The Construction Counselor

The Minnesota Legislature had a busy first half of 2023 that included passing several major new employment-related bills. One of these is a new statute designed to protect the wages of construction workers: Minnesota Statute § 181.165. In its simplest form, the new statute will make general contractors and project owners equally liable for any unpaid wages, fringe benefits and other damages for employees of any subcontractors on certain construction projects.

With the new law going into effect on August 1, 2023, it is important for contractors, subcontractors and construction workers to understand the basic and specific provisions regarding construction worker wage protection.

Overview of the Law

Overall, the new law can be broken into three main parts establishing liability for contractors.

First, a contractor entering into a construction contract is liable for any unpaid wages, fringe benefits, penalties and resulting liquidated damages owed to a construction worker by a subcontractor at any tier by, or for the contractor or its subcontractors for labor performed. Simply put, a contractor is now equally liable for unpaid wages and benefits owed by their subcontractors.

Second, a contractor may not enter into an agreement with an employee or subcontractor that will indemnify them or otherwise release or transfer their liability under the new law. However, if a contractor ends up paying a wage claim for an employee of a subcontractor, the contractor may then pursue actual and liquidated damages from the subcontractor who was ultimately responsible.

Third, a contractor cannot escape liability by claiming that a worker is an independent contractor rather than an employee of a subcontractor, unless that persons meets the required criteria set forth in Minn. Stat. § 181.723, subd. 4.

Exceptions to the Law

There are three primary exemptions under the law for certain construction work.

First, the law does not apply to any work subject to prevailing wage rates.

Second, the law does not apply to most union projects where the contractor or subcontractor is signatory to a collective bargaining agreement that contains a grievance procedure for recovering unpaid wages and provides for collection of unpaid fringe benefit contributions to the fringe benefit trust funds.

Third, the law does not apply to construction contracts for the performance of a home improvement between a home improvement contractor and the owner of an owner-occupied dwelling, or a home construction contract for one- or two-family dwelling units except where such contract or contracts results in the construction of more than ten one- or two-family owner-occupied dwellings at one project site annually.

Who Qualifies as a Contractor

Under the new law, a contractor can be any of the following, so long as there is a “construction contract” with an “owner,” as those terms are defined in the statute:

• Firm;
• Partnership;
• Corporation;
• Association;
• Company;
• Organization;
• A construction manager;
• General or prime contractor;
• Join venture; and
• An owner who has entered into a construction contract with more than one contractor or subcontractor on any construction site.

A Contractor’s Right to Transparency

As a way of increasing transparency, a contractor has the right to request the subcontractor’s payroll records. Within 15 days of a contractor’s request, the subcontractor and any other subcontractors hired under contract must provide the contractor with payroll records. These payroll records must contain all lawfully required information for all workers providing labor on the project. The payroll records must also contain sufficient information to put the contractor or subcontractor on notice of such payment of wages, and fringe benefit contributions to a third party on the workers’ behalf.

A subcontractor may only mark or redact these payroll records to prevent the disclosure of an employee’s Social Security number.

A contractor may also request from any subcontractor performing work within the scope of the contract the following additional information:

• The names of all employees and independent contractors of the subcontractor on the project, including the names of all those designated as independent contractors and, when applicable, the name of the contractor’s subcontractor with whom the subcontractor is under contract;
• The anticipated contract start date;
• The scheduled duration of work;
• When applicable, local unions with which such subcontractor is a signatory contractor; and
• The name and telephone number of a contact for the subcontractor.

Conclusion

Despite the passing of a strict 2019 wage theft law, the authors of this new law believed that wage theft in the construction industry remained an issue, affecting approximately 23 percent of construction workers. Starting August 1, 2023, contractors must be cognizant of the pay practices of their subcontractors, should use their right to request and monitor their subcontractors’ pay records, and be careful about who they do business with on projects. Otherwise, Minnesota contractors could find themselves footing the bill for paying their sub’s employees.