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Minneapolis Council wants to expand wage theft protections to gig workers, independent contractors

The proposal — which would be the first law of its kind in the state — is a sequel to the council’s decision earlier this month to establish similar procedures for traditional employees. 

Minneapolis City Council
MinnPost photo by Jessica Lee
Recently, the 13-member council rewrote city code to give attorneys within the city’s Department of Civil Rights authority to enforce the municipal law against wage theft.
As part of a wave of new initiatives to address labor conditions, a group of Minneapolis City Council members want to expand on the city’s new wage-theft law, establishing protections for a section of the workforce that current law doesn’t address: independent contractors.

Council members Steve Fletcher (Ward 3) and Linea Palmisano (Ward 13) are developing a set of new guidelines to give Minneapolis’ Department of Civil Rights authority to help for-hire workers think construction crews, app-based workers, freelance artists, handymen or other gig contractors recover lost or stolen compensation. 

The proposal — which would be the first law of its kind in the state — is a sequel to the council’s decision earlier this month to establish similar procedures for traditional employees, and comes amid a larger-scale effort among Minnesota leaders to crack down on wage theft statewide.

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Addressing the gig economy

At both the local and state level, policymakers have made wage-theft prevention a priority this year, citing the pervasiveness of underpayment that disproportionately affects communities of color and immigrants in Minnesota. The state Labor Department estimates that up to 40,000 employees in Minnesota are not fully paid what they have earned each year.

Last month, Gov. Tim Walz signed a bipartisan bill to establish new protections for workers in state law. The measure substantially expands resources for investigating cases and offers guidelines that are almost identical to the Minneapolis ordinance, which the City Council unanimously passed Aug 12. As a result of the provisions, the Minnesota Department of Labor and Industry, attorney general’s office and Minneapolis’ Department of Civil Rights at City Hall are meeting regularly to determine how they want to roll out the changes and coordinate enforcement.

Council member Steve Fletcher
Council member Steve Fletcher
Beyond creating standards for wage-theft investigations, the local and state policies also require employers to provide workers with information explaining wage theft and labor rights, establish regular pay days and produce earning statements at the end of each payment period.

Up to this point, both efforts have focused on situations of underpayment between traditional employers and employees. Less explored has been how new protections in law would help workers in the gig economy, the growing number of people who receive payment at a fixed amount for a specific service. For those workers, the most common example of wage theft occurs when workers expect a certain dollar amount in payment, but then are paid less than the fee agreed upon, or slowly, or not at all. Complicating matters is the fact that such agreements are often verbal, not in writing.

That issue of underpayment among Minneapolis’ independent contractors became especially clear while council members were working on the initial wage-theft ordinance, said Fletcher. 

“Honestly, that was a lot of who we were hearing from when we were hearing about who’s getting ripped off,” he said. “And we’d realize that it [the new law] wouldn’t apply to half of the people who had just come in and told us their stories.”

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Contracts for independent contractors

Fletcher and Palmisano want to see rules that would require business owners to provide all independent contractors in Minneapolis with written agreements outlining payment amounts and schedules prior to the work. Also, in cases where residents hire contractors for service, such as a household hiring a plumber, the proposal would put responsibility on the worker to produce a contract between the two parties. And all contracts would require signatures from both parties.

“If you’re a venue that hires bands, you need to provide a contract to the bands you’re hiring. If you’re a couple getting married, and you hire a wedding band, the band needs to provide the contract,” Fletcher said of the idea. “If we have a contract and some evidence that work was done, [an allegation of wage-theft] is not a long conversation.”

Council member Linea Palmisano
Council member Linea Palmisano
The proposed protections in Minneapolis would give independent contractors the ability to enlist the labor standards division of the city’s Department of Civil Rights to recover lost or stolen money, much like the initial wage-theft law for employees. Right now, victims of wage theft who are gig workers have no option besides filing a civil court claim, a process that often takes a lot of time and money, says Palmisano. 

Other cities have enacted similar proposals, though those guidelines often pertain to specific industries, such as delivery services or app-based jobs. In New York City, for example, activists successfully lobbied city leaders to adopt the “Freelance Isn’t Free Act” in 2016, adding similar protections pertaining to contracts and timely payment for gig-workers.

Fletcher, who represents downtown and parts of northeast Minneapolis, said there is an especially large, diverse workforce of independent business owners and artists in his ward. He said the law is especially important for Minneapolis, since it’s often where operators come to hire contracted work and national groups host big events.

“This is the place where it’s happening,” Fletcher said. “This is the place where the most people are going to be impacted by it.”

Who is, and isn’t, an independent contractor?

Council members are working on the issue amid a growing concern about the misclassification of gig workers. Unlike traditional employees, independent contractors often don’t get benefits or paid time off, aren’t reimbursed for on-the-job expenses and are often expected to use their own tools or equipment. And business owners sometimes misclassify their workers — even when they are performing under standards of regular salaried or hourly employees — to save money and liabilities and avoid taxes.

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Yet workers in some industries prefer the independent contractor classification, in part because it legally gives them more control of their work and how it gets done. That is the case with most dancers in Minneapolis’ adult entertainment clubs, for instance, who were the subject of a separate labor-rights ordinance the City Council passed Friday that seeks to address wage theft in that industry. 

The growing instances of employers misclassifying employees as independent contractors is one reason for why Fletcher said the new protections in municipal code are needed. “What we’re trying to do is say, hopefully — for the people who are choosing not to hire an employee but to hire a contractor because they don’t want the burden of actually paying people for what they’re supposed to be paid for — that that choice becomes irrelevant,” he said. “That they’re not incentivized to try to get around having someone on their payroll anymore.”

The problem is that state and federal laws do not provide a clear legal test to determine who is working as an employee versus who is working as an independent contractor, said Brian Walsh, enforcement supervisor in the Minneapolis Department of Civil Rights’ labor standards division.  Though courts have established some guidelines, the case law was decided decades ago, when the classification primarily aimed to cover workers who run their own businesses.

Today’s workforce includes more jobs that challenge those laws, creating what experts call a “fissuring of the economy,” Walsh said. There are Amazon delivery drivers who need to maintain their own vehicles and use personal phones for their work, which means you could argue they are independent contractors, for example. But Amazon also has rules regulating much of their work, which is crucial to the company’s distribution operations.

That’s the dynamic for many situations within construction, janitorial and security industries, too: Large corporations subcontract low-wage workers to do on-the-ground work. “People on all sides are saying that the case law and this working definition that the courts have created has not really kept up with the evolution of the economy overall,” Walsh said. “When you’re really close to the line and trying to figure out which side of that you are, some of these cases are decades old. … It’s application evolution through the court system hasn’t kept up.”

Trying to avoid unintended consequences

Originally, council members wanted to introduce the proposed protections for independent contractors alongside the city’s recent wage-theft law for regular employees. But navigating the complexities to make sure the new rule doesn’t have unintended consequences has required more time. 

Fletcher and Palmisano said they are working with the city’s attorney’s office to write the proposal, which they hope to release as a draft ordinance next month. They’ve also sought input from social and labor-rights organizations, including the New York-based Freelance Union, as well as local building-trade associations.

The council members said they don’t want to accidentally write language that captures jobs it shouldn’t (such as one-off babysitting gigs), so they plan to establish minimum dollar amounts and the type of contracting relationships to which the guidelines pertain. They also said they want the language to be relevant as the city’s peer-to-peer economy changes.

“We’re trying to really write this in a way that is applicable to the next thing that Silicon Valley does not just what we can see in our view right now,” he said. “Writing something that was general enough that it captured all of that, but also didn’t accidentally capture hiring the neighbor kid to mow your lawn while you’re out of town.”

That challenge is what motivated council member Phillipe Cunningham, whose Ward 4 covers the northwest corner of Minneapolis, to join the effort by Fletcher and Palmisano. As a co-author of the proposal, he said he wants to make sure the new protections for independent contractors don’t negatively impact workers in his neighborhoods (which include Shingle Creek, Victory, Webber-Camden, Cleveland, Folwell and Jordan), since they face unique socioeconomic and labor challenges compared to the rest of the city. 

“It’s so easy to think at this very high level about workers’ overall,” Cunningham said. “But when you are a vulnerable worker, living in a vulnerable part of the city, those sort of compounded challenges can be very easily overlooked.”

Questions about enforcement

Under the plan by Palmisano and Fletcher, the city’s labor standards division would enforce the new guidelines on a complaint-by-complaint basis, similarly to how it investigates violations against the city laws that establish a $15 minimum hourly wage law and guarantee employees paid time off for health or family issues

It’s unclear how another new law would increase the labor standards division’s workload. “We don’t know what [the demand is] going to be,” Palmisano said. “It’s very hard to predict what that is because it’s not just about this [policy] is going to apply to this many people, but it’s also about who’s going to be brave enough to pick up the phone or fill out a contact form, or whatever, to initiate the process.”

For each report, Walsh said he and his team of three attorneys would first determine whether the alleged offender has defined the wronged worker correctly via interviews and other payroll documents a labor-intensive endeavor and then start looking into the specific wage allegation. Considering the complexities, Walsh emphasized the importance of the city investing in the enforcement division to make sure it can keep up with the growing scope of work.

“It is critically important that low-wage workers are protected. Low-wage workers that don’t have access to justice through the court in any meaningful way require protection,” he said. “The system hasn’t evolved enough to provide that protection or [to curb] flagrant abuse happening, then we have some responsibility to take action.”