Minnesota Deleted the Word That Used to Save Misclassifying Employers

Before July 1, 2024, Minnesota’s general misclassification statute was almost impossible to violate by accident. Minn. Stat. § 181.722 (2022) read:

No employer shall misrepresent the nature of its employment relationship with its employees to any federal, state, or local government unit; to other employers; or to its employees. An employer misrepresents the nature of its employment relationship with its employees if it makes any statement regarding the nature of the relationship that the employer knows or has reason to know is untrue and if it fails to report individuals as employees when legally required to do so.

An employer had to make a statement, the statement had to be one it knew or had reason to know was untrue, and it had to fail to report. Three elements joined conjunctively, two of them about the employer’s state of mind. A company that genuinely believed its crew were contractors and was wrong had not violated the statute.

The Legislature deleted that sentence. In its place, 2024 Minn. Laws ch. 127, art. 10, § 7 — effective July 1, 2024 — wrote a flat prohibition with no misrepresentation element and no scienter requirement:

(a) A person shall not:

(1) fail to classify, represent, or treat an individual who is the person’s employee pursuant to subdivision 3 as an employee in accordance with the requirements of any applicable local, state, or federal law. A violation under this clause is in addition to any violation of local, state, or federal law;

Getting it wrong is now the violation. That single edit is the whole story of this statute, and most of what follows is downstream of it.

What does § 181.722 prohibit now?

Three distinct acts, in subdivision 1(a). The first, quoted above, is the failure to classify, represent, or treat an employee as an employee. The other two are:

(2) fail to report or disclose to any person or to any local, state, or federal government agency an individual who is the person’s employee pursuant to subdivision 3 as an employee when required to do so under any applicable local, state, or federal law. Each failure to report or disclose an individual as an employee shall constitute a separate violation of this clause; or

(3) require or request an individual who is the person’s employee pursuant to subdivision 3 to enter into any agreement or complete any document that misclassifies, misrepresents, or treats the individual as an independent contractor or otherwise does not reflect that the individual is the person’s employee pursuant to subdivision 3. Each agreement or completed document constitutes a separate violation of this provision.

Note who is bound. The prohibition runs against “a person,” not “an employer.” Subdivision 1a(a) defines “person” as “any individual, sole proprietor, limited liability company, limited liability partnership, corporation, partnership, incorporated or unincorporated association, joint stock company, or any other legal or commercial entity.”

Note also the sentence at the end of clause (1): “A violation under this clause is in addition to any violation of local, state, or federal law.” Section 181.722 is not an alternative theory to the underlying wage, overtime, or unemployment-insurance violation. It stacks on top of it.

How many violations is one misclassified worker?

This is where the counting rules in clauses (2) and (3) meet the penalty schedule in subdivision 4(a), and the arithmetic is not intuitive.

Subdivision 4(a) provides for four things:

• compensatory damages to the misclassified individual;
• “a penalty of up to $10,000 for each individual the person failed to classify, represent, or treat as an employee pursuant to subdivision 3”;
• “a penalty of up to $10,000 for each violation of subdivision 1”; and
• “a penalty of $1,000 for each person who delays, obstructs, or otherwise fails to cooperate with the commissioner’s investigation,” with each day of delay constituting a separate violation.

Read the second and third together. The per-individual penalty and the per-violation penalty are separate clauses. And because clause (2) of subdivision 1(a) makes each failure to report a separate violation, and clause (3) makes each agreement or completed document a separate violation, a single worker misclassified across several reporting periods and asked to sign an independent-contractor agreement generates more than one violation.

The compensatory-damages definition is unusually specific, and it is worth reading in full because it defines the floor of a private claim:

compensatory damages to the individual the person has failed to classify, represent, or treat as an employee pursuant to subdivision 3. Compensatory damages includes but is not limited to the value of supplemental pay including minimum wage; overtime; shift differentials; vacation pay, sick pay, and other forms of paid time off; health insurance; life and disability insurance; retirement plans; savings plans and any other form of benefit; employer contributions to unemployment insurance; Social Security and Medicare; and any costs and expenses incurred by the individual resulting from the person’s failure to classify, represent, or treat the individual as an employee.

Employer-side payroll taxes are in that list. So is the value of benefits the worker never received — health insurance, retirement plan contributions, paid time off. This is a much broader damages measure than unpaid overtime.

Who can be personally liable?

Subdivision 1(b):

An owner, partner, principal, member, officer, or agent, on behalf of the person, who knowingly or repeatedly engaged in any of the prohibited activities in this subdivision may be held individually liable.

Two features of that sentence do a great deal of work.

“Knowingly” is defined down to constructive knowledge. Subdivision 1a(e) provides:

“Knowingly” means knew or could have known with the exercise of reasonable diligence.

That is not a knowledge standard in any ordinary sense — it is a diligence standard. An owner who never looked at how the crew was classified, and who could have found out by looking, is within it.

The phrase “knowingly or repeatedly” is disjunctive. Repetition alone suffices. An officer who signed the same independent-contractor template for eight workers has repeatedly engaged in the conduct described in subdivision 1(a)(3), whether or not the officer knew anything.

There is a seam here that anyone bringing or defending an individual-liability claim should confront directly. Subdivision 1(b) says an officer “may be held individually liable,” but the private-action statute discussed below, § 181.171, subd. 1, frames its liability sentence around “[a]n employer who is found to have violated the above sections.” Whether an individual officer who is not the employer is a proper private defendant, or whether subdivision 1(b) operates only through the commissioner’s enforcement, is a question the statutes do not answer on their face, and no decision resolving it was retrieved for this article. Plead it, but plead the entity too.

What test decides whether someone is an employee?

There is no single test, and this is the most commonly mis-stated feature of the statute. Subdivision 3 provides:

For purposes of this section, the nature of an employment relationship is determined using the same tests and in the same manner as employee status is determined under the applicable workers’ compensation and unemployment insurance program laws and rules.

Three things follow.

The statute borrows two bodies of law, not one. Workers’ compensation and unemployment insurance each have their own framework, and they are not identical in structure.

On the workers’ compensation side, Minn. R. ch. 5224 sets out occupation-specific safe harbors for a long list of trades and then supplies general criteria for everything else. Minn. R. 5224.0320 explains the relationship: “Parts 5224.0330 and 5224.0340 shall be used to determine if an individual is an independent contractor or an employee where the occupation is not defined in parts 5224.0020 to 5224.0312.” The same rule adds that where an occupation is defined but only some safe-harbor criteria are met, “those criteria which are substantially met shall be considered evidence of that status, and shall control where a conflicting result for that criterion is indicated by parts 5224.0330 to 5224.0340.” The general control rule, Minn. R. 5224.0330, subp. 1, is blunt about the hierarchy: “The most important factor in determining whether a person is an independent contractor is the degree of control which the purported employer exerts over the manner and method of performing the work contracted.”

On the unemployment insurance side, the framework is narrower. Minn. Stat. § 268.035, subd. 15(a)(1), defines “employment” as service performed by “an individual who is an employee under the common law of employer-employee and not an independent contractor,” and paragraph (c) points to the rules: “Rules on determining worker employment status are described under Minnesota Rules, chapter 3315.” The operative rule, Minn. R. 3315.0555, subp. 1, is a five-factor test:

A. the right or the lack of the right to control the means and manner of performance;

B. the right to discharge the worker without incurring liability for damages;

C. the mode of payment;

D. furnishing of materials and tools; and

E. control over the premises where the services are performed.

The rule then states: “The two most important factors are items A and B.”

“Applicable” is doing real work. Two industries are carved out of the general UI analysis by statute. For building construction and improvement services, § 268.035, subd. 9a, provides that “section 181.723 determines whether a worker is an independent contractor or an employee when performing public or private sector commercial or residential building construction or improvement services.” And § 181.723, subd. 3, independently reaches chapter 181 — it applies “for purposes of chapters 176, 177, 181, 181A, 182, 268, and 326B.” So for construction work, § 181.723 supplies the answer twice over: directly, because chapter 181 is named, and through the UI door. That test is not a balancing test at all — it requires the individual to be operating as a business entity meeting all fourteen requirements in § 181.723, subd. 4(a). We cover it separately in our guide to construction worker misclassification under § 181.723, including the March 1, 2025 effective date for the amended subdivision 4; it is not restated here.

For the trucking and messenger/courier industries, § 268.035, subd. 25b, supplies its own rule: an operator of a licensed and registered vehicle “is an employee unless each of the following factors is present,” followed by seven requirements including a written contract specifying independent-contractor status and compensation “based on factors related to the work performed, such as a percentage of any schedule of rates, and not on the basis of the hours or time expended.”

A written agreement is not a test. Nothing in subdivision 3 gives weight to what the parties called the arrangement. Subdivision 1(a)(3) goes further and makes requesting the agreement its own violation.

Is there a private right of action?

Yes — but it is not in § 181.722. Subdivision 5 of that section, despite what its position might suggest, is titled “Reporting of violations” and requires that “[a]ny court finding that a violation of this section has occurred shall transmit a copy of its findings of fact and conclusions of law to the commissioner of labor and industry,” who must then report it to Commerce, DEED, Revenue, the IRS, and the U.S. Department of Labor. Subdivision 4(b) says only that “[t]his section may be investigated and enforced under the commissioner’s authority under state law.”

The private right of action lives one statute over. Minn. Stat. § 181.171, subd. 1, was amended by 2024 Minn. Laws ch. 127, art. 10, § 6, effective July 1, 2024, to add §§ 181.722 and 181.723 to its list:

A person may bring a civil action seeking redress for violations of sections 181.02, 181.03, 181.031, 181.032, 181.08, 181.09, 181.10, 181.101, 181.11, 181.13, 181.14, 181.145, 181.15, 181.722, and 181.723 directly to district court. An employer who is found to have violated the above sections is liable to the aggrieved party for the civil penalties or damages provided for in the section violated. An employer who is found to have violated the above sections shall also be liable for compensatory damages and other appropriate relief including but not limited to injunctive relief.

Read the middle sentence carefully. The employer is liable to the aggrieved party for “the civil penalties or damages provided for in the section violated.” The up-to-$10,000 penalties in § 181.722, subd. 4(a), are the penalties provided for in the section violated. On the face of § 181.171, subd. 1, they are recoverable by the worker in a private action rather than paid to the state — which is not how most people assume statutory penalties work.

Attorney fees are mandatory, not discretionary. Section 181.171, subd. 3: “In an action brought under subdivision 1, the court shall order an employer who is found to have committed a violation to pay to the aggrieved party reasonable costs, disbursements, witness fees, and attorney fees.”

One clarification, because the two chapters are easy to conflate: the private action in § 177.27, subd. 8 — the one carrying automatic liquidated damages in an equal additional amount — reaches only “sections 177.21 to 177.44 and 181.165.” It does not reach § 181.722. The private route for a misclassification claim is § 181.171.

The administrative route, and why it is not the weaker option

Section 181.722 is on the commissioner’s compliance-order list. Minn. Stat. § 177.27, subd. 4, authorizes the commissioner of labor and industry to “issue an order requiring an employer to comply with” an enumerated set of sections that includes 181.722 and 181.723. An employer contesting the order “must file written notice of objection to the order with the commissioner within 15 calendar days after being served with the order,” after which “[a] contested case proceeding must then be held in accordance with sections 14.57 to 14.69 or 181.165.” Failure to object within 15 days makes the order final.

What the commissioner must then order, under § 177.27, subd. 7, is broader in one important respect than what the private statute provides:

In addition to remedies, damages, and penalties provided for in the violated section, the commissioner shall order the employer to pay to the aggrieved parties back pay, gratuities, and compensatory damages, less any amount actually paid to the aggrieved parties by the employer, and for an additional equal amount as liquidated damages.

Liquidated damages in an equal additional amount are mandatory in the commissioner’s order. The same subdivision adds that an employer “found by the commissioner to have repeatedly or willfully violated a section or sections identified in subdivision 4 shall be subject to an additional civil penalty of up to $10,000 for each violation for each employee.”

The last two rows are the ones that change behavior at the negotiating table.

The successor-liability rule

Subdivision 1(c) is aimed at the contractor that dissolves and reappears under a new name. An order issued to a person “is in effect against any successor person,” and a person is a successor if it shares three or more of seven listed characteristics with the entity that received the order:

the same owners, members, principals, officers, or managers; similar work within Minnesota; the same telephone or fax numbers; the same email addresses or websites; substantially the same individuals providing the services; substantially the same vehicles, facilities, or equipment; or substantially the same advertised project experience and portfolio of work.

Three of seven is a low bar. Same crew, same trucks, same website will do it — no common ownership required. Note the limit, though: the clause is written around “[a]n order issued by the commissioner.” It is the administrative route, not the private one, that carries this successor reach.

Why one audit now becomes five

The 2024 act did something beyond rewriting the prohibition. It created, at Minn. Stat. §§ 181.724 and 181.725, the Intergovernmental Misclassification Enforcement and Education Partnership, effective the day following final enactment. Its members are the commissioners of labor and industry, revenue, and employment and economic development, the commissioner of commerce, and the attorney general. Section 181.725, subd. 2, requires that meetings “occur at least quarterly.”

The operative provision is the data-sharing rule in § 181.724, subd. 4. A partnership entity “shall communicate with other entities to help detect and investigate instances of employee misclassification,” and “may request from, provide to, or receive from the other partnership entities data necessary for the purpose of detecting and investigating employee misclassification, unless prohibited by federal law.” Collaboration expressly “includes but is not limited to referrals, strategic enforcement, and joint investigations by two or more partnership entities.”

Section 181.725, subd. 3, then maps each agency’s lane: DLI under chapters 176, 177, and 181; Revenue under chapters 289A and 290; DEED under chapters 268 and 268B; Commerce under chapters 45, 60A, 60K, 79, and 79A; and the attorney general under §§ 177.45 and 181.1721. Section 181.1721 provides: “In addition to the enforcement of this chapter by the department, the attorney general may enforce this chapter under section 8.31.”

The practical consequence is that a single unemployment-insurance audit finding is no longer a single-agency problem. Section 181.722, subd. 5, already required a court that finds a violation to transmit its findings of fact and conclusions of law to DLI, which must then report to Commerce, DEED, Revenue, the IRS, and the U.S. Department of Labor. Section 181.725, subd. 6(8), further directs the partnership to “inform the public on enforcement actions taken by the partnership entities.”

Layered on top, § 177.27, subd. 11(a), makes the referral automatic on the licensing side: the commissioner shall provide a compliance order and its resolution to “a licensing or regulatory authority of one or more state agencies or agencies of a political subdivision to which the employer is subject” and to “a public contracting authority with which the employer is party to a public contract.” For a licensed trade or a public-contract holder, the classification finding does not stay in the file.

If your classification questions are entangled with unemployment eligibility or a workers’ compensation bar, our guides to unemployment quits and misconduct under § 268.095 and the workers’ compensation exclusive remedy under § 176.031 address the adjacent questions.

How long does a worker have to bring the claim?

Shorter than most people expect, and shorter than a contract claim. Minnesota’s two- or three-year statute, Minn. Stat. § 541.07, opens: “the following actions shall be commenced within two years.” Two of its clauses are candidates for a § 181.722 claim — clause (2), “upon a statute for a penalty or forfeiture, except as provided in sections 541.074 and 541.075,” and clause (5), which covers actions

for the recovery of wages or overtime or damages, fees, or penalties accruing under any federal or state law respecting the payment of wages or overtime or damages, fees, or penalties except, that if the employer fails to submit payroll records by a specified date upon request of the Department of Labor and Industry or if the nonpayment is willful and not the result of mistake or inadvertence, the limitation is three years.

Which clause governs a § 181.722 action has not been settled by any decision retrieved for this article. Both start at two years. Clause (5) supplies the only extension — three years where the nonpayment is willful and not the result of mistake or inadvertence, or where the employer fails to produce payroll records by a date specified by DLI. Do not plan around six.

Practical steps

If you are classified as a contractor in Minnesota. Keep the agreement you were asked to sign — under § 181.722, subd. 1(a)(3), the request itself is a violation, and the document is the exhibit. Keep the 1099s, the schedule you were told to work, the equipment you were or were not given, and any record of who could discipline or replace you. Then check whether your work is building construction or improvement services, or trucking or courier work, because a different test applies. Two related guides are worth reading alongside this one: our Minnesota wage and hour guide for the underlying pay claims that stack on top of a misclassification finding, and our article on the wage theft notice requirement under § 181.032 — an employer that never gave you a written notice of pay rate generally did not think of you as an employee, which is itself evidence.

If you engage contractors in Minnesota. The old defense is gone; sincerity is not an element anymore. Run the classification against the workers’ compensation rules in Minn. R. ch. 5224 and the unemployment insurance rule at Minn. R. 3315.0555 rather than against the contract, and treat construction and trucking as separate regimes with their own statutes. Look hard at subdivision 1(a)(2)’s counting rule before assuming exposure is capped by headcount, and understand that an owner or officer who never asked the question may be within the constructive-knowledge standard in subdivision 1a(e). If DLI serves a compliance order, calendar the 15-day objection deadline in § 177.27, subd. 4, immediately — it is short, and an unanswered order becomes final. Note as well that the same order will travel to your licensing authority and any public contracting authority under § 177.27, subd. 11.

Madgett Law, LLC

Madgett Law, LLC represents Minnesota workers in independent contractor misclassification claims under § 181.722 and § 181.723, and in the wage, overtime, and benefits claims that stack on top of them, in state and federal court. We also advise small Minnesota businesses on classification before it becomes a Department of Labor and Industry compliance order — which is far cheaper than after. If you have been paid on a 1099 for work that looks like a job, or you have received a DLI order and are counting the 15 days, call 612-470-6529 or send us a message.

Sources: Minn. Stat. § 181.722 (misclassification of employees — subd. 1(a)(1)–(3) prohibited activities and the per-failure and per-document counting rules; subd. 1(b) individual liability of an owner, partner, principal, member, officer, or agent who knowingly or repeatedly engaged; subd. 1(c) successor person, three of seven characteristics; subd. 1a(a) definition of “person”; subd. 1a(e) definition of “knowingly”; subd. 3 determination of employment relationship by reference to workers’ compensation and unemployment insurance laws and rules; subd. 4(a)(1) compensatory damages, (a)(2) up to $10,000 per individual, (a)(3) up to $10,000 per violation of subd. 1, (a)(4) $1,000 obstruction penalty per day; subd. 4(b) commissioner enforcement; subd. 5 reporting of court findings). Minn. Stat. § 181.722 (2022), prior text quoted from the strike-and-underscore markup of the amending act. 2024 Minn. Laws ch. 127, art. 10, § 7 (rewrite of § 181.722; EFFECTIVE DATE — July 1, 2024); art. 10, § 6 (addition of §§ 181.722 and 181.723 to the § 181.171 private-action list; EFFECTIVE DATE — July 1, 2024); art. 10, § 8 (§ 181.723 amendments, with subd. 4 amendments effective for services provided or performed on or after March 1, 2025); art. 10, §§ 9–10 (enactment of §§ 181.724 and 181.725, effective the day following final enactment). Minn. Stat. § 181.171, subd. 1 (private civil action; liability to the aggrieved party for the civil penalties or damages provided for in the section violated), subd. 3 (mandatory costs and attorney fees), subd. 4 (definition of “employer” for that section). Minn. Stat. § 181.1721 (attorney general enforcement of chapter 181 under § 8.31). Minn. Stat. § 181.723, subd. 2 (limited application to building construction or improvement services), subd. 3 (employee-employer relationship for purposes of chapters 176, 177, 181, 181A, 182, 268, and 326B), subd. 4(a)(1)–(14) (fourteen business-entity requirements). Minn. Stat. § 181.724, subd. 4 (partnership coordination, collaboration, and information sharing); § 181.725, subd. 1 (composition), subd. 2 (quarterly meetings), subd. 3 (agency enforcement lanes), subd. 6(8) (informing the public on enforcement actions). Minn. Stat. § 177.27, subd. 4 (compliance orders; § 181.722 on the enumerated list; 15-day objection period; contested case under §§ 14.57 to 14.69), subd. 7 (mandatory back pay, compensatory damages, and an additional equal amount as liquidated damages; additional civil penalty of up to $10,000 per violation per employee for repeated or willful violations), subd. 8 (private action limited to §§ 177.21 to 177.44 and 181.165), subd. 11(a) (mandatory reporting to licensing and public contracting authorities). Minn. Stat. § 268.035, subd. 9a (construction; § 181.723 controls), subd. 15(a)(1) and (c) (definition of “employment”; rules at Minn. R. ch. 3315), subd. 25b (trucking and messenger/courier seven-factor rule). Minn. Stat. § 541.07, preamble and cls. (2) and (5) (two-year limitation; three years for willful nonpayment or failure to produce payroll records). Minn. R. 5224.0320 (general criteria for nonspecified occupations; safe-harbor interaction); Minn. R. 5224.0330, subp. 1 (control as the most important factor); Minn. R. 3315.0555, subp. 1 (five-factor unemployment insurance test; items A and B most important). Statutory and rule text retrieved from the Office of the Revisor of Statutes, revisor.mn.gov, and session law text from the 2024 session law chapter page, on August 22, 2026. This article is general legal information about Minnesota law. It is not legal advice, it does not create an attorney–client relationship, and no particular outcome is promised or implied.