U.S. Department of Labor Proposes New(ish) Worker-Classification Standards

The U.S. Department of Labor (DOL) proposed a new rule, entitled the "Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act." The proposed rule is designed to differentiate between employees and independent contractors. 

If adopted, the rule would establish a standard similar to one the DOL issued under the first Trump administration. Like that first standard, the new rule aims to simplify worker classification by focusing on two main factors—control over the work, and entrepreneurial opportunity. While other factors like amount of skill and degree of permanence of the relationship would still be relevant, they would usually be unnecessary when the two main factors point in the same direction.

How did we get here?

The proposed rule arrives after years of back and forth over worker classification. In general, the Fair Labor Standards Act (FLSA) distinguishes between independent contractors and employees by looking at “economic realities.” If as a matter of economic reality, workers depend on a particular employer for work, they are considered employees. But if they are in business for themselves, they are independent contractors. This distinction is important because the FLSA applies only to employers and employees. So if workers are independent contractors, they are not owed FLSA overtime or minimum wages. Instead, their compensation is usually dictated by a contract.

Until 2007, the DOL had no official position on how to distinguish between employees and contractors. That year, it published Fact Sheet 13, which set out six nonexclusive factors. The DOL gleaned these factors from judicial decisions applying the economic-reality test. Then, in 2021, the DOL finalized its first formal classification rule. That rule tried to simplify the test by focusing on two main factors: control and entrepreneurial opportunity. It also listed three secondary factors: how much skill the work involved, how permanent the working relationship was, and whether the work was part of an integrated unit of production.

Just a few weeks after the rule was published, however, the incoming Biden administration tried to pull it down. It first paused the rule, then purported to rescind it. Those actions, however, were tied up in court. So instead, the administration set out to write a new rule. That rule was finalized in January 2024 and returned to a six-factor test. But the new test was seen by many as too restrictive and inconsistent with judicial guidance. It was challenged in court by multiple parties, including some individual independent contractors. 

When the administration changed hands again in 2024, the Trump administration announced that it would no longer enforce the 2024 rule. Instead, it would begin work on yet another rule to set out the proper standard. The product of that effort is this proposed rule. 

What would the proposed rule do?

First, the new proposed rule would mostly return to the 2021 standard. Like that standard, it would focus on two main factors:

• Control of the work. This factor focuses on who controls the work and to what extent. If workers set their own schedules, select their own projects, and work for multiple clients, they’re more likely to be independent contractors. By contrast, if they cannot control their own schedule or workload, or must work exclusively for a single client, they are more likely to be employees.
• Entrepreneurial opportunity. This factor focuses on whether the worker can affect their own profits or losses. If they make entrepreneurial decisions and investments that can increase their profit (or risk of loss), they’re more likely to be independent contractors. But if they can influence their earnings only by working faster or working more hours, they are more likely to be employees. 

The proposed rule would also bring back the 2021 rule’s secondary factors:

• Special skills. This factor focuses on the worker’s specialized skills. If the worker comes to the job with preexisting specialized skills, the worker is more likely to be an independent contractor. That’s especially true if the worker uses such skills to market their services (for example, by advertising their special abilities or experience). But if workers have only skills they learned from the potential employer, they are more likely to be employees.
• Permanence. This factor focuses on whether the work relationship is fixed or indefinite. If workers handle projects with fixed deadlines or occasionally handle definite projects, they’re more likely to be independent contractors. But if they provide service with no definite end point, they’re more likely to be employees. That’s true even if they work seasonally. For example, a housecleaner who works at a ski resort every winter has a definite relationship with the resort even if the resort closes every summer.
• Integration. This factor focuses on whether the worker is integrated into a production process. If the worker provides services outside the potential employer’s end-to-end production process, they’re more likely to be independent contractors. But if they work as part of an integrated team, they’re more likely to be employees. For example, a person who works on an integrated assembly line is part of a continuous production process. But a person who comes to clean the floors at night may not be. 

These factors are familiar from the 2021 rule. But the proposed rule’s scope is different. The proposed rule wouldn’t establish a standard only for the FLSA; as suggested by the name of the proposed rule, it would also establish the same standard for the Family Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act. Both statutes use language similar to the FLSA’s. So the rule aims to establish a common interpretation across all three. 

What happens next?

The DOL will accept public comments beginning Friday, February 27, 2026. These comments will help the DOL understand how the proposed rule would affect workers and businesses. If the rule is challenged in court, the DOL may need to explain how it considered any major issues identified in the comment process. The comment process will be open for 60 days, closing on April 28, 2026. Interested employers should work with counsel to decide whether and how to weigh in. In the meantime, employers should continue to be guided by existing precedents (typically found in court decisions applying some version of the economic reality test) regarding the classification of a worker as an employee or independent contractor.