Minnesota Legislature Updates Indemnification, Wage Theft Rules for Construction Industry

The 2023 legislative session spelled many changes for the construction industry, from deeming indemnification agreements in connection with public improvements unenforceable to creating upstream liability for contractors—including some owners—whose subcontractors engage in wage theft.

     I.     Indemnification Agreements in Public Construction Contracts Are Presumptively Unenforceable

As of May 25, 2023, indemnification agreements are unenforceable when contained in, or executed in connection with, a public improvement contract unless an exception applies. Indemnification agreements are agreements to “indemnify, defend, or hold harmless" another party against liability when someone is hurt or property is damaged.

Indemnification agreements are now unenforceable unless (1) the underlying injury or damage was caused by negligence or a wrongful act or omission, including breach of contract by the promisor or their independent contractors, agents, employees, or delegatees; or (2) an owner, responsible party, or government entity “agrees to indemnify a contractor directly or through another contractor with respect to strict liability under environmental laws.” This new statutory language for public projects parallels already-existing laws governing construction contracts in general.

The updated law also prohibits public building or construction contracts from requiring a party to provide insurance coverage to another party for their negligence, intentional acts, or omissions. This does not prohibit a party from requiring workers’ compensation insurance, performance or payment bonds, builder’s risk policies, or insurance for the other party’s vicarious liability or negligent acts or omissions (including that of their independent contractors, agents, employees, and delegatees).

To comply with the new law, construction contractors seeking to be indemnified by their subcontractors should ensure that any indemnification obligation is limited to the extent of the injury or damage caused by the subcontractor’s negligent or otherwise wrongful act or omission, including breach of contract. Parties should also ensure they have sufficient and proper insurance coverage per their contractual obligations.

     II.     Construction Worker Wage Protection Act

Lawmakers also made changes regarding wage theft in the construction industry with the Construction Worker Wage Protection Act (CWWPA). Minn. Stat. § 181.165.

As of Aug. 1, 2023, a contractor entering into, renewing, modifying, or amending a construction contract or agreement assumes unpaid wages, benefits, and damages owed to employees of a subcontractor of any tier.

This law builds on ’s wage theft protections, providing employees the right to sue contractors directly, making contractors jointly and severally liable for judgments against subcontractors for unpaid wages, establishing benefits and penalties under the law. Where an employee has a successful claim, a contractor may also be liable for the employee’s attorneys’ fees and costs.

For more information on Minnesota’s Wage Theft Law generally, see: Compliance Countdown: An Employer's Guide to 's New Wage Theft Law

Who Is a “Contractor” Under the CWWPA?

A contractor broadly includes any person, firm, partnership, corporation, association, company, organization, or other entity, including a construction manager, general or prime contractor, joint venture, or any combination thereof, along with their successors, heirs, and assigns, that enters into a construction contract with an owner.

An owner is also considered a contractor where the owner enters into a construction contract with more than one contractor or subcontractor on any construction site.

Contractors May Seek Damages from Subcontractors

Where a contractor pays claims for unpaid wages by employees of a subcontractor, the contractor has a right to sue for actual and liquidated damages against the subcontractor.

Contractors May Demand Subcontractor Records

Along with the obligation to remedy wage theft complaints, the CWWPA gives contractors the right to demand payroll records and data from subcontractors to ensure they are complying with the law.

Within 15 days of such request, a subcontractor must produce records containing all lawfully required information for workers on the project and enough information to apprise the contractor or subcontractor of such subcontractor's payment of wages and fringe benefit contributions to a third party on the workers' behalf. The records must also include the following information:

1. the names of all employees and independent contractors of the subcontractor on the project, and, when applicable, the name of the contractor's subcontractor with whom the subcontractor is under contract;
2. the anticipated contract start date;
3. the scheduled duration of work;
4. when applicable, local unions with which such subcontractor is a signatory contractor; and
5. the name and telephone number of a contact for the subcontractor.

Union Exemption

The CWWPA does not apply to contractors or subcontractors if they are signatories to a collective bargaining agreement with a building and construction trade labor union and that agreement:

1. contains a grievance procedure that can be used by workers to recover unpaid wages; and
2. provides for the collection of unpaid contributions to fringe benefit trust funds.

What You Can Do & How We Can Help

Regarding the wage theft law, we recommend you choose subcontractors carefully and monitor their payments to their employees.

More broadly, it is advisable that you consult an attorney to evaluate any 2023 construction contracts to ensure that they comply with updated Minnesota law. Maslon’s construction and insurance litigation attorneys are available to help their clients stay up to date on changes in Minnesota law that may affect their legal strategies. Please contact us for assistance.