Legislature Reaches Third Deadline

The Legislature has reached another important deadline this week; Friday, April 19, is the final date upon which committees can act favorably on major appropriation and finance bills. Called the Third Deadline, the House and Senate Finance Committees are required to pass supplemental budget bills to the House Ways and Means Committee or the Senate Finance Committee before the end of the day. While the Senate Finance Committee will begin hearing supplemental budget bills on Friday, April 19, most supplemental finance bills will be heard after the Passover Recess next week.

What’s Next

The Minnesota House and Senate will be in recess for Passover on Monday, April 22, and Tuesday, April 23. Legislative activities resume on Wednesday, April 24, at 12:00 noon. This is the last formal recess of the 2024 Session, so expect both bodies to push hard to complete their work by the May 20th deadline.

House Releases Tax Bill

Representative Aisha Gomez (DFL- Minneapolis) released the House Tax Bill, H.F. 5247, this past week. Because 2024 is a supplemental budget year, H.F. 5247 carries a small price tag of $53 million for FY 24-25 and an even smaller cost of $5 million in FY 26-27. The largest item in the bill is the expansion of the child tax credit at $32 million, which was recommended by the Governor. H.F. 5247 also requires the Department of Revenue to release corporate tax return information for corporations with over $250 million in domestic sales. This corporate tax disclosure requirement is strongly opposed by the Minnesota Business Partnership and the Minnesota Chamber of Commerce. The Senate Tax Bill, S.F. 5234, is expected to be unveiled next week.

Running Aces Sues Mille Lacs and the Prairie Island Tribal Communities

The Running Aces Harness Track has filed a federal RICO lawsuit against the Mille Lacs Band of Ojibwe’s two casinos and the Prairie Island Indian Community’s lone casino. Running Aces has alleged that these casinos are operating card games in violation of state and federal gambling laws. The lawsuit comes as the House and Senate are considering major changes in gaming law. Both bodies are moving bills that would legalize sports betting and give the tribes exclusive rights. The House is also moving a bill that would ban gambling on historic horse racing after 500 machines for such purpose were recently approved by the Minnesota Racing Commission.

Endorsement Season

In addition to keeping busy with legislative work, legislators have also been busy looking toward the fall elections and heading home for campaign-related events. Communities across the state have been holding endorsing conventions for candidates to the Minnesota House of Representatives, of which all will be on the ballot in November.

Minnesota Revenues Continue to Grow

Minnesota Management and Budget (MMB) reported this week that Minnesota’s revenue collections for February and March are $241 million more than was forecasted in the February 2024 Budget and Economic Forecast. MMB also reported that the State’s macroeconomic consultant now expects a slightly improved economic outlook in the “near term”. Annual GDP is expected to be 2.5 percent this year, compared to the 2.4 percent predicted in their February forecast.

Lobbyist Registration Requirements Get Another Look

Both the Minnesota House of Representatives and the Senate have created an omnibus elections policy bill, H.F. 4772 (Rep. Mike Freiberg, DFL-Golden Valley) / S.F. 4729 (Sen. J. Carlson, DFL-Eagan). While the bills contain several different issues, both have provisions that further address the significant changes that were made to lobbyist registration requirements last year. Provisions related to the following issues are included in at least on the bills:

• A study on lobbyist registration requirements, to determine if further changes should be made;
• A deferral on new registration requirements based on last year’s changes, to provide additional time for Administrative Rules to take effect and to better alert lobbyists and potential lobbyists to the changes;
• Clarification of provision of professional services versus lobbying to entities.

While the House has passed its bill, the Senate is expected to pass its version sometime next week. The bills will go to conference committee where the differences will be reconciled.

Recycling Issues Take Center Stage at Legislature

Two major recycling bills are moving through the legislature. H.F. 3566 (Rep. A. Hollins, DFL-St. Paul) / S.F. 3940 (Sen. R. Kupec, DFL-Moorhead) would expand Minnesota’s electronic waste law, which currently covers appliances and computers, to all electronics and impose a 3.2% retail fee. Another bill, H.F. 3577 (Rep. S. Jordan, DFL-Minneapolis) / S.F. 3561 (Sen. K. Morrison, DFL-Deephaven) would create an Extended Producer Responsibility (ERP) program organized and funded by producers of packaging and papers products to collect, recycle and reuse packaging and paper products. Both bills are facing significant opposition but are close to being heard on the Senate and House Floors.

Set-Aside

As the legislature begins putting together omnibus finance bills, it has already become apparent that several issues are not making the cut this year. One of the key issues that had been discussed over the interim that is being set aside for the year is an expansion of child care subsidies with a price tag of $500 million (H.F. 3681 – Rep. Carlie Kotyza-Witthuhn, DFL-Eden Prairie). With limited budget targets, high dollar provisions like this will not be passed this year.

Uber/Lyft Saga Continues to Make Headlines

This week the Minneapolis City Council unanimously voted to delay the start of an ordinance requiring minimum pay for Uber and Lyft drivers in the city. Passed earlier this year and set to take effect on May 1, the ride sharing companies threatened to pull out of the city when the ordinance goes into effect. The new effective date is now set for July 1, and is intended to provide additional time to further negotiate with Uber and Lyft and provide additional time for other ride sharing companies to establish operations in the city.

Omnibus Policy Bills on the Move

Prior to the March 22^nd legislative deadline for policy bills, most committees created omnibus policy bills. Starting this week, both the House of Representatives and the Senate engaged in lengthy floor sessions as they passed many of these bills. It is expected that both the House and Senate will finish passing these bills prior to the legislative deadline for finance bills, which is quickly approaching on April 19.

Agency Finance Bills Appearing

This week also saw the appearance of most of the bills containing recommendations from Governor Tim Walz’s supplemental budget proposal. While just introduced, many of these bills are already scheduled for hearings next week. Most will be heard and then laid over for future action, eventually becoming the basis for committees’ omnibus finance bills.

House and Senate Consider Bills to Apply Prevailing Wage to TIF and LIHTC

The House and Senate are hearing H.F. 4994 (Rep. Nathan Coulter, DFL-Bloomington) /S.F. 5157 (Sen. Grant Hauschild, DFL-Hermantown), bills that would apply a prevailing wage requirement to tax increment financing (TIF) funding on multifamily rentals who have either 25 or more units or $100,000 of financial assistance. It would also apply that requirement to low income housing tax credits (LIHTC) development when credits are used for projects with more than 10 units. The proposal would be effective on projects who receive financial assistance after August 1, 2024.

The bill was heard in the House Tax Committee on Thursday, April 4^th, and will likely be heard in the Senate Labor Committee next week.

Constitutional Referendum on Full-Time Legislature and Redistricting Clears Second Committee

Representative Jamie Long’s (DFL-Minneapolis) constitutional referendum bill, H.F. 4598, passed the House State and Local Government Finance and Policy Committee on Thursday, April 4^th. The next stop for the bill is the House Rules Committee, and the bill appears to be on a trajectory to pass the House.

H.F. 4598 wraps three questions into one constitutional amendment, and it is the goal of Representative Long to get this language on the November 2024 Ballot. The amendment would state:

“Shall the Minnesota Constitution be amended to require an independent redistricting commission to adopt boundaries for congressional and legislative districts following a decennial census; to prohibit members of the legislature from serving as lobbyists while in office and for a period of one year after leaving office; and to amend requirements related to the timing and process for convening regular legislative sessions?”

While the bill passed on a party-line vote, most of the contentious debate occurred on the language related to the timing of legislative sessions. Republican members claimed this would create a year-round legislature while DFLer’s denied this claim.

Consumer Data Privacy Bill Expected to Pass as Part of Commerce Omnibus Bill

According to bill author Rep. Steve Elkins (DFL-Bloomington), the Consumer Data Privacy legislation (H.F. 2309 / S.F. 2915) that he has been working on for several years, is expected to be added to a yet-to-be-created omnibus commerce finance bill sometime in the next couple of weeks. The bill has a relatively small cost associated with it, which is also anticipated to be carried in the Commerce budget.

Joint Budget Targets

Late last Friday, Governor Tim Walz, along with leaders of the Minnesota House and Senate, agreed to modest joint budget targets for supplemental budget bills. The targets would allow for spending $477.5 million in the current 2024/25 budget, and $62.7 million in future years. Starting with a $3.7 billion projected budget surplus in fiscal years 2024/25, the agreed to targets will leave an anticipated $3.2 billion on the bottom line heading in to next year’s budgeting session. With the policy deadline behind us, committees are already getting to work hearing limited spending bills.

State of the State

On March 26, Governor Tim Walz gave the annual State of the State address from the newly-constructed Owatonna High School. Generally speaking, his comments were considered typical fare for the Democratic Governor heading into an election season, with a focus on education, reproductive rights, and gun violence prevention, along with capital investment projects, affordable housing, and labor issues. (Note: Governor Walz won’t be on the ballot this year, but the entire Minnesota House of Representatives will be.)

State of the Session

Beginning at 5:00 p.m. on Wednesday, March 27, the legislature began the first of three short breaks scheduled for this year. Official legislative activity will be paused until noon on Tuesday, April 2, when both the House and Senate will meet in floor session. The legislature will also take short breaks from 5:00 p.m. on Tuesday, April 9, until noon on Thursday, April 11 (Eid), and from Monday, April 22, until activity resumes at noon on Wednesday, April 24 (Passover).

Cannabis Changes Advance

The new Office of Cannabis Management (OCM) released the first agency recommendations (H.F. 4757 – Rep. Zack Stephenson, DFL-Coon Rapids / S.F. 4782 – Sen. Lindsey Port, DFL-Burnsville) to the new adult use cannabis law passed in the 2023 legislative session. Among key components of the recommendations are unifying the medical and adult use supply chains and moving from a point-based merit licensing system to a vetted lottery system. The agency bill has become a cannabis omnibus bill, and has several committee stops, and likely many language iterations, yet to come.

House and Senate Move Worker Misclassification Bill

Representative Emma Greenman (DFL-Minneapolis) and Senator Clare Oumou Verbeten (DFL-St. Paul) have authored H.F. 4444/S.F. 4483, a bill that would amend labor, construction, and licensing statutes to strengthen worker misclassification laws. H.F. 4444/S.F. 4483 will be heard in the Senate and House Tax Committees after the Easter legislative break, and the bill seems to be on a trajectory to pass into law before the legislative session adjourns in May.

Republicans Retain Daudt Seat

Republican Bryan Lawrence of Baldwin Township in Sherburne County won the Minnesota State House Special Election in District 27B to replace former Representative Kurt Daudt, who resigned ahead of the 2024 session to take a new job. Lawrence won by a large margin, garnering 84.5% of the vote, with the DFL opponent, Brad Brown, earning just 15.4%. The Minnesota House now has 70 DFLers and 64 Republicans.

House Passes Tax Fix Bill

By a 130-0 vote, the Minnesota House passed on Monday, March 18, H.F. 3769 which corrects a drafting error in the 2023 Omnibus Tax Bill. This bill retroactively modifies the effective date for the corporate net operating loss limit change from tax year 2023 to tax year 2024. This fix will cost $14.8 million and impact 4,850 taxpayers in 2023, with an average decrease in the tax of $3,050. The bill is expected to pass the Senate next week.

Walz Releases Small Supplement Budget

On Monday, March 18, Governor Tim Walz released his Supplemental Budget recommendations. Capitol insiders were surprised that the Governor proposed only $198.9 million in new FY 2024-2025 spending with a surplus of over $3.7 billion. The Governor’s frugality carried over into the FY 2026-2027 biennium where he recommended $26.6 million in spending, leaving just over $2 billion on the bottom line in the next biennium.

House and Senate Reach 1st and 2nd Committee Deadlines

Like most states across the country, Minnesota’s legislature sets deadlines that bills have to meet in order to advance and eventually become law. On Friday, March 22, at 5:00 pm, the House and Senate will reach the combined 1st and 2nd Committee Deadline. As of this date, committees in both bodies must have acted favorably on any bill that does not have a financial implication. This means that the vast majority of bills in both the House and Senate will be considered “dead” for the year and are unlikely to have a hearing or pass into law.

House and Senate Top 10,000 Bills Introduced

For the first time in state history, the Minnesota House and Senate have introduced more than 10,000 bills in a regular biennial session of the legislature. As of Thursday, March 21, the House reached 5139 bills and the Senate reached 5175 bills, for a total of 10,341 bills. The 2021-2022 House and Senate, in comparison, reached 9,515 bills.

Where is the Governor’s Supplemental Budget?

With legislators racing toward the first and second bill deadline on March 22, the Walz Administration spent the week behind closed doors putting the finishing touches on its final supplemental budget recommendations. Before the House and the Senate can assemble supplemental budget bills, Governor Walz will need to reveal his plans for the $3.715 billion surplus announced by Minnesota Management and Budget on February 29.

The “Public Option” Option

A public option health care plan, also often referred to as the MinnesotaCare buy-in, has long been discussed as an option for providing health insurance to those who don’t qualify for existing public programs but also struggle to pay for coverage on their own. Last year, the Legislature authorized the Department of Commerce to conduct a study on various models of a public option, prepare legislative recommendations, and even start applying for federal approval of a public option program. The study was conducted over the interim and H.F. 4745 (Rep. Jamie Long, DFL-Minneapolis) / S.F. 4778 (Senator Melissa Wiklund, DFL-Bloomington) contains the legislative recommendations to keep to proposal moving forward. However, the Department of Commerce has stated that they need legislative action and additional funding prior to seeking federal approval. Despite being introduced in both bodies on March 7, this complex legislation has already had a hearing a both the House and Senate. That said, its fate remains tenuous, especially due to the fact that it is an expensive proposal.

Betting on Sports Betting

For the last several years, Minnesotans inside and outside of the Capitol have been betting on whether sports betting would be legalized. After making significant progress through the legislative process last year, a new version of the legislation has revitalized the issue. The Senate has held two hearings this year on S.F. 1949 (Sen. Matt Klein, DFL-Mendota Heights), and the bill now sits in the Senate Finance Committee. The House bill, H.F. 2000 (Rep. Zack Stephenson, DFL-Coon Rapids), has also been progressing through the committee process once again, however, it is still anyone’s bet as to whether the legislation can make it over the finish line this year.

School Resource Officer Bill Signed

Following passage by the House last week, H.F. 3489 (Sen. Bonnie Westlin, DFL-Plymouth / Rep. Cedric Frazier, DFL-New Hope) was passed by the Senate, sent to Conference Committee, repassed by the House and Senate, and signed by Governor Walz this week. The legislation clarifies the use of restraints allowed by school resource officers and others in schools and establishes guidelines for creating a model policy for school resource officers (SROs). This has been a contentious issue since 2023, when many SROs were pulled out of schools following a law change, and was considered a top priority for this legislative session by members on both sides of the partisan aisle.

Full-Time Legislature Possible with Proposed Constitutional Amendment 

Minnesota’s Constitution significantly limits the amount of time the Legislature can meet in regular session. The Legislature is not permitted to meet in regular session “after the first Monday following the third Saturday in May of any year” and the number of legislative days in a biennium is capped at 120. House Majority Leader Jamie Long (DFL-Minneapolis) and Senator Lindsey Port (DFL-Burnsville) have introduced a bill, H.F. 4598 / S.F. 4785, that would strike these limits from Minnesota’s Constitution. If this amendment passes the House and Senate (it does not require action from the Governor), it would be placed on the November 2024 ballot.

Looking Ahead to Next Week

With first and second deadlines fast approaching on March 22, expect the pace at the Legislature to increase next week as legislators race to meet these important policy bill deadlines. Governor Walz is also expected to release his supplemental budget on Tuesday, March 12, and finance committees will begin hearings on his proposals soon after. And finally, for those who are counting…there are only 31 official legislative days remaining. Thursday, March 7 was the 89th Legislative Day.

Flying Cars?

If you thought cars without drivers was futuristic, now policymakers are discussing the regulation of flying cars. Both the House and Senate Transportation Committees this past week held hearings on H.F. 4350/S.F. 3975, a bill that defines and regulates “roadable aircraft.” Roadable aircraft, according to the bill, are vehicles that are capable of operation both on public roads as a motor vehicle and in the air as an aircraft. According to committee testimony, at least one company is planning on producing and selling “roadable aircraft” in the next year. The bill was laid over for possible inclusion in omnibus bills in both bodies.

Increasing Pay Transparency

Under a bill authored by Rep. Kristin Bahner (DFL – Maple Grove), H.F. 3587, and Sen. Alice Mann (DFL – Edina), S.F. 3725, employers with more than 30 employees would be required to provide salary information in job postings, including the anticipated salary range, benefits information, and other compensation. The measure was heard this week in the House Labor Committee and laid over for possible inclusion in an omnibus bill. Proponents anticipate a hearing in the Senate within the next couple weeks.

Whose Debt?

On Monday, the House Commerce Finance and Policy Committee began consideration of H.F. 4100 , authored by Rep. Liz Reyer (DFL – Eagan). The bill, focused on debt collection, was crafted with significant input from the Minnesota Attorney General’s Office. For months, political insiders have known that a bill related to medical debt was in the works. However, when the bill was introduced, it quickly became apparent that the legislation has a much broader reach than medical debt and affects most entities that lend or collect money. Monday’s hearing was only to take initial testimony and begin discussion of the complex legislation. The committee is expected to hear the bill at a later date to consider amendments.

Ride Sharing in Minneapolis

While we typically keep you up-to-date on statewide issues, one of the bigger issues currently being considered in Minnesota is a local ordinance. Uber and Lyft drivers continue to push for better pay in Minneapolis and have significant support from the Minneapolis City Council, which recently voted to increase minimum rates and per mile fees. However, with ride share companies threatening to leave Minneapolis, or Minnesota altogether, as a result of this ordinance, Mayor Jacob Frey continues to say that he will veto the measure. The city council likely has the votes to override his veto — whether they have the will to do so remains to be seen.

On January 1, 2024, numerous amendments to Minnesota’s landlord-tenant statute (Minn. Stat. § 504B) went into effect. The changes affect virtually all residential landlord-tenant leasing relationships and disputes in the State of Minnesota, and require careful attention from all residential landlords who lease properties in Minnesota. The changes to Minnesota’s landlord-tenant laws are substantial, and impose a series of new requirements for residential lease agreements, inspections, tenant rights, and eviction actions.

Importantly, some of the new requirements carry monetary penalties, fines, and even attorneys’ fees shifting in favor of tenants if a landlord is found to be out of compliance. While landlords’ potential monetary liability for noncompliance may seem relatively small for isolated violations, the liability could increase exponentially for landlords who have large-scale residential leasing operations.

Here are the top 10 changes all residential landlords should know as the new laws take effect:

1. New Requirements for Pre-Eviction Notices: Under the prior version of § 504B.321, landlords could file a residential eviction action the moment rents became overdue. Under the amended statute, however, landlords are now subject to additional written notice requirements before they are able to commence an eviction action. Landlords are now required to issue a written pre-eviction notice to the tenant at least 14 days prior to filing an eviction, which must include: (1) the total amount due; (2) a specific accounting of the amount of the total due from unpaid rent, late fees, and other charges under the lease; (3) the name and address of the person authorized to receive rent and fees on behalf of the landlord; and (4) various statements and notices (the specific verbiage for which is spelled out in the statute) regarding (a) where a tenant should go to obtain legal representation or financial assistance, and (b) how long the tenant has to pay any outstanding rents in order to avoid eviction proceedings.
2. Tenants No Longer Required to Post Security for Evictions: In residential eviction actions, Minnesota courts may no longer require that tenants pay money to the landlord or court, or post bond or other security. However, the courts may still require that the tenant post security if the final disposition of the eviction action is delayed for more than 10 days.
3. Tenant Right to Redeem: Minnesota residential tenants now have new mechanisms to avoid eviction—where an eviction action is based on nonpayment of rent, the amended landlord-tenant statute gives tenants a new right to redeem the leased property by obtaining a guarantee from: (a) a federal or state agency or local government; or (b) any other tax-exempt organization and that administers a government rental assistance program.
4. Tenant Privacy Protections and Penalties: Under the new statute, landlords are required to provide tenants with at least 24 hours advance notice before entering any residential rental property, subject to certain limited exceptions. The notice of entry “must specify a time or anticipated window of time of entry and the landlord may only enter between the hours of 8:00 a.m. and 8:00 p.m. unless the landlord and tenant agree to an earlier or later time.” Landlords are also prohibited from requiring tenants to waive these notice requirements by lease agreement or otherwise. If a landlord violates these requirements, they may be subject to substantial penalties payable to tenant, including a rent reduction up to full rescission of the lease, recovery of damage deposits, up to a $500 civil penalty for each violation, and recovery of tenants’ attorneys’ fees.
5. New Fee Disclosure Requirements and Penalties: The revised statute adds a requirement that landlords expressly disclose “all nonoptional fees” in residential lease agreements and advertisements. To satisfy this requirement, the first page of all lease agreements and all advertisements for residential properties must disclose the sum total of rent and all nonoptional fees charged to tenants, which must be described as the “Total Monthly Payment,” as well as a disclosure regarding whether utilities are or are not included in the rent. Landlords who violate these new requirements may be liable for treble damages and tenants’ attorneys’ fees.
6. New Initial and Final Inspections Requirements: The amended statute adds entirely new initial and final inspection requirements. Landlords must now give written notices to tenants of the option to request an inspection of their unit both at the beginning and end of their lease term. The purpose of these inspections is to give tenants the right to “identify existing deficiencies” in the unit to “avoid deductions” from the tenant’s security deposit. If requested by the tenant, the landlord must ensure that the move-in inspection occurs within 14 days of the residential tenant occupying the unit, and that the move-out inspection occurs within five days before the termination of the tenancy. In lieu of these inspections, and provided a tenant agrees, the landlord can provide photos or video of the unit. The landlord’s obligations under these provisions cannot be waived or otherwise altered via lease agreement.
7. New Temperature Requirements: An entirely new requirement related to minimum temperature for residential rentals has been added. For any rental units that do not have an independent tenant-controlled thermostat, landlords are now required to “supply or furnish heat at a minimum temperature of 68 degrees Fahrenheit from October 1 through April 30, unless a utility company requires and instructs the heat to be reduced.” This requirement may have significant effects on buildings controlled by large boiler units or utilizing radiator-sourced heat, where heating may not be uniformly distributed within a building.
8. New Tenant Rights to Seek Relief Against Landlords: Under Minnesota’s prior landlord-tenant laws, tenants could only seek emergency relief against landlords in court in certain limited situations, such as loss of necessary utilities or other services provided by the landlord. Under the amended statute, however, tenants are able to seek judicial relief for a wider variety of property-related issues including, among other things: (1) the revocation of necessary rental licensing; (2) animal infestations; (3) a nonfunctioning refrigerator; (4) a nonfunctioning air conditioner; (5) a nonfunctioning elevator; or (6) any other “conditions, services, or facilities that pose a serious and negative impact on health or safety.”
9. Longer Termination Requirements for At-Will Tenants: Previously, landlords and tenants were allowed to terminate an at-will tenancy by providing the other with notice at least 14 days before termination. Under the amended statute, landlords and tenants may only terminate an at-will tenancy by providing written notice at least as long as the interval between the time rent is due or three months, whichever is less.
10. New Tenant Right to Terminate for Health Reasons: Under the amended statute, tenants have a new right to terminate their leases due to medical reasons. Tenants looking to utilize this termination right must provide documentation showing that the tenant has been “found by a medical professional to need to move into a medical care facility,” and that the tenant either requires medical assistance for daily living activities or has a “functional impairment” due to physical or mental illness. Tenants must abide by specific notice and timing requirements in order to terminate a residential lease agreement due to health reasons.

LOOKING AHEAD

While the full impact of these changes (including some seemingly broad “catch-all” provisions) remains to be seen, the substantive changes to the duties and obligations imposed on landlords could potentially create a significant risk of litigation, monetary damages, and other penalties for noncompliant landlords. If you have questions about the new landlord-tenant updates, leasing requirements, or language changes,  Winthrop & Weinstine is here to help. Our deep bench of experienced attorneys can assist you in navigating Minnesota’s revamped landlord-tenant laws with the aim to avoid future potential legal exposure.

On January 10, 2024, the U.S. Department of Labor (DOL) published its final rule changing its existing test to determine whether a worker is an independent contractor or an employee under the Fair Labor Standards Act (FLSA). The new rule largely rescinds the more employer-friendly five-factor test issued under the Trump Administration, reverting back to a six-factor test similar to the one historically employed by courts and the DOL.

The final rule goes into effect on March 11, 2024 and is largely consistent with the DOL’s similar proposed rule from 2021. Generally speaking, the new rule is more pro-employee than the Trump Administration’s 2021 rule.

Question: What does the new 2024 rule say?

Answer:  The final rule will equally consider the following factors to determine whether an individual is properly classified as an independent contractor:

1. The opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and potential employer;
3. The degree of permanence of the work relationship;
4. The nature and degree of employer’s control over performance of the work and working relationship;
5. The extent to which the work performed is an integral part of an employer’s business; and
6. The skill and initiative of the worker.

This marks a return to what is known as a “totality of the circumstances” approach.

Question: What did the prior rule say?

Answer: The prior rule prioritized two key factors above all others. The two key factors were: 1) the nature and degree of control over the relevant work; and 2) an individual’s opportunity for profit or loss. Many viewed the prioritization of the two key factors to weigh in favor of employers. The additional factors included: 3) the amount of skill required for the work; 4) the degree of permanence of the working relationship; and 5) whether the work is part of an integrated unit of production.

Question: What changed from the old rule to the new 2024 rule?

Answer: The new rule adds back the sixth factor and gives all factors equal weight. The two key factors listed in the 2021 rule were de-emphasized, giving equal consideration to all listed factors. The sixth factor — investments by the worker and potential employer — was added back into the rule.

Question: Is the new rule binding authority?

Answer: No, but it is highly persuasive. While not binding, courts regularly cite DOL interpretive rules as persuasive authority in determinations of whether workers qualify as independent contractors (instead of employees), at least under the FLSA. Since there is no universal, binding test, DOL rules provide centralized federal guidance and should be carefully considered by employers in classifying their workers.

Question: Are there consequences if an employee is misclassified as an independent contractor?

Answer: Yes. Under the Fair Labor Standards Act (FLSA), workers classified as employees are owed minimum wage and overtime pay, and damages can be liquidated (or doubled). In addition, Employers must pay federal, state, and local income taxes; social security and Medicare taxes; unemployment insurance taxes, and workers’ compensation insurance taxes. Misclassification can be extremely costly for employers given additional penalties and interest, plus any taxes owed.

Question: Does this rule change impact other considerations?

Answer: Yes. Worker classification also affects employer requirements for employees in areas of insurance, discrimination, family and sick leave, retirement plans, and more. Some applicable federal statutes that apply to employees include:

• Affordable Care Act,
• Title VII of the Civil Rights Act of 1964,
• Equal Pay Act,
• Age Discrimination in Employment Act,
• Americans with Disabilities Amendments Act,
• Genetic Information Nondiscrimination Act,
• Uniformed Services Employment and Reemployment Rights Act,
• Occupational Safety and Health Act,
• Worker Adjustment and Retraining Notification Act,
• Family and Medical Leave Act,
• Employee Retirement Income Security Act,
• National Labor Relations Act,
• And more.

The new DOL rule focuses specifically on worker classification under the FLSA. However, since worker classification is a topic with wide-reaching implications, courts are likely to at least consider the new DOL rule in contexts beyond the FLSA. This also depends on jurisdiction because different courts have their own established precedent for worker classification.

Question: Are there any pending legal challenges to the new rule?

Answer: Yes. There are currently three pending cases to date.   First, a a Texas federal district court is considering whether the DOL complied with procedural requirements in the Administrative Procedure Act for publishing and rescinding final rules. The court could potentially delay the rule’s effective date until after the 2024 presidential elections. Second, a Georgia federal district case involves a group of freelance writers arguing the new rule will force them into unwanted traditional employment. Third, a Louisiana federal district case involves an independent trucking business claiming it cannot operate under increased labor costs caused by worker reclassification under the new rule.

Each of these cases aims to prevent the new rule from taking effect. That said, as it currently stands, the rule is still scheduled to take effect on March 11, 2024. In addition, Congress has the power to repeal the rule within 60 days of publication, though this rarely occurs. Realistically, it is likely this rule will take full effect on March 11, 2024.

Question: What should I do in response to the new rule?

Answer: Employers should review their current and any new independent contractor classifications to ensure compliance with the new six-factor test as well as any applicable state law. As always, Winthrop & Weinstine attorneys are here to help your business navigate these complex regulatory changes.

Minnesota’s Budget and Economy Improve

Minnesota Management and Budget released the February Budget and Economic Forecast on Thursday, February 29, showing improvement since the November Forecast. The current 2024-25 biennium is now projected to end with a surplus of $3.715 billion, an increase of $1.324 billion compared to November projections. The near-term economic outlook has improved, with economic growth expected to persist through 2027.

Revenue Up and Spending Unchanged

According to the February Forecast, higher collections so far this fiscal year helped to raise the current biennium forecast for all major tax types. Corporate tax revenue shows the largest change, driven by higher-than-expected corporate profits through the forecast horizon. Meanwhile, spending estimates are largely unchanged from November. The higher revenue forecast throughout the FY 2024-27 planning horizon results in improvement to the structural budgetary balance, but spending is still projected to exceed revenue through FY 2027.

What the Heck is HEAPR?

Senator Ann Rest (DFL-New Hope) introduced legislation that would increase Higher Education Asset Preservation and Recovery (HEAPR) spending for the five University of Minnesota campuses. Senator Rest said her HEAPR bill targets resources to each of the five campuses to begin to address a substantial maintenance backlog across the system’s campuses, estimated to be $6 billion over the next ten years. The $500 million in her bill would go to asset preservation and recovery to preserve and maintain current buildings and facilities.

Can Minnesota Afford a Great Start?

As the legislative session was winding down last May, chatter around the Capitol was not only how many new programs were initiated, but also what didn’t make the cut. Near the top of the list for many was the issue of child care, including the increasing difficulty in finding providers and the exceedingly high cost of care. H.F. 3681, authored by Rep. Carlie Kotyza-Witthuhn (DFL-Eden Prairie), is one of several bills introduced this session to start to address the issue. Her bill seeks to provide scholarships on a sliding scale to make child care more affordable for more families, with a goal to cap the cost of child care for a family at 7% of income. While her bill received an informational hearing, no formal action was taken, and its chances of success this year are likely slim, given the state’s budget status.

Continued Movement on the “Taylor Swift” Bill

The aptly-nicknamed “Taylor Swift” bill has continued to move through the legislative process, receiving hearings in both House and Senate committees after stalling out last session. The bill, which increases disclosure of fees on tickets, was initiated as a reaction to a legislator’s efforts to obtain tickets to the Taylor Swift Eras Tour. Hearings have been lyric-filled affairs, most appreciated by Swifties, but generally mocked by those who thought football was better before Taylor got a new boyfriend.