trade, business, profession, or occupation of
performing building construction or improvement services.
    (c) A person for whom an individual is performing services must obtain a copy of the
individual's independent contractor exemption certificate before services may commence.
A copy of the independent contractor exemption certificate must be retained for five years
from the date of receipt by the person for whom an individual is performing services.

    Sec. 8. Minnesota Statutes 2010, section 181.723, is amended by adding a subdivision
to read:
    Subd. 8a. Enforcement; remedies; and penalties. Notwithstanding the maximum
penalty amount in section 326B.082, subdivisions 7 and 12, the maximum penalty for
failure to register is $2,000, but the commissioner shall forgive the penalty if the person
registers within 30 days of the date of the penalty order.

    Sec. 9. Minnesota Statutes 2010, section 181.723, subdivision 15, is amended to read:
    Subd. 15. Notice to commissioner; review by commissioner of revenue. When
the commissioner has reason to believe that an individual who holds a certificate has
failed to maintain all the conditions required by subdivision 6 or is not performing
services for a person under the independent contractor exemption certificate a person has
violated subdivision 7, paragraph (b); or (c), clause (1) or (2), the commissioner must
notify the commissioner of revenue and the commissioner of employment and economic
development. Upon receipt of notification from the commissioner that an individual who
holds a certificate has failed to maintain all the conditions required by subdivision 6
or is not performing services for a person under the independent contractor exemption
certificate, the commissioner of revenue must review the information returns required
under section 6041A of the Internal Revenue Code. The commissioner of revenue shall
also review the submitted certification that is applicable to returns audited or investigated
under section 289A.35.

    Sec. 10. Minnesota Statutes 2010, section 181.723, subdivision 16, is amended to read:
    Subd. 16. Data classified. Data in applications for an independent contractor
exemption certificate and any required documentation submitted to the commissioner
under this section are private data on individuals or nonpublic data as defined in section
13.02 . Data in exemption registration certificates issued by the commissioner are public
data. Data that document a revocation or cancellation of an exemption a certificate
are public data. Upon request of the Department of Revenue or the Department of
Employment and Economic Development, the commissioner may release to the requesting
department data classified as private or nonpublic under this subdivision or investigative
data that are not public under section 13.39 that relate to the issuance or denial of
applications or revocations of certificates.

    Sec. 11. Minnesota Statutes 2010, section 326B.081, subdivision 3, is amended to read:
    Subd. 3. Applicable law. "Applicable law" means the provisions of sections
181.723, 327.31 to 327.36, and this chapter, and all rules, orders, stipulation agreements,
settlements, compliance agreements, licenses, registrations, certificates, and permits
adopted, issued, or enforced by the department under sections 181.723, 327.31 to 327.36,
or this chapter.

    Sec. 12. REPEALER.
(a) Minnesota Statutes 2010, section 181.723, subdivision 17, is repealed effective
May 15, 2011.
(b) Minnesota Statutes 2010, section 181.723, subdivisions 6, 8, 9, 10, 11, 12, and
14, and Minnesota Rules, parts 5202.0100; 5202.0110; 5202.0120; 5202.0130; 5202.0140;
5202.0150; and 5202.0160, are repealed July 1, 2012, except they shall remain in effect
for the regulation of an individual holding an independent contractor exemption certificate
issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723, subdivision
5, until the exemption certificate expires, is revoked, or is canceled.

    Sec. 13. EFFECTIVE DATE.
Sections 1 to 11 are effective July 1, 2012, except that those sections do not apply to
the regulation of an individual who holds an independent contractor exemption certificate
issued before July 1, 2012, under Minnesota Statutes 2010, section 181.723, subdivision
5, until the exemption certificate expires, or is revoked or canceled.