This is the third installment of a four-part series from Finance & Commerce.
If interest in a topic can be measured by attendance at a construction industry event, contractors’ curiosity about Minnesota’s new wage theft law is off the charts.
Rewind to last July, when construction people came in droves to hear expert analysis about the law, which creates new wage and hour requirements for employers, boosts enforcement, and imposes stiffer penalties on those who stiff their workers.
“As a resource to our members, we were going to hold a compliance training seminar,” recalled Tim Worke, CEO of the Associated General Contractors of Minnesota. “We generously estimated we might have 30 people there. We ended up with more than 130.”
As seen by the overflow crowd, there’s no small amount of trepidation within the industry. Concerns include how the new requirements are going to be implemented and enforced, what type of paperwork needs to be filed, and who needs to sign those documents, Worke said.
Backers of the law, touted as the toughest of its kind in the nation, hope it will help level the playing field for reputable contractors while ensuring that workers get paid for all the hours they logged, including overtime.
Among other provisions, the law requires all employers to give each new employee a written notice with details about the employee’s status, rate of pay, benefits and other work-related information.
Employers may be fined up to $5,000 for each repeated failure to maintain the required records. The new law also includes criminal penalties of up to 20 years in prison and up to a $100,000 fine for wage theft in excess of $35,000.
Perhaps most important, the law gives $3 million over the next two years to the Minnesota Department of Labor and Industry, which will use the money to hire additional staffers to investigate wage theft allegations.
Minnesota has long needed more boots on the ground to do such work, experts say.
Aaron Sojourner, a labor economist and associate professor at the University of Minnesota’s Carlson School of Management, said Minnesota has just a handful of fulltime inspectors to monitor wage and hour compliance in a state with 2.9 million workers.
By comparison, the Minnesota Board of Cosmetology has seven full-time inspectors to make sure the 32,000 cosmetologists working in the state are properly licensed, Sojourner noted in an interview.
“If nobody is enforcing the law then it’s hard for law-abiding players to survive in the industry,” Sojourner said.
DLI Commissioner Nancy Leppink said her department will use the new money to add about 10 enforcement staffers. That will allow the department to be more proactive in investigating wage theft allegations, she said in an interview.
“The department is taking the mandate that it has received from the Legislature very seriously, and we are building that capacity to be able to achieve that mandate,” Leppink said.
Leppink cited worker misclassification as one example of wage theft. By misclassifying an employee as an independent contractor, employers can avoid expenses like payroll taxes, workers’ compensation insurance, and overtime.
Honest employers, as well as workers, are among the victims, Leppink said.
The bad actors “have a significant competitive advantage because they’re able to avoid those costs that other employers who comply with the law have to pay. The margins are huge between those who comply with the law and those who don’t,” Leppink said.
Worke, of AGC-Minnesota, said there’s no denying that some people are cheating the system. But the abuses happen “predominately if not exclusively” in smaller commercial or residential construction, he said.
“This is not rampant behavior in the commercial construction market,” Worke said. “[Yet] the preponderance of the burden of these solutions is going to fall on contractors already doing the right thing.”
Minnesota has been down a similar road before.
In 2014, lawmakers approved the responsible contractor law, which prohibits contractors with certain violations from bidding on public projects worth more than $50,000. Violations include failure to meet the state’s prevailing wage requirements.
Hand-wringing about paperwork and compliance is inevitable when a new rule takes effect, said Kevin Pranis, marketing director for the Laborers International Union of North America, Minnesota and North Dakota chapter.
“I heard similar things when the responsible contractor law was passed: The sky is falling. The seminars were filled to the rafters with contractors concerned that they were going be put out of business,” Pranis said.
“I am not aware of a single story in which anyone has been put out of business or significantly inconvenienced by filling out a couple more forms.”
At a festive bill-signing ceremony in July, everyone was on board with the changes. Leppink joined Gov. Tim Walz, Minnesota Attorney General Keith Ellison, and two legislative leaders — one Democrat and one Republican — in praising the new law.
Walz described the law as a national “model” that puts Minnesota on the forefront of protecting workers and “ethical employers.”
“We will stand on the side of basic human dignity and we will not put people at risk or dehumanize anyone due to their status,” Walz said.
Immigrants are especially vulnerable to wage theft because they tend not to complain for fear of retaliation. Attorney General Keith Ellison said employers are “not entitled to steal people’s wages based on their immigration status or lack thereof.”
“There are some folks who we know seek out undocumented people because there won’t be enforcement action,” Ellison added. “Those people are mistaken and they should abide by the law.”
Rep. Tim Mahoney, DFL-St. Paul, the bill’s House author, said at the gathering that the additional funding will help the Minnesota DLI to assist roughly 2,000 employees each year.
“Nine out of 10 employers are good, but despite that 40,000 employees have money stolen from them every year in Minnesota,” Mahoney said.
Democrats and Republicans found common ground on the issue, said Sen. Eric Pratt, R-Prior Lake.
“We agreed on the core value [that] if you earn a wage, you should be paid a wage. It’s that simple,” said Pratt, a co-author of the bill. “And if you are stealing from somebody’s wages, if you are attempting to defraud somebody, you should pay a penalty.”
Pranis said the law isn’t perfect. The new mandates, for example, are only as effective as the resources made available to enforce them. And more people “up the chain” of a project need to be held accountable, he said.
Even so, the wage theft law is a “very big deal,” he said.
“It might not be everything we want, but it’s the toughest in the nation,” Pranis said. “We will see significant benefits. And businesses that are paying their employees legally and fairly will no longer be facing competition that is saving a huge chunk from not paying people legally.”
Asked if there might be a legal challenge to the law, Ellison said he doesn’t believe so.
“It’s thoughtful, it’s clear. And guess what? You can’t steal people’s wages, and there’s no court that’s going to say you can,” he said.
“It’s not just dollars and cents,” he added. “It’s a matter of dignity in honoring labor, in honoring the hard work that people do.”