8th Circuit upholds denial of contractor law injunction

Last year, the Minnesota Legislature amended its independent-contractor classification law, expanding a nine-factor test into a 14-factor framework. Construction trade organizations challenged the statute as unconstitutionally vague and in violation of the Eighth Amendment’s Excessive Fines Clause. However, the 8th U.S. Circuit Court of Appeals, in an opinion filed Oct. 24, affirmed the denial of a preliminary injunction, concluding the challengers were unlikely to succeed on either claim.

Before 2024, Minnesota employed a nine-part test to determine whether construction workers were properly classified as independent contractors. The 2024 amendment replaced this with a 14-part test, introducing new criteria. Four of the parts were contested by plaintiffs.

Those provisions require that independent contractors operate under a written, signed contract executed within 30 days of starting work that clearly identifies the services and provides payment on a commission, per-job, or competitive-bid basis. Contractors must issue invoices and receive non-cash payments in the name of their business entity. They must also bear the main expenses of the work and have the potential to make a profit or suffer a loss based on their costs and compensation.

Additionally, the statute authorizes civil penalties of up to $10,000 per misclassification and up to $1,000 per instance of non-cooperation with investigations. Penalties are discretionary, so an enforcing agency must weigh factors like intent, severity, history, number of violations, economic gain, and overall fairness.

Plaintiffs were the Minnesota Chapter of Associated Builders and Contractors, Builders Association of Minnesota, and J&M Consulting (collectively, “the Contractors”). They claimed that this new statute upended the Minnesota construction industry by requiring compliance with each part of the new statute, or else convert their subcontractors’ workers into employees.

For instance, plaintiffs asserted that written contracts with subcontractors were often not secured within 30 days of starting work. They also maintained that subcontractors were regularly paid without receiving an invoice. Plaintiffs sought to preliminarily enjoin the act, but the district court declined.

Plaintiffs then appealed to the 8th Circuit. There, the panel found that plaintiffs had standing.

“If those contracts are not signed within 30 days, then all of the subcontractors’ employees become employees of the prime contractor,” said Thomas Revnew, shareholder at Littler Mendelson P.C., arguing for the plaintiffs. “In that instance, in that one example, then all of the employees for the subcontractor are entitled to the wages and the benefits that are offered by the general contractor.”

Revnew added, “In addition, you have a general contractor who has a responsibility to make employer contributions to unemployment compensation, they need to maintain workers’ compensation, they need to pay Social Security, they have to pay Medicare. Just because they didn’t have a contract signed within 30 days.”

However, the panel — Judges Duane Benton, L. Steven Grasz and Jonathan A. Kobes— found that the plaintiffs were unlikely to succeed on the merits of their vagueness claim. Plaintiffs pointed to phrases such as “invoice” and “main expenses and costs” as being unconstitutionally vague.

“Several of the words that they challenge as vague were in the statute last year, some of them have been in the statute since 1996. That’s really too late,” Minnesota Assistant Attorney General Janine Kimble argued for the state. “But in this case, the Legislature passed the amendment in May of 2024, and we know that the trade associations were aware because they testified in front of the Legislature.”

“It passes in May of 2024, and then the complaint was not filed in this case until February 12. That is a substantial delay,” Kimble asserted, stating that this should counsel against there being irreparable harm from enforcement.

The panel found that “people of ordinary intelligence have a reasonable opportunity to understand the meaning of these words and phrases.” Writing for the panel, Benton stated, “The Contractors may have questions about the Act, but the possibility of questions does not doom it.”

Nor did the panel find that the plaintiffs were likely to succeed on the merits of their excessive fines claim. Plaintiffs contended that the penalties were excessive and punitive. Here, the panel pointed to the fact that no penalties were issued under the act.

“Without either an offense or penalty to compare, this court cannot conduct a proportionality test,” Benton wrote.