DOL Proposes To Reinstate Modified 2021 Framework for Independent Contractor Rule

Key Takeaways

• The U.S. Department of Labor’s Wage and Hour Division (DOL or Department) recently published a notice of proposed rulemaking (NPRM) that would rescind the Biden-era rule governing employee versus independent contractor classification under the Fair Labor Standards Act (FLSA) and replace it with a modified version of the framework the Department adopted in 2021.
• The proposed rule would also, for the first time, seek to apply a uniform classification standard to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), both of which incorporate the FLSA’s definitions of employment.
• Despite the Supreme Court of the United States’ recent limits on agency deference, stakeholders should monitor the progress of the proposed rule and may consider submitting comments on it online.

Background

The question of how to distinguish employees from independent contractors under the FLSA had not been the subject of formal notice and comment rulemaking until the first Trump administration. Since then, the Department has issued two other rule proposals asserting different versions of the economic realities test. 

In January 2021, the Department published a final rule (the 2021 Rule) that set forth five factors, including two “core” factors: (1) the nature and degree of control over the work and (2) the individual’s opportunity for profit or loss. The “core” factors were to carry greater weight than three additional factors: (3) the amount of skill required for the work, (4) the degree of permanence of the working relationship between the individual and the potential employer, and (5) whether the work is part of an integrated unit of production. This rule allowed companies greater flexibility in designating workers as independent contractors. 

In January 2024, the Department rescinded the 2021 Rule and replaced it with the “2024 Rule,” which adopted a totality-of-the-circumstances economic realities approach. This approach added a sixth factor—investments by the worker and the potential employer—and did not identify any core factors or give weight to any one factor. Five lawsuits challenging the 2024 Rule remain pending, each stayed based on the current administration’s representation that it intended to reconsider the rule. Meanwhile, since May 1, 2025, the Department has ceased applying the 2024 Rule in its enforcement investigations. 

The Department identified several concerns with the 2024 Rule that motivated this rulemaking. First, the Department believes the 2024 Rule fails to provide sufficient clarity and predictability because it offers little direction on how to weigh or apply its six broad factors, instead relying on an open-ended balancing analysis. Second, the Department is concerned that the 2024 Rule’s description of several factors could be viewed as setting a higher bar for independent contractor status than the law requires, potentially chilling legitimate independent contracting arrangements. Third, the Department believes the 2024 Rule features redundancies across its factors that create confusion about whether the same considerations must be counted multiple times. 

Key Features of the Proposed Rule

Reinstatement of the “Core Factor” Framework

The proposed rule would readopt the 2021 Rule’s economic reality analysis, which identifies two “core” factors as the most probative of whether an individual is economically dependent on a potential employer: (1) the nature and degree of the individual’s control over the work and (2) the individual’s opportunity for profit or loss based on initiative or investment. If both core factors point toward the same classification—whether employee or independent contractor—there is a “substantial likelihood” that it is the accurate classification. Three additional factors—skill, permanence, and whether the work is part of an integrated unit of production—would serve as supplementary guideposts but are considered less probative and, in some cases, may not be probative at all. 

Clarification of Economic Dependence

The Department proposes to add language clarifying that “economic dependence” refers to the dependence a typical employee has on an employer for work, as opposed to the relationship a business owner has with another business. The proposed rule would also reinforce that the economic dependence inquiry focuses on the dependence for work rather than dependence for income. 

Importance of Actual Practice

The proposed rule would restore the 2021 Rule’s provision affirming that the actual practice of the parties is more relevant than what may be contractually or theoretically possible when evaluating economic dependence. The Department believes the 2024 Rule’s removal of this “actual practice” provision created uncertainty among stakeholders. 

Control Factor Guidance

Consistent with the 2021 Rule, the proposed rule would provide that actions taken by a potential employer to comply with legal obligations, safety standards, or contractual quality control standards do not automatically constitute control indicative of an employment relationship. This represents a departure from the 2024 Rule’s more nuanced approach, which some stakeholders viewed as discouraging covered entities from taking steps to ensure compliance and safety practices. 

Illustrative Examples

The proposed rule would restore fact-specific examples in the regulatory text, with updates to one existing example and the addition of two new examples addressing the skill factor. 

Uniform Standard Across FLSA, FMLA, and MSPA 

Significantly, the Department proposes to apply the same classification analysis to the FMLA and MSPA by cross-referencing the new Part 795 analysis, creating a single standard across all three statutes. According to the Department, both the FMLA and MSPA expressly incorporate the FLSA’s broad “suffer or permit to work” definition of employment. Despite this shared statutory language, the Department’s existing regulations do not currently reflect a single standard for all three statutes. The MSPA regulation sets out its own list of six economic reality factors—which are not identical to the factors the Department is proposing in this NPRM—and does not provide guidance on how to weigh those factors. The FMLA’s regulation, meanwhile, does not identify any specific economic reality factors at all, leaving open the possibility that courts might decline to apply an FLSA-based economic reality test in FMLA cases.

To resolve these inconsistencies, the Department proposes revisions to the MSPA regulations to remove its standalone list of economic reality factors and replace them with a cross-reference to the analysis in the FLSA. For the FMLA, the proposed rule would amend the regulations to incorporate the FLSA’s framework by cross-reference and would also delete the existing statement that “mere knowledge by an employer of work done for the employer by another is sufficient to create the employment relationship,” which the Department believes could be read as inconsistent with the multifactor analysis. The Department views these changes as ensuring that workers, businesses, and courts apply one uniform analysis for distinguishing employees from independent contractors across all three statutes.

What This Means for Employers

Employers that engage independent contractors should closely monitor this rulemaking. The 2024 Rule remains in effect for purposes of private litigation until a final rule is adopted, even though the Department is no longer applying it in its own enforcement investigations. 

Notably, this proposal arrives after the Supreme Court's decision in Loper Bright Enterprises v. Raimondo, in which the Court eliminated Chevron deference, meaning that federal courts are no longer required to defer to an agency’s reasonable interpretation of an ambiguous statute. As a practical matter, even if the proposed rule is finalized, courts adjudicating independent contractor disputes may conduct their own independent analysis of the applicable classification standards rather than deferring to the Department’s regulatory framework. This could lead to divergent judicial interpretations of independent contractor status across different circuits and districts. Employers should continue to monitor developments in this rulemaking, as well as legal authorities in relevant jurisdictions, including judicial decisions that may shape or depart from the Department’s economic realities approach to classification.

Stakeholders wishing to comment on the proposed rule may submit comments electronically at https://www.regulations.gov, identified by RIN 1235-AA46. The 60-day comment period closes at 11:59 p.m. ET on April 28, 2026.

The Department has also invited comment on a further streamlined approach under which the control factor would be considered first: If the potential employer controls the worker, the analysis would end with a finding of employee status without needing to consider other factors.