New Registration Law Impacts General Contractors and Their Subcontractors

A newly amended Minnesota statute implementing a Contractor Registration Pilot Project (the “Project”), became effective July 1, 2012. The Project, which replaces the Independent Contractor Exemption Certificate program, requires “the registration of persons who perform public or private sector commercial or residential building construction or improvement services.” The registration requirement is subject to enumerated exceptions, including individuals and businesses that are already licensed, registered or certified. Individuals and businesses to which the statute applies were required to register by September 15, 2012.

Registration is free of charge and completed online through the Minnesota Department of Labor and Industry’s website: www.dli.mn.gov/register. The information required for registration includes general business data, information regarding ownership and employees, and documentation of compliance with worker’s compensation and unemployment insurance laws.

The failure to register is subject to a penalty of up to $2,000; however, a monetary penalty is not the only potential adverse consequence under the Project. The consequence for engaging an unregistered subcontractor is that the subcontractor will be reclassified as an employee of the general contractor, thereby implicating workers compensation and unemployment insurance, tax withholdings, and insurance premiums. Thus, general contractors must verify that any subcontractors used are registered.

It is important to recognize that the Project is just one example of how the State of Minnesota and the federal government are cracking down on employee misclassifications. Indeed, the Minnesota Department of Revenue and the Internal Revenue Service are actively pursuing independent contractor misclassifications in numerous industries.

Please contact Messerli & Kramer’s litigation department for more information on the Project and its application to your business, and the legal issues and implications surrounding classification of individuals as employees versus independent contractors. Construction litigation and employment law are just two of the areas in which our litigators have knowledge, experience and expertise-please check out the website to learn more.

This communication does not constitute legal advice or create an attorney-client relationship. Please consult an attorney if you have questions.