Seyfarth Synopsis: The U.S. Department of Labor has proposed a new independent contractor rule that would guide courts, companies, and workers in their determinations of who must be paid as an employee and who can be treated as an independent contractor under the FLSA and two other statutes.
After much anticipation, the Department of Labor (DOL) has published a Proposed Rule defining independent contractors as opposed to employees under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (the “Proposed Rule”). As expected, the Proposed Rule largely mirrors the DOL’s earlier 2021 Rule. The Proposed Rule would replace the Biden administration’s 2024 rule and is intended to provide clarity as to the definition of who is an independent contractor under the FLSA, FMLA, and MSPA. Notably, the Proposed Rule:
- Embraces the same “core factor” approach used in the 2021 Rule, recognizing the significant weight courts give to “the right to control the manner and means by which services are performed” factor and “the opportunity-for-profit-or-loss” factor;
- Uses the same three non-exhaustive factors as “additional guideposts,” 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 production; and
- Weighs key issues similarly to the 2021 Rule, including by minimizing the probative value of unexercised control; consolidating the investment and opportunity-for-profit-or-loss factors; expressly stating that compliance with specific legal obligations, health and safety standards, customer deadlines, and insurance minimums does not demonstrate employee‑type control; and rejecting the relevance of comparing the relative investment levels of putative employers to those of workers.
Background
As explained here, the 2021 Rule was the DOL’s first-ever attempt, via rulemaking, to formally define independent contractors versus employees under the FLSA. It was issued against the backdrop of the growing gig economy and evolving work arrangements. In synthesizing decades of case law, the DOL concluded that the “core” control factor and the opportunity-for-profit-or-loss factor exerted an outsized influence on judicial outcomes. The 2021 Rule also addressed other key issues, such as minimizing the weight given to unexercised control and excluding from the analysis any control exercised solely to comply with certain laws.
Following the change in administration, however, the DOL rescinded the 2021 Rule and eventually promulgated a new rule in 2024. The 2024 Rule rejected the “core factor” framework in favor of a six‑factor test. It relied on an ambiguous totality‑of‑the‑circumstances analysis and reframed several factors in ways that increased the likelihood that workers would be classified as employees rather than independent contractors. The 2024 Rule was subsequently challenged in court, and in 2025 the DOL directed agency investigators to cease applying it and instead rely on sub-regulatory articulations of the test.
The “Core Factor” Analysis, Restored
The Proposed Rule adopts the same “core factor” test used in the 2021 Rule: namely, that the control factor and the opportunity-for-profit-or-loss factor are the most reliable indicators of whether a worker is operating an independent business. If these two factors point in the same direction, “there is a substantial likelihood that this is the accurate classification for the individual.”
If the core factors of control and opportunity-for-profit-or-loss do not point in the same direction, the following factors should then be considered:
- The amount of skill required for the work;
- The degree of permanence of the working relationship between the individual and the potential employer; and
- Whether the work is part of an integrated unit of production.
The Proposed Rule also provides that “additional factors” other than these five may be relevant but “only if the factors in some way indicate whether the individual is in business for him- or herself, as opposed to being economically dependent on the potential employer for work.”
The Proposed Rule Readopts the 2021 Rule’s Positions on Key Issues
The Proposed Rule also, like the 2021 Rule, provides guidance that clarifies grey areas for employers. These include:
- Requirements that a worker comply with specific legal obligations; satisfy health and safety standards; carry insurance; meet contractually agreed‑upon deadlines or quality‑control standards; or adhere to similar terms are not probative of control;
- A worker’s opportunity for profit or loss is not evaluated relative to that of the putative employer’s opportunity, and the opportunity for profit or loss need not arise from initiative or investment;
- Clarification of the “integrated unit” factor by explaining that it concerns whether the worker is part of an integrated unit of production, and distinguishing it from the “importance or centrality” of the individual’s work to the potential employer’s business; and
- Confirmation that actual practice is more relevant than what is theoretically or contractually possible.
This guidance also helps address specific concerns and ambiguities that the economic realities independent‑contractor test presents when applied to specific work relationships, industries, and sectors.
The Proposed Rule’s Illustrative Examples
To further provide predictability, clarity, and certainty, the Proposed Rule includes examples of how the above factors should be applied in specific circumstances. These include:
- It is not probative for the control factor that a logistics company requires an individual who performs logistics services for it to comply with federally mandated transportation safety rules.
- It is not probative for the opportunity-for-profit-or-loss factor that a company that provides a software app has invested millions of dollars into the app, whereas an individual who provides services using the app has invested substantially less.
- The skill factor weighs in favor of employee status where a roofing worker develops roofing skills on the job, but did not start with them because the business did not require them to have those skills at the start. In contrast, the skill factor weighs in favor of independent contractor status where a roofer is required to possess skills as a prerequisite to qualification for the opportunity.
- The integrated unit factor weighs in favor of employee status where a remote newspaper editor is involved with the entire production process of the newspaper, and does the same work as newspaper employees, even though they are not physically at the newspaper’s office.
- The integrated unit factor weighs in favor of independent contractor status where a journalist works on specific articles, and their work is separate from the newspaper’s other processes.
The DOL also adds further regulatory text explaining that the purpose of the independent contractor test is to determine whether a worker is economically dependent on an employer for “work.” This is a helpful change as it will help courts find a rationale for embracing the DOL’s proposed approach.
Takeaway
The Proposed Rule is not a final rule. The Proposed Rule was published in the Federal Register on February 27, 2026 and it will be open for public comment for sixty days (through April 28, 2026), after which the DOL will review public input and determine what, if any, revisions to include in a final rule. The timeline from proposed rule to final rule can take several months—even longer than a year—and the DOL may alter aspects of the proposal in response to comments.
Any final rule will be treated by a reviewing court as interpretive guidance. Courts retain ultimate authority to determine who is an employee and who is an independent contractor, and they give DOL interpretations such as this one Skidmore deference—that is, weight proportional to the guidance’s persuasive power. In addition, every federal circuit already applies its own standard for distinguishing independent contractors from employees, and district courts are likely to continue following circuit precedent.
Nonetheless, if finalized, the Proposed Rule will be welcome news for employers and workers, as it provides to courts the regulatory agency’s interpretation of the economic realities test, including a modern, well-balanced, clear analysis that gives greater weight to the two core factors and interprets all factors in an even-handed manner consistent with decades of case law.
Seyfarth attorneys are closely monitoring the DOL’s rulemaking in this area and are available to provide guidance on how the Proposed Rule impacts businesses and workers.
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