DOL Proposes Changing Independent Contractor Classification Rule

Quick Hits

• The DOL recently published a proposed rule to return to an earlier “economic reality” test for determining whether workers are employees or independent contractors.
• The proposed rule would rescind a 2024 final rule, which used a “totality of the circumstances” framework.  
• The public can submit comments on the proposed rule from February 27, 2026, until April 28, 2026.

The proposed rule, “Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act,” could have significant legal and economic ramifications for companies, especially in industries that tend to rely more heavily on independent contractors, such as construction, home health, transportation, warehousing, ridesharing, agriculture, and food delivery. Unlike employees, who are covered under the FLSA, independent contractors are not entitled to a minimum wage, overtime pay, unemployment insurance, and worker’s compensation.

While the new proposed rule may not substantially affect litigation, as it remains to be seen whether and to what extent courts would actually follow and apply it in litigation, it does significantly reduce the risk profile at the DOL level. The DOL proposes that the analysis also apply 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 scope of employment.

If the proposed rule is finalized:

• The analysis would retain the “economic reality” test, which has been used by courts for many years, to determine whether a worker is an independent contractor or an employee who is economically dependent on an employer.

• Two core factors will be given greater weight in determining if a worker is an independent contractor or employee: The nature and degree of control over the work, and the worker’s opportunity for profit or loss based on initiative or investment. The two core factors should be considered first, and if they both point toward the same classification, there is a substantial likelihood that is the accurate classification for the individual.
• Other factors may be considered in determining whether a worker is an independent contractor or employee, including the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of the business. These factors are not exhaustive, and no single factor is dispositive.  These additional factors serve as additional guideposts but are less probative than the core factors, and, at times, may not be probative at all. Moreover, they are very unlikely, individually or collectively, to outweigh the combined probative value of the two core factors, if they are aligned and point toward the same classification.
• The actual practice of the worker and employer will be more relevant than what is contractually or theoretically possible.

The proposed rule states that certain employer requirements do not demonstrate a degree of control requiring employee classification. These include requiring a worker to comply with specific legal obligations, meet health and safety standards, carry insurance, or meet deadlines. This departs from the Biden-era rule as well, which stated that several of these things could be considered evidence of control in appropriate circumstances.

Next Steps

The public has until April 28, 2026, to submit comments on the DOL’s proposed rule, which could be finalized later this year.

The adoption of the proposed rule could provide employers with more certainty over worker classification. It is likely that applying this proposed rule will result generally in more workers being classified as independent contractors, whereas applying the Biden-era rule generally resulted in more employee classifications. However, courts will not be bound by any rule adopted by the DOL, and independent contractor relationships will continue to face strict scrutiny in the courts, as well as government agencies. 

Companies that use independent contractors may wish to assess their current worker classification and review their written contracts, policies, and practices to ensure that individuals retained as independent contractors satisfy the requirements for such classification under the law. Employers that misclassify workers as independent contractors may face federal or state fines and liability for unpaid wages, overtime pay, unpaid taxes, or workers’ compensation.

Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will provide updates on the Class Action, Trucking and Logistics, and Wage and Hour blogs as new information becomes available. This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.

Information on state and federal independent contractor laws is available on the Ogletree Deakins Client Portal. If this proposed rule is enacted, the Client Portal will provide updates in the Federal Independent Contractors law summary. Snapshots and updates are available for all registered client users. Detailed information is available for Premium and Advanced subscribers. For more information on the Client Portal or a Client Portal subscription, please reach out to clientportal@ogletree.com.

Margaret Santen is a shareholder in Ogletree Deakins’ Charlotte office.

Catherine D. Catoe is an associate in Ogletree Deakins’ Charlotte office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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