Back to the future: U.S. Department of Labor proposes revised worker classification rule

The 2024 Rule, which sought to reduce the risk that companies would misclassify employees as independent contractors, would be replaced by a modified version of the DOL’s 2021 guidance that focuses on the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss to determine their appropriate classification.

The 2026 Rule, which was expected following an announcement by the DOL in 2025 that it would no longer enforce the 2024 Rule, reflects a return to a more business-friendly approach to worker classification analysis and would also apply to classifications under the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act. If this feels like déjà vu, it’s because we have seen a version of the 2026 Rule before.

Background

As discussed in our memo, Recent developments in U.S. worker classification rules, on May 1, 2025, the DOL released a Field Assistance Bulletin³ instructing the Wage and Hour Division staff of the DOL to cease enforcement of the 2024 Rule and instead rely on the worker classification framework outlined in a 2008 “Fact Sheet” issued in the context of FLSA investigations (Fact Sheet #13).⁴

The 2024 Rule provided that worker classification is based on an assessment of six “economic reality” factors. None of the economic reality factors were individually dispositive, and the 2024 Rule required employers to weigh all of the factors to determine whether a service provider, according to the totality of the circumstances, was economically dependent on an employer for work.

The 2024 Rule itself was announced to replace the DOL rule adopted in 2021⁵ during President Trump’s first administration (the “2021 Rule”), which focused on two core factors: (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss based on initiative, investment or both. The 2021 Rule provided three additional factors that employers could consider, but the “core” factors were given more weight. This flexibility made it easier for employers to classify service providers as independent contractors.

Proposed rule

The 2026 Rule takes a similar approach to the 2021 Rule. The 2026 Rule would apply an economic reality test to determine whether a service provider is in business for themselves or is economically dependent on the employer. The 2026 Rule identities two “core” factors as most probative:

Core Factor 1: The nature and degree of control over the work. 

This factor weighs toward independent contractor status to the extent the individual exercises substantial control over key aspects of the work, such as setting their own schedule, selecting projects and working for others. Importantly, requiring an individual to comply with legal obligations, health and safety standards or quality control standards does not constitute control that makes the individual more likely to be an employee.

Core Factor 2: The individual's opportunity for profit or loss. 

This factor weighs toward independent contractor status to the extent the individual has an opportunity to earn profits or incur losses based on initiative (such as managerial skill or business acumen) or management of investments in equipment or materials.

If both core factors point toward the same classification, there is a substantial likelihood that is the individual's appropriate classification.

Other factors

 The 2026 Rule identifies three additional factors that serve as guideposts but are less probative:

• 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.

Building on the 2021 Rule, the 2026 Rule clarifies that the worker classification analysis should consider the “nature and character of the economic dependence that an employee typically has on an employer for work, as distinct from the relationship that a business owner has to another business with which it works.” Additionally, under the 2026 Rule, a determination of “economic dependence” should not focus on the amount of income the service provider earns or whether the service provider has other sources of income.

Next steps

The DOL is collecting comments from interested parties on the proposed rule through April 28, 2026. 

The proposed rule represents a significant shift back to a framework that has generally been viewed as more favorable to independent contractor classifications. The return to prioritizing the “core factors” may reduce legal uncertainty for businesses that engage independent contractors who exercise substantial control over their work and have genuine opportunities for profit or loss.

Companies should be aware that the proposed rule emphasizes actual practice over contractual characterization. If adopted, companies may wish to reexamine how their workers are classified or change how they approach classification of new hires, but should keep in mind that the Internal Revenue Service (IRS) and states each maintain their own worker classification standards that must be monitored and followed as well. 

We are continuing to monitor developments to worker classification law. Please feel free to reach out with any questions or if you would like to know more about how new developments relating to worker classification may affect your business.

Footnotes

1. Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, 29 C.F.R pts. 500, 795, and 825 (2026).

2. Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 29 C.F.R pts. 780, 788, 795 (2024).

3. U.S. Dep’t of Labor, Field Assistance Bulletin (FAB) No. 2025-1, https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf?lec6tn7bd.

4. U.S. Dep’t of Labor, Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (FLSA) (July 2008), https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf.

5. Independent Contractor Status Under the Fair Labor Standards Act, 29 C.F.R pts. 780, 788 and 795 (2021).