Legal Updates

DOL Proposes Rule Change For Independent-Contractor Classifications

Earlier this year, the U.S. Department of Labor's (“DOL”) Wage and Hour Division (“WHD”) published a Notice of Proposed Rulemaking, proposing to rescind its 2024 Biden-era independent-contractor rule and replace it with a modified version of the DOL’s 2021 rule (from the first Trump administration).

The proposed rule applies primarily to the Fair Labor Standards Act, the federal statute that regulates matters such as minimum wages and overtime eligibility. The DOL proposes, however, to apply this same analysis to other federal statutes, including the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.

DOL Secretary Lori Chavez-DeRemer stated that the proposed rule “seeks to protect these workers' entrepreneurial spirit and simplify compliance for American job creators navigating a modern workplace, all while maintaining robust protections for employees under the Fair Labor Standards Act.”

Background: The (Current) 2024 Rule

On January 10, 2024, the Biden Administration’s WHD published a final rule on independent-contractor classifications, modifying the 2021 rule. The 2024 rule identified six factors as guides for conducting a “totality-of-the-circumstances analysis” to determine whether a worker can appropriately be treated as an independent contractor, rather than an employee. These factors are:

1. The worker’s opportunity for profit or loss;
2. Investments by the worker and the potential employer;
3. The degree of permanence of the work relationship;
4. The nature and degree of control exercised by the business over the worker;
5. The extent to which the work performed is an integral part of the potential employer's business; and
6. The skill and initiative required for the work.

The 2024 rule took effect on March 11, 2024, and was subsequently challenged in five separate federal lawsuits, all of which remain pending but were stayed in light of the Trump Administration DOL's representation that it was reconsidering the rule.

Key Elements Of The Proposed Rule

The proposed rule returns to the 2021 rule’s structured “economic reality” analysis, which designates two “core” factors that typically carry greater weight than the others. These core factors are:
 

• The nature and degree of control over the work. This factor examines the extent to which the potential employer exercises control over how the work is performed.
•  The worker’s opportunity for profit or loss based on initiative or investment. This factor considers whether the worker can affect their earnings through their own initiative, business acumen, or capital investment.

Under the proposed rule, these two core factors should be considered first. If they both point toward the same classification – i.e., independent contractor or employee – then there is a substantial likelihood that that is the accurate classification for the individual.

The DOL’s proposed rule identifies three additional factors that may be considered in determining whether a worker is properly treated as an independent contractor or employee:
 

• The level of skill required for the work
• The degree of permanence of the working relationship
• Whether the work is part of an integrated unit of the business

The various factors identified in the proposed rule are not exhaustive, and no single factor is dispositive. In addition, WHD advises that the parties’ actual practices in a work relationship are more relevant than what may be contractually or theoretically possible. This provision of the proposed rule could prove significant in disputes where written agreements conflict with day-to-day working arrangements.

What’s Next?

The proposed rule was subject to a 60-day public comment period, which closed on April 28, 2026. WHD will consider public comments before issuing a final rule, and the substance of the final rule may differ from the current proposal. In the meantime, the 2024 rule technically remains in effect for purposes of private litigation, though WHD is no longer applying the 2024 rule's analysis in its own investigations.

Implications For Employers In Massachusetts And Elsewhere

The gig economy and other industries that rely heavily on independent contractors – including transportation, delivery services, technology platforms, and creative services – may be most affected by the proposed rule change. Businesses may find it easier to establish independent-contractor status for workers.

However, it is important to note that the proposed new rule affects only the DOL’s interpretation of the federal wage and hour law. The proposed rule doesn’t directly impact state or local laws that include stricter criteria for independent-contractor status.

For example, Massachusetts employers still must follow the state’s more stringent “ABC test” in order to determine the appropriateness of an independent-contractor classification. Under Massachusetts law, a worker is presumed to be an employee unless the employer can prove all three conditions of the ABC test:
 

• Absence of Control: The worker is free from control and direction in performing the work, both in contract and in fact.
• Business Purpose: The work performed is outside the usual course of business of the employer.
• Customarily Engaged: The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the work performed.

Other states have similarly strict requirements for independent contractors. For this reason, before entering into an independent-contractor relationship, an organization should confer with employment counsel to confirm that the proposed arrangement comports with not just the FLSA but any applicable state or local laws.

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If you have questions about the DOL’s proposed rule or any other worker classification issues, please feel free to reach out to one of our experienced employment attorneys.