On February 27, 2026, the U.S. Department of Labor (DOL) released a proposed rule addressing employee versus independent contractor status under the Fair Labor Standards Act (FLSA). The proposed standard will also apply to employee classification under the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

If finalized, the proposal would rescind the Biden Administration’s 2024 independent contractor rule and largely restore the framework adopted during President Trump’s first term. As with past versions, the proposed rule centers on the economic realities test, which seeks to determine whether a worker is economically dependent on an employer for work or instead operates as an independent business.

A Brief History

The U.S. Supreme Court established the multi-factor economic realities test to determine whether a worker is an employee or an independent contractor under the FLSA in the 1940s.

The 2021 Trump Administration Rule

In the final days of President Trump’s first term, the DOL issued a rule that emphasized the economic reality of the relationship between worker and employer but elevated two “core factors” above others: (1) the worker’s control over their work, and (2) the worker’s opportunity for profit or loss based on their initiative or investment. Three additional factors were considered but given less weight. 

Critics of the rule argued that the focus on two core factors was inconsistent with the test developed by the courts, thereby wrongly narrowing the definition of employee and failed to provide sufficient worker protections. Many employers thought the rule provided clarity and predictability while making independent contractor classification easier to support.

The 2024 Biden Administration Rule

In 2024, under President Joe Biden, the DOL rescinded the 2021 rule and replaced it with a broader six-factor economic realities test. Under that framework, no single factor carried greater weight, and the analysis focused on the totality of the circumstances to determine whether a worker was economically dependent on the employer.

The 2024 rule was widely viewed as protecting workers from exploitation by increasing scrutiny of independent contractor arrangements and expanding the potential for employee classification.

The Proposed Rule

The DOL’s latest proposal would again modify the economic realities analysis and largely return to the approach reflected in the 2021 rule.

The central question remains whether, as a matter of economic reality, the worker is economically dependent on the employer for work. If so, the worker is more likely to be an employee. By contrast, an independent contractor is someone who more closely resembles a business owner operating a separate business. 

Pursuant to its proposal, the DOL seeks to determine economic dependence in actual practice rather than merely what the contract says by placing primary emphasis on two core factors with less weight given to additional relevant considerations. 

Core Factors

  • Nature and degree of control over the work
  • Opportunity for profit or loss

Additional Factors

  • Amount of skill required for the work
  • Degree of permanence of the working relationship
  • Whether the work is part of an integrated unit of production or is segregable from the employer’s production process
  • Any additional factors that indicate the individual is in business for themself

The DOL explains, as it did in 2021, that while the core factors are more probative, no single factor is determinative, and the list of relevant considerations is non-exhaustive. 

What this means for Employers

If finalized, the proposed return to two core factors and reduced emphasis on equal weighing could drastically impact the classification of workers nationwide. The DOL estimates the proposal could increase the number of workers classified as independent contractors by between .25 million and .75 million nationwide.  This would reduce the number of workers classified as employees.

While the proposal may signal a more employer-friendly framework, it does not eliminate the complexity of independent contractor classification, and given the non-exhaustive nature of the proposed rule, misclassification risks remain. Employers should continue to evaluate contractor relationships beyond contractual language as worker classification remains a fact-specific inquiry focused on the underlying nature of the worker’s engagement rather than the language of the worker’s contract. 

Importantly, the proposed rule is not yet final. The DOL has issued a Notice of Proposed Rulemaking, and it is currently subject to a 60-day public comment period before the agency can issue a final rule. Employers should continue to monitor developments and ensure compliance with the currently applicable legal standards and relevant case law.