Many Changes Made to Minnesota’s Employment Laws

In recent years, Minnesota has enacted sweeping legislation impacting Minnesota employers at a breakneck pace. As the most recent legislative session came to a close, another set of new and supplemental laws was passed and quickly signed by Gov. Tim Walz.

This year’s legislative package included new pay transparency requirements, changes to Minnesota’s earned sick and safe time and paid family leave laws (created just last year), and a law addressing classification of independent contractors.

In addition, legislators passed laws expanding leave rights for pregnant employees, permitting oral fluid drug testing, prohibiting certain nonsolicitation agreements, expanding rights and remedies under the Minnesota Human Rights Act, expanding the Minnesota Department of Labor and Industry’s enforcement rights, and making minor adjustments to the minimum wage and tip laws.

Employers must remain vigilant in the face of Minnesota’s rapidly changing and expanding employment laws and establish a plan for compliance.

Pay and Benefits Transparency

Effective Jan. 1, 2025, employers with 30 or more total employees in Minnesota will be subject to Minnesota’s new pay transparency requirements. Covered employers will be required to include in all job postings a starting salary range, or if no range, a fixed pay rate. The range must include a minimum and a maximum amount based on the employer’s good-faith estimate of the opportunity for each position, and cannot be open-ended. Additionally, any posting must include a “description of all the benefits and other compensation, including but not limited to any health or retirement benefits” associated with the position. A job posting that states pay is “starting at $15/hr” and provides “competitive benefits,” for example, will not be sufficient.

Job posting is broadly defined to include “any solicitation intended to recruit job applicants for a specific available position, including recruitment done directly by an employer or indirectly through a third party, and includes any postings made electronically or via printed hard copy, that includes [sic] qualifications for desired applicants.” Despite this broad definition, the law does not address whether it applies to postings for positions requiring physical presence in Minnesota, or is also intended to apply to remote workers.

These requirements are a companion to the prohibition, implemented last year, on asking applicants for salary history information and are aimed at eliminating pay disparities based on protected characteristics, such as sex.

Minnesota’s Paid Family Leave Act Has Been Expanded

In 2023, Minnesota enacted the Paid Leave Act, providing paid leave benefits to employees starting Jan. 1, 2026. This act provides that employers may have private plans for payment of paid leave, or may participate in a state plan.

In the recent 2024 legislative session, the state legislature modified the Paid Leave Act in several ways, including by raising tax rates to support it, and also by broadening and clarifying the benefits to be paid under it.

The legislature raised the payroll tax rate on wages from .7% to .88% to pay for the benefits, but the cap on potential future tax increases—up to 1.2%—remains unchanged.

For employers with 30 or fewer employees, the state provides an elaborate test that may result in the employer and employee being taxed at the rate of .75% instead of .88%. If the average wage for the small employer is less than or equal to 150% of the state’s average wage in covered employment, the small employer is eligible for .75% of the annual premium rate, with 25% paid by the employer and the remaining paid by the employee through a wage deduction if an additional amount is due.

The amendments to the Paid Leave Act also broaden coverage. The law now makes clear, for example, that:

• The initial seven days of leave are to be paid.
• Self-employed individuals and independent contractors can register to be paid under the Paid Leave Act.
• As employers move from private plans to plans administered by the state, employees are still entitled to receive payments under the plan that the employer is terminating.
• The employee is entitled to reapply for benefits under the employer’s new plan.

The amendments also clarify and restrict the use of benefits under the Paid Leave Act. If an employer provides an employee with wage replacement amounts during an absence and the employee also receives benefits under the act, and if those amounts combined exceed the employee’s usual pay, the employee will need to refund the excess amount. In addition, if an employer provides disability insurance coverage to its employees, it can offset or reduce those payments by the amounts the employees receive in benefits under the Paid Leave Act.

Finally, the legislature provided an extensive administrative framework for litigating the issue of whether payments are owed to covered employees, including providing for contested case hearings.

Pregnancy and Parental Leave Enhancements

In a potentially significant change that will impact all Minnesota employers, the legislature revised the Pregnancy and Parenting Leave Law to require that the 12 weeks of parental leave guaranteed by state law “must not be reduced by any period of paid or unpaid leave taken for prenatal care medical appointments.” This change creates the potential that an individual may use more than 12 weeks of protected leave in connection with pregnancy-related medical appointments and for care of a child following their birth. Because these changes took effect Aug. 1, employers may need to adjust existing policies and practices promptly. 

In addition, building on the existing requirement for Minnesota employers to provide 12 weeks of unpaid pregnancy or parental leave to employees, and the Pregnancy and Parenting Leave Law, Minnesota will now require employers to continue providing insurance benefits for employees on leave, and their dependents, as if the employees were not on leave. This has long been required for leave taken under the federal Family and Medical Leave Act (FMLA), but has not been required in the state for employers that were not FMLA-qualifying. This change is therefore mostly significant for small employers that were previously covered only by Minnesota law, which previously specifically disavowed such a requirement.

The Earned Sick and Safe Time Law—Amended Already

Last year, Minnesota created a statewide obligation for employers to provide earned sick and safe time for employees. After only one year on the books, this law has been amended. The amendments clarify how earned sick and safe time will be calculated based upon a “base rate.” For example, an employee calling in sick on a Saturday when they would be getting increased rates for weekend work gets only base pay, not weekend pay, for the time off. In addition, employees are now entitled to funeral leave as a benefit under the earned sick and safe time law.

Independent Contractor Relationships Have New Requirements

Minnesota enacted a new law on misclassifying employees as independent contractors, with a special focus on those in the construction industry. For all industries, the new law adds penalties for misclassifying employees as independent contractors. Companies in the construction industry will need to satisfy a 14-point test to show that an independent contractor is properly classified. If not all 14 points of the new test are met, the purported independent contractor will be considered an employee of the general contractor.

Minnesota Bans Restrictive Covenants Between Service Providers and Customers

On the heels of the sweeping ban on noncompete agreements during the 2023 legislative session, Minnesota enacted a new statute that bans certain nonsolicitation agreements between “service providers” and their customers. The new law, which took effect July 1, prohibits service providers (broadly defined to include any businesses or groups of persons that are contracted to provide services to a customer) from entering into a contract prohibiting their customers from soliciting or hiring the service provider’s employees, independent contractors, or any other person who performs work for the service provider.

The new law applies to any contractual provision that restricts, restrains, or in any way prohibits the customers from directly or indirectly soliciting or hiring those individuals. Any provision that violates the limitation on service provider restrictive covenants is void and unenforceable, and service providers are required to notify their employees of any contract provision that violates the ban on such restrictive covenants. 

The new Minnesota ban on service provider restrictive covenants has one exception. The law does not apply to workers providing professional business consulting for computer software development and “related services” who seek employment through a service provider with the intention of obtaining permanent employment with the customer at a later date. The statutory language is unclear as to the scope of the exception, and there will continue to be some uncertainty regarding who qualifies for it until the newly enacted statute winds its way through the courts. 

The ban applies only to agreements made on or after July 1, 2024. Agreements containing these provisions that were entered into before July 1, 2024, are not impacted by the new law.

Elimination of Alternative Minimum Wages

The minimum wage law was revised to eliminate the reduced minimum wage standards previously applicable for small employers and minor employees. As of Jan. 1, 2025, a lower minimum wage may be paid only to those under age 20, and only for the first 90 days of their employment. The law specifically attempts to guard against the use of this provision to reduce wage costs, providing “no employer may take any action to displace an employee, including a partial displacement through a reduction in hours, wages, or employment benefits, in order to hire an employee” at the lower wage.

Amendments to the Minnesota Human Rights Act

Minnesota has enacted several amendments to the Minnesota Human Rights Act (MHRA) that impact both substantive rights and potential remedies.

Potential Damages Have Increased Significantly

The recent amendments significantly increased an employer’s potential liability exposure under the MHRA. For example, they added a new section to the MHRA dealing with civil penalties and amending the damages available to successful plaintiffs in court actions. Compensatory damages now explicitly include mental anguish and suffering, and (along with back pay and front pay) are subject to a multiplier up to three times “the actual damages sustained.”

Under the MHRA, punitive damages were previously capped at $25,000. The amendments removed the cap on punitive damages, and make clear that any claim for punitive damages is now subject to the procedural requirements of Minnesota Statutes Section 549.20.

The amendments further require that in cases decided by a jury, the jury will determine the amount of all damages to be awarded, including compensatory, treble, and punitive damages.

The amendments also indicate that, in litigated cases, a civil penalty is now mandatory if there is a finding against the employer. The court will determine the amount of the penalty based upon the seriousness of the violation, the public harm occasioned by the violation, whether it was intentional, and the employer’s financial resources.

Expanded Definitions of Disability and Familial Status

The definition of “disability” in the MHRA has been expanded to include any person who has an impairment that is episodic or in remission and would materially limit a major life activity when active. This brings the MHRA more in line with the protections afforded under Americans with Disabilities Act Amendments Act.

The definition of “familial status” is also broadened and includes caretakers. Discrimination against persons “residing with and caring for one or more individuals who lack the ability to meet essential requirements for physical health, safety, or self-care because the individual or individuals are unable to receive and evaluate information or make or communicate decisions” is now unlawful. Before the amendment, familial status protection was limited to those residing with minors. However, the new language contains no such limitation and extends to any person living with and caring for “one or more individuals.”

Extended Limitations Period to File Suit

Under the amended MHRA, charging parties will have more time to commence litigation following receipt of notice of dismissal issued by the Minnesota Department of Human Rights (MDHR). Under the existing law, individuals have 45 days to commence litigation, following the dismissal of an MDHR charge. The amendment will extend the time for charging parties to file suit to 90 days following receipt of notice of the MDHR’s dismissal. This brings the state law in line with the limitations period for many federal claims (for example, under Title VII of the Civil Rights Act of 1964, Americans with Disabilities Act and Age Discrimination in Employment Act).

One-Year Limit for MDHR to Make Determination

Finally, the amendments require the MDHR to make a determination on a charge within one year of filing. The one-year period is tolled if the case has involved “significant” settlement negotiations, is being investigated by another enforcement agency (for example, the U.S. Equal Employment Opportunity Commission), or has been referred to mediation. It is hoped the one-year deadline for the MHDR to issue a cause or no cause finding will expedite the charge process, although the various bases for tolling may limit the practical effect of this new requirement.

Electronic Tips All Belong to the Employee

The law regarding gratuities was amended to address the transfer of electronic tips from employers to employees. As of Aug. 1, the full amount of all tips received through an electronic payment, such as the use of a credit card or app, must be credited to the employee in the pay period in which it was received and paid to the employee no later than the next scheduled pay period. 

Oral Fluid Drug Testing Is Now Permissible

Minnesota amended its Drug and Alcohol Testing in the Workplace Act to allow the use of “oral fluid testing” for drug, alcohol, and cannabis testing. This change does not expand or otherwise alter when an employer is legally allowed to test, or what they are allowed to test for; it only provides another option for how to test.

This update permitting oral fluid testing is popular with employers because this testing method does not require the use of a laboratory. Testing must still be undertaken in compliance with statutory rules, however, which include a requirement that the individual tested receive the test results at the time of testing. In addition, anyone who receives a positive, inconclusive, or invalid result from an oral fluid test must be provided a laboratory test at the employer’s expense, if requested by the applicant or employee within 48 hours. If the applicant or employee fails the laboratory test, they are entitled to request a second retest at their own expense. 

Conclusion

These critical changes to Minnesota law require action by all Minnesota employers. In the near term, Minnesota employers can:

• Review job postings and prepare updated postings for use after Jan. 1, 2025, that comply with new pay transparency requirements.
• Review, and in many cases amend, policies relating to paid time off, leave, and sick time policies, and enact and provide notice of an earned sick and safe leave policy.
• Analyze roles identified as independent contractors using the new law’s classification requirements.
• Review existing offer letters, employment agreements, and contracts that might have restrictive covenants.
• Review wage rates for minor employees and employees earning the minimum wage.
• Review and update nondiscrimination policies to ensure they encompass expanded protections in the MHRA.
• Check policies and procedures relating to the disbursement of tips to tipped employees.
• Review whether drug testing by oral fluid is desired, and if so, set up a compliant policy and process.

Kurt J. Erickson, Kerry L. Middleton, Alice D. Kirkland, Ben Sandahl, Jeremy Sosna, and Susan K. Fitzke are attorneys with Littler in Minneapolis. © 2024 Littler. All rights reserved. Reposted with permission.