Signing a 1099 agreement does not make you a contractor in Minnesota — being asked to sign one is itself a violation

The paperwork is not the test

Minn. Stat. § 181.722, subd. 3, is one sentence and it disposes of the argument most misclassified workers are given:

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.

The agreement you signed is not among those tests. Neither is the 1099, neither is the title on the invoice, and neither is the LLC you were told to form.

The statute then treats the paperwork as evidence pointing the other way. Subdivision 1(a) lists three prohibited activities, and the third is about the document itself:

(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.

Clause (1) prohibits a person from failing “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,” and adds that “[a] violation under this clause is in addition to any violation of local, state, or federal law.” Clause (2) prohibits failing to report or disclose an employee as an employee where any law requires it, with each failure a separate violation.

What the 2024 rewrite actually did

The change ran deeper than a set of amendments — it began with the name of the section. Laws 2024, ch. 127, art. 10, § 7, struck the words “MISREPRESENTATION” and “EMPLOYMENT RELATIONSHIP PROHIBITED” from the heading and inserted “MISCLASSIFICATION” and “EMPLOYEES.”

The old subdivision 1, struck in its entirety, 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.

Read that second sentence as an employer’s defense lawyer would have read it before July 1, 2024. It required a statement. It required that the statement be one “the employer knows or has reason to know is untrue” — a scienter element. And it joined that to a second requirement with the word and: a failure to report the individuals as employees. An employer who genuinely believed its own classification, or who reported the workers somewhere, had an argument.

None of that survives in the new subdivision 1(a), quoted above. There is no statement requirement, no knowledge requirement, and no conjunctive second element. The prohibition is failing to classify, represent, or treat an employee as an employee. Whether the employer meant to is not part of the sentence.

The old subdivision 2, also struck, prohibited requiring or requesting an agreement “that results in misclassification of the employee as an independent contractor”; its substance is now clause (3) of subdivision 1, with the per-document counting rule added.

The most consequential deletion is in the old subdivision 4, then titled “Civil remedy”:

A construction worker, as defined in section 179.254, who is not an independent contractor and has been injured by a violation of this section, may bring a civil action for damages against the violator.

That private action reached construction workers and nobody else. The 2024 act struck it, replaced subdivision 4 with a damages-and-penalties schedule, and — in section 6 of the same article — amended § 181.171, subd. 1 to insert “181.722, and 181.723” into the general list of chapter 181 sections a private party may sue on. Both sections carry the effective-date clause “This section is effective July 1, 2024.”

That deletion is often described as the removal of a word. It was not. The legislature struck the whole second sentence of subdivision 1, and with it three separate elements — the statement requirement, the “knows or has reason to know is untrue” scienter element, and the conjunctive failure-to-report element — then struck subdivision 2 and the old subdivision 4 as well.

Scienter did not disappear from the section altogether. It moved to a narrower job — reaching past the entity to a person. 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.

“Knowingly or repeatedly” is disjunctive; repetition alone satisfies it. And subdivision 1a(e) defines the alternative down to something close to negligence: “‘Knowingly’ means knew or could have known with the exercise of reasonable diligence.”

Subdivision 1(c) attaches an order to a successor business, which a person becomes by sharing three or more of seven listed characteristics with the ordered business — common owners or officers, similar work in Minnesota, a shared telephone or fax number, a shared email address or website, substantially the same workers, substantially the same vehicles, facilities, or equipment, or substantially the same advertised project experience and portfolio.

What a violation costs

Subdivision 4(a) sets out four items. The first is the make-whole one:

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

Then three penalties: up to $10,000 “for each individual the person failed to classify, represent, or treat as an employee”; up to $10,000 “for each violation of subdivision 1”; and $1,000 for each person who delays, obstructs, or fails to cooperate with the commissioner’s investigation, with each day of delay a separate violation. Paragraph (b) states that the section “may be investigated and enforced under the commissioner’s authority under state law.”

Subdivision 5 turns a court finding into a referral. Any court finding a violation “shall transmit a copy of its findings of fact and conclusions of law to the commissioner of labor and industry,” who “shall report the finding” to the commissioners of commerce, employment and economic development, and revenue, to the Internal Revenue Service, and to the United States Department of Labor.

Building construction has its own section, and it is stricter

Section 181.723 applies, per subdivision 2, only to “persons providing or performing building construction or improvement services,” which the subdivision defines to include all public or private commercial or residential building construction or improvement services except the manufacture, supply, or sale of products; landscaping for maintenance or removal of existing vegetation; and other landscaping services not provided as part of a construction contract.

Inside that field, subdivision 3 sets the default in favor of employment:

Except as provided in subdivision 4, for purposes of chapters 176, 177, 181, 181A, 182, 268, and 326B, an individual who provides or performs building construction or improvement 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.

Subdivision 4(a) is the only way out, and the opening words control everything that follows — the requirements are conjunctive, and they are tested “at the time the services were provided or performed”:

An individual is an independent contractor and not an employee of the person for whom the individual is providing or performing services in the course of the person’s trade, business, profession, or occupation only if the individual is operating as a business entity that meets all of the following requirements at the time the services were provided or performed:

(1) was established and maintained separately from and independently of the person for whom the services were provided or performed;

(2) owns, rents, or leases equipment, tools, vehicles, materials, supplies, office space, or other facilities that are used by the business entity to provide or perform building construction or improvement services;

(3) provides or performs, or offers to provide or perform, the same or similar building construction or improvement services for multiple persons or the general public;

(4) is in compliance with all of the following:

(i) holds a federal employer identification number if required by federal law;

(ii) holds a Minnesota tax identification number if required by Minnesota law;

(iii) has received and retained 1099 forms for income received for building construction or improvement services provided or performed, if required by Minnesota or federal law;

(iv) has filed business or self-employment income tax returns, including estimated tax filings, with the federal Internal Revenue Service and the Department of Revenue, as the business entity or as a self-employed individual reporting income earned, for providing or performing building construction or improvement services, if any, in the previous 12 months; and

(v) has completed and provided a W-9 federal income tax form to the person for whom the services were provided or performed if required by federal law;

(5) is in good standing as defined by section 5.26, if applicable;

(6) has a Minnesota unemployment insurance account if required by chapter 268;

(7) has obtained required workers’ compensation insurance coverage if required by chapter 176;

(8) holds current business licenses, registrations, and certifications if required by chapter 326B and sections 327.31 to 327.36;

(9) is operating under a written contract to provide or perform the specific services for the person that:

(i) is signed and dated by both an authorized representative of the business entity and of the person for whom the services are being provided or performed;

(ii) is fully executed no later than 30 days after the date work commences;

(iii) identifies the specific services to be provided or performed under the contract;

(iv) provides for compensation from the person for the services provided or performed under the contract on a commission or per-job or competitive bid basis and not on any other basis; and

(v) the requirements of item (ii) shall not apply to change orders;

(10) submits invoices and receives payments for completion of the specific services provided or performed under the written proposal, contract, or change order in the name of the business entity. Payments made in cash do not meet this requirement;

(11) the terms of the written proposal, contract, or change order provide the business entity control over the means of providing or performing the specific services, and the business entity in fact controls the provision or performance of the specific services;

(12) incurs the main expenses and costs related to providing or performing the specific services under the written proposal, contract, or change order;

(13) is responsible for the completion of the specific services to be provided or performed under the written proposal, contract, or change order and is responsible, as provided under the written proposal, contract, or change order, for failure to complete the specific services; and

(14) may realize additional profit or suffer a loss, if costs and expenses to provide or perform the specific services under the written proposal, contract, or change order are less than or greater than the compensation provided under the written proposal, contract, or change order.

Two of the fourteen deserve pointing at, because they are where informal arrangements fail. Clause (9)(ii) requires the written contract to be “fully executed no later than 30 days after the date work commences” — a handshake plus a per-hour rate does not clear it, and clause (9)(iv) rules out hourly compensation by its terms. Clause (10) ends with a sentence the legislature did not need to write twice: “Payments made in cash do not meet this requirement.”

Subdivision 4(b) closes the tiering workaround. Any individual providing the services as or for a business entity is an employee of the person who engaged the entity unless the entity meets every requirement of paragraph (a); an individual determined to be an employee acts as the person’s agent when engaging anyone else for the work; and “[a]ny individual engaged by an employee of the person, at any tier under the person, is also the person’s employee” unless that individual is working as or for a compliant business entity. Clause (4) preserves two escapes: a compliant intervening business entity in the contractual chain, or proof that an intervening entity actually treats and classifies the individual as an employee in compliance with chapters 176, 177, 181, 181A, 268, 268B, 270C, and 290.

Subdivision 7 carries the construction prohibitions and their damages, which track § 181.722’s — compensatory damages, up to $10,000 per misclassified individual, up to $10,000 per violation of the subdivision, and $1,000 per day for obstructing an investigation. Paragraph (f) imposes a records burden on the hiring person: anyone who classifies an individual as an independent contractor must keep, for at least three years and in a form producible to the commissioner on demand, “all the information and documentation upon which the person based the determination that the individual met all the requirements under subdivision 4, paragraph (a), at the time the individual was engaged and at the time the services were provided or performed.”

The effective dates split. Laws 2024, ch. 127, art. 10, § 8, provides: “This section is effective July 1, 2024, except that the amendments to subdivision 4 are effective for building construction or improvement services provided or performed on or after March 1, 2025.” The fourteen requirements as quoted above therefore govern work performed on or after March 1, 2025.

Where a claim goes

The private route is § 181.171, subd. 1:

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.

Subdivision 2 allows filing in the county where the violation is alleged to have occurred, where the respondent resides or has a principal place of business, “or any other court of competent jurisdiction.” Subdivision 3 makes the fee award mandatory: “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.”

The agency route runs through the Department of Labor and Industry. Section 177.27, subd. 4, authorizes the commissioner to issue a compliance order for a long list of sections that includes both “181.722” and “181.723,” with 15 calendar days for the employer to file a written objection before the order becomes final. Subdivision 1 permits the commissioner to enter and inspect an employer’s records and to question the employer and its workers. Subdivision 2 permits the commissioner to demand records and to “fine the employer up to $10,000 for each failure to submit or deliver records as required.” Subdivision 7 directs the commissioner, on a finding of violation, to order back pay, gratuities, and compensatory damages “and for an additional equal amount as liquidated damages,” and to add a civil penalty of up to $10,000 per violation per employee against a repeated or willful violator.

One boundary is easy to get wrong. The private action in § 177.27, subd. 8 — the one carrying automatic liquidated damages in an equal additional amount — reaches “sections 177.21 to 177.44 and 181.165.” Sections 181.722 and 181.723 are not in that range. A private misclassification suit is brought under § 181.171, and the doubling in § 177.27, subd. 8, is not part of what that section provides.

What being misclassified actually costs you

The point of the label, from the other side of the table, is what it switches off.

Overtime. Minn. Stat. § 177.25, subd. 1: “No employer may employ an employee for a workweek longer than 48 hours, unless the employee receives compensation for employment in excess of 48 hours in a workweek at a rate of at least 1-1/2 times the regular rate at which the employee is employed.” A contractor is owed none of it, and neither is a contractor covered by the federal 40-hour threshold; how the two numbers relate is covered in the breaks and overtime guide.

Paid sick and safe time. Minn. Stat. § 181.9445, subd. 5, defines “employee” for that leave and then excludes, first on the list, “an independent contractor.” See earned sick and safe time.

Unemployment insurance. Minn. Stat. § 268.035, subd. 15(a), defines “employment” as service performed by, among others:

(1) an individual who is an employee under the common law of employer-employee and not an independent contractor;

Paragraph (c) then routes two industries elsewhere: “Construction industry employment is defined in subdivision 9a. Trucking and messenger/courier industry employment is defined in subdivision 25b. Rules on determining worker employment status are described under Minnesota Rules, chapter 3315.” The common-law test in clause (1), and the rules chapter it points to, are outside the scope of this page.

Section 181.722, subd. 4(a)(1), gathers those losses into a single measure of compensatory damages, and names them: minimum wage, overtime, shift differentials, vacation and sick pay and other paid time off, health, life, and disability insurance, retirement and savings plans, “and any other form of benefit,” plus employer contributions to unemployment insurance, Social Security, and Medicare, plus “any costs and expenses incurred by the individual resulting from the person’s failure to classify, represent, or treat the individual as an employee.”

Currency

The revisor’s History line for § 181.722 reads “1Sp2005 c 1 art 4 s 41; 2024 c 127 art 10 s 7” — the 2024 act is the whole of the modern text. Section 181.723’s ends “2014 c 305 s 13-17,31; 2024 c 127 art 10 s 8.” Section 181.171’s ends “2023 c 53 art 10 s 7; 2024 c 127 art 10 s 6.” Section 177.27’s ends “1Sp2025 c 6 art 5 s 6.” Section 177.25’s ends at “2011 c 11 s 1.” Section 268.035’s ends at “2024 c 120 art 2 s 8.”

The revisor’s table of Minnesota Statutes affected by the 2026 Regular Session was queried one exact section at a time for §§ 181.722, 181.723, 181.171, 177.27, 177.25, 181.9445, and 268.035. None returned a 2026 record. Nothing quoted above changed in the 2026 session.

No Minnesota appellate decision construing § 181.722 as rewritten in 2024 is cited on this page. A CourtListener search of Minnesota Supreme Court and Court of Appeals opinions for that section number, run September 7, 2026, returned a single 2024 result carrying no reporter citation, which was not read and is not relied on here.

This page describes the machinery. Which test applies to your work, whether your arrangement clears all fourteen requirements in § 181.723, subd. 4(a), and what your classification has cost you are questions about facts and records, and applying these statutes to them is not what this page does.