Changes to Minnesota Employment Law: 2024 and Beyond
Major employment law changes are here, and more are coming in 2025. We’re here to help you stay up to date on the continually changing employment law environment challenging Minnesota employers to keep up.
Introduction
In recent years, Minnesota has become a battleground for labor and employment law change, with sweeping legislative changes that have significant implications for both employers and employees. The most recent legislative session, culminating in an omnibus bill, introduces new provisions affecting various aspects of employment law. These changes, effective starting in 2025, include updates to pay transparency requirements, earned sick and safe time (ESST) (yes, it’s changing again, already), paid family leave, independent contractor classification, pregnancy leave rights, drug testing, non-solicitation agreements, minimum wage and tip laws, among others. To learn more, read on.
1. Pay Transparency Requirements
One of the most significant changes coming into effect on January 1, 2025, is the new pay transparency requirement for employers. Minnesota now mandates that employers with 30 or more employees include compensation and benefits information in all job postings. This requirement is designed to address pay disparities based on protected characteristics, such as sex, by eliminating the practice of asking applicants for their salary history, which was banned in the state last year.
Key Provisions:
Salary Range Disclosure: Employers must disclose a starting salary range or a fixed pay rate in job postings. The range must be a good-faith estimate and cannot be open-ended.
Benefits Description: Job postings must include a description of all associated benefits, such as health and retirement benefits.
Broad Definition of Job Posting: The law applies to any solicitation intended to recruit job applicants, including direct recruitment by the employer or through third parties, regardless of whether the posting is electronic or printed.
Implications for Employers: This law will require employers to reassess how they approach job postings, ensuring that they comply with the specific requirements for transparency. Failure to adhere to these requirements could result in penalties, and employers must start preparing now to avoid non-compliance. An offer letter includes this information already, so including this information in the posting will be part of the process for many employers.
2. Expansion of Paid Family Leave
Minnesota's Paid Family Leave Act, initially enacted in 2023, will expand. The recent amendments, effective January 1, 2026, increase the payroll tax rate on wages to fund the benefits and broaden the coverage under the Act.
Key Provisions:
Increased Payroll Tax: The payroll tax on wages has been increased from 0.7% to 0.88%, with a cap of 1.2% on potential future increases (for now). For small employers, a reduced rate of 0.75% applies if certain conditions are met.
Expanded Coverage: Self-employed individuals and independent contractors can now register for paid leave benefits. Additionally, employees transitioning from private to state-administered plans retain their entitlement to benefits.
Wage Replacement Adjustments: Employers who provide wage replacement during an absence must ensure that the total compensation does not exceed the employee’s regular pay. Any excess must be refunded by the employee.
Implications for Employers: Employers will need to adjust their payroll systems to account for the new tax rates and ensure that their leave policies comply with the expanded coverage. Small businesses, in particular, should be aware of the reduced tax rate available to them and take advantage of it if eligible.
3. Enhancements to Pregnancy and Parental Leave
Effective August 1, 2024 (this month), Minnesota's Pregnancy and Parenting Leave Law has been amended to provide greater protections for employees. This change ensures that the 12 weeks of parental leave guaranteed by state law are not reduced by any period of paid or unpaid leave taken for prenatal care medical appointments.
Key Provisions:
Extended Leave: Employees may now use more than 12 weeks of protected leave if needed for pregnancy-related medical appointments and child care post-birth.
Continuation of Benefits: Employers are now required to continue providing insurance benefits to employees on leave, similar to the requirements under the federal Family and Medical Leave Act (FMLA). This change is particularly impactful for small employers previously not covered by FMLA.
Implications for Employers: This amendment necessitates a review and update of existing leave policies. Employers must ensure they provide the necessary coverage and benefits during the extended leave periods, which could require additional resources or policy adjustments.
4. Earned Sick and Safe Time (ESST) Amendments
Minnesota's Earned Sick and Safe Time law, which mandates employers to provide paid sick leave, has already been amended just a year after its initial implementation. These amendments, effective May 25, 2024, clarify various aspects of the law, including the calculation of ESST and the circumstances under which it can be used.
Key Provisions:
Base Rate Calculation: Employees who take ESST are entitled to pay at their base rate, not at higher rates that might apply to weekend or overtime work.
Funeral Leave: ESST can now be used for bereavement purposes, including making funeral arrangements, attending services, and handling legal or financial matters post-death.
Implications for Employers: Employers will need to update their ESST policies and ensure that their payroll systems are configured to comply with the base rate payment requirements.
5. Independent Contractor Classification
Minnesota has introduced stricter requirements for classifying workers as independent contractors, with a particular focus on the construction industry. The new law, effective January 1, 2025, imposes significant penalties for misclassification and sets a 14-point test for determining independent contractor status in construction.
Key Provisions:
14-Point Test for Construction Industry: To classify a worker as an independent contractor, all 14 criteria must be met. Failure to meet any one criterion will result in the worker being classified as an employee.
Penalties for Misclassification: Employers who misclassify workers face substantial fines and other penalties.
Implications for Employers: Employers, especially in the construction industry, must carefully review their contractor agreements and ensure compliance with the new classification standards. Misclassification can result in severe financial and legal consequences.
6. Ban on Non-Solicitation Agreements
Following last year's ban on non-compete agreements, Minnesota has enacted a new law banning certain non-solicitation agreements between service providers and their customers. This law, which went into effect July 1, 2024, prohibits service providers from entering contracts that prevent their customers from hiring the service provider’s employees or contractors.
Key Provisions:
Prohibited Agreements: Any contract that restricts a customer from soliciting or hiring a service provider’s employees or contractors is now void and unenforceable.
Notification Requirement: Service providers must inform their employees of any contractual provisions that violate this ban.
Implications for Employers: Service providers must review their existing contracts to identify and amend any non-solicitation clauses that conflict with the new law. Failure to comply could result in unenforceable agreements and potential legal disputes.
7. Elimination of Alternative Minimum Wages
Minnesota's minimum wage law has been revised to eliminate reduced wage standards for small employers and minor employees. As of January 1, 2025, only employees under 20 years old, and only for their first 90 days of employment, may be paid a lower minimum wage.
Key Provisions:
Elimination of Lower Wage Standards: The reduced minimum wage for small employers and minors has been eliminated, except for a limited time for young employees.
Protections Against Wage Reduction: Employers are prohibited from displacing employees to take advantage of the lower wage for young workers.
Implications for Employers: Employers will need to adjust their payroll practices to comply with the new minimum wage standards. This change will likely increase labor costs, particularly for businesses that previously relied on paying reduced wages to minors or small workforce employees.
8. Amendments to the Minnesota Human Rights Act (MHRA)
Minnesota has made several significant amendments to the MHRA, enhancing both the substantive rights of employees and the potential remedies available in discrimination cases.
Key Provisions:
Increased Damages: Compensatory damages now explicitly include mental anguish and suffering, and punitive damages are no longer capped at $25,000. Instead, they are subject to the procedural requirements of Minnesota Statutes section 549.20.
Expanded Definitions: The definition of "disability" has been broadened to include episodic or remissive conditions that would materially limit a major life activity when active. The definition of "familial status" now includes caretakers, not just those living with minors.
Extended Limitations Period: The period for filing lawsuits following the dismissal of a charge by the Minnesota Department of Human Rights (MDHR) has been extended from 45 days to 90 days.
One-Year Determination Period: The MDHR is now required to make a determination on a charge within one year, though this period can be tolled under certain circumstances.
Implications for Employers: These changes increase the potential liability for employers in discrimination cases. Employers should review their anti-discrimination policies and training programs to ensure they comply with the expanded definitions and prepare for the possibility of higher damages in litigation.
9. New Requirements for Electronic Tips
Starting August 1, 2024 (this month), Minnesota law began to require that all tips received through electronic payments must be fully credited to the employee in the pay period in which they were received.
Key Provisions:
Full Credit for Tips: Employees must receive the full amount of any electronic tips in the pay period in which they are received, with payment due no later than the next scheduled pay period.
Implications for Employers: Employers in the hospitality and service industries must ensure that their payroll systems are equipped to handle the prompt and accurate distribution of electronic tips to employees. This change may require updates to payment processing systems and close monitoring to avoid legal repercussions for delayed or incorrect payments.
10. Permissibility of Oral Fluid Drug Testing
Minnesota has updated its Drug and Alcohol Testing in the Workplace Act to allow for oral fluid testing as a method for drug, alcohol, and cannabis testing. This update, which took effect on August 1, 2024, provides employers with an alternative to traditional urine testing, potentially simplifying the testing process.
Key Provisions:
Oral Fluid Testing: Employers can now use oral fluid testing as a method for detecting drug and alcohol use. This method is particularly attractive because it does not require the involvement of a laboratory.
Compliance Requirements: Despite the new testing method, employers must still adhere to existing statutory rules. This includes providing test results to the individual being tested at the time of testing and offering a confirmatory laboratory test if the initial results are positive, inconclusive, or invalid.
Right to Retest: Employees or applicants who fail the laboratory test have the right to request a second retest at their own expense.
Implications for Employers: Employers should consider whether to incorporate oral fluid testing into their drug and alcohol testing policies. If so, they must ensure that all testing procedures comply with the updated legal requirements, including providing timely results and honoring retest requests.
11. Implications for Compliance and Employer Actions
The sweeping changes to Minnesota’s employment laws in 2025 place significant compliance burdens on employers across the state. The cumulative impact of these changes will require a proactive approach to revising policies, training programs, and administrative procedures.
Immediate Actions for Employers:
Review and Update Job Postings: Employers should start preparing for the new pay transparency requirements by reviewing current job postings and updating them to include required salary ranges and benefits information.
Adjust Payroll and Leave Policies: Employers must ensure that their payroll systems are prepared to handle the increased taxes for the Paid Family Leave Act and that leave policies are updated to reflect the expanded rights under the law.
Revise Independent Contractor Agreements: Given the new classification requirements, particularly in the construction industry, employers should carefully review and amend contracts with independent contractors to ensure compliance.
Reevaluate Non-Solicitation Clauses: Service providers must scrutinize their contracts for any non-solicitation agreements that may violate the new law, making necessary adjustments to remain compliant.
Ensure Accurate Tip Distribution: Employers should audit their tip distribution processes to ensure compliance with the new requirements for electronic tips.
Consider Drug Testing Policy Revisions: Employers interested in using oral fluid testing should update their drug testing policies and ensure compliance with all procedural requirements.
Long-Term Considerations:
Legal Consultation: Given the complexity and breadth of these changes, employers may benefit from consulting with legal experts specializing in employment law to navigate the nuances of the new legislation.
Employee Training: Regular training sessions for HR staff and management will be critical to ensure that all stakeholders are aware of the new legal requirements and how they impact daily operations.
Policy Documentation: Employers should document all policy changes and ensure that employee handbooks, contracts, and other relevant materials are updated and distributed to employees.
Conclusion
The changes to Minnesota's employment laws effective in 2025 (and 2026) represent some of the most significant updates in recent years, impacting nearly every aspect of the employer-employee relationship. These changes will be painful and distracting for many employers to implement, and their costs (visible and unseen) will challenge the viability of some businesses. From pay transparency and family leave to contractor classification and non-solicitation agreements, these new laws require careful attention and immediate action by employers across the state.
Employers must stay vigilant and proactive in adapting to these changes, ensuring that they remain compliant to avoid costly penalties and potential legal challenges. By taking the necessary steps to update policies, train staff, and seek legal counsel where needed, Minnesota employers can navigate this complex legal landscape and continue to thrive in an evolving regulatory environment.