Department of Labor Proposes to Rescind 2024 Independent Contractor Rule and Restore ‘Core’ Factor Framework

The Proposed Rule would rescind the current six-factor independent contractor classification rule under the FLSA by giving primary weight to just two “core” factors, the nature and degree of control over the work and the worker’s opportunity for profit or loss. The classification would, for the first time, extend to the FMLA and the MSPA. Comments are due on the proposed rule by April 28, 2026.

If it were to become effective, the Proposed Rule would have significant ramifications.  Among other things, the classification of workers as employees or independent contractors determines whether they are entitled to FLSA minimum wage and overtime protections. See 29 U.S.C. Sec. 206(a).  Because the FLSA does not define “independent contractor,” courts apply an “economic reality” test to determine the correct classification. See United States v. Silk, 331 U.S. 704 (1947). In early 2021, the outgoing Trump Administration promulgated a final classification rule based on two factors, control over the work and the opportunity for profit or loss, which were to be given greater weight in classifying workers than other factors. Independent Contractor Status Under the Fair Labor Standards Act, 86 Fed. Reg. 1168 (Jan. 7, 2021) (the 2021 Rule).

In 2024, the Biden Administration rescinded the 2021 Rule and adopted a six-factor test expressly intended to “help protect employees from misclassification.” See Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638, 1640 (Jan. 10, 2024) (the 2024 Rule). There are currently five pending lawsuits challenging the 2024 Rule, which the DOL has not been applying since May 2025. WHD Field Assistance Bulletin No. 2025-1 (May 1, 2025).

The Proposed Rule would rescind the 2024 Rule and reinstate the 2021 Rule’s two-factor framework, in part to avoid “minimiz[ing] potential negative effects on independent contractors and their business partners while still effectively addressing misclassification and abuse.” Proposed Rule at 9,943. Under this framework, “control” and “opportunity for profit or loss” are the primary determinants of classification, with three other factors (skill, permanence and whether the work is part of an integrated unit of production) given less weight. Quoting the 2021 Rule, the Proposed Rule suggests that these two factors “drive at the heart of what is meant by being in business for oneself: Such a person typically controls the work performed in his or her business and enjoys a meaningful opportunity for profit or risk of loss through personal initiative or investment.” Id. at 9,947 (citing 86 FR 1196).

The DOL expressly denies that “giving greater probative value to both the control and opportunity for profit or loss factors (especially given the considerations that comprise that factor) is . . . akin to adopting the common law control test” rejected by courts. Id. at 9,949. At the same time, the DOL seeks comment on further “streamlining” the test to give the control factor primary consideration, meaning that if the potential employer controls the worker, there would be no need to consider any other factors and the worker would be an employee. Id. “If the control factor indicates independent contractor status, or if the control factor is neutral and does not indicate independent contractor status or employee status, then the analysis would proceed to opportunity for profit or loss.” Id.

The Proposed Rule also narrows the 2024 Rule’s “investment” factor to examine only the worker’s investments rather than comparing them to the employer’s, reasoning that worker investment is “invariably” less than any potential employer’s, which tends to indicate employee status. Id. at 9,941. In narrowing the “investment” factor, the DOL further explains that “the primary difference between the proposed opportunity for profit or loss factor (from the 2021 Rule) and the opportunity for profit or loss factor from the 2024 Rule is that the proposal considers the individual’s investment as a consideration within the opportunity factor, while the 2024 Rule describes investments as a separate factor in the analysis.” Id. at 9,952.

Key takeaways about the Proposed Rule are:

• Return of the “Core” Factor Framework: If both “core” factors (control and opportunity for profit or loss) indicate the same classification, there is a “substantial likelihood” that the classification is correct. at 9,937. The remaining factors of skill, permanence, and whether the work is part of an integrated unit of production are “very unlikely” to outweigh them. Id. at 9,947.
• Narrowing and Subsuming Investments: The DOL proposes to narrow the analysis of “investments” to only the worker’s investments without reference to a potential employer’s investments, and to bring the “investment” analysis under the “opportunity for profit and loss” factor.
• Expansion to FMLA and MSPA: DOL proposes to extend the “core” factor framework to the FMLA and MSPA, both of which incorporate the FLSA’s definition of “employ.” The upshot is that a single classification would affect not just minimum wage and overtime protections but also family and sick leave and agricultural worker protections.

The Proposed Rule is open for comment for 60 days following publication in the Federal Register. Businesses that engage independent contractors should review their classification practices to ensure that actual working relationships support their classifications. Klehr Harrison’s labor & employment practice group will continue to monitor and report on the Proposed Rule and other related developments.

Co-author Lee Moylan is chair of the labor & employment practice and Stephen Martin is an associate in the Litigation Department at Klehr Harrison