Employment Law Update: The DOL Seeks to Revert to Former Independent Contractor Rule: Control is King
Date: March 12, 2026
By:
Lisa M. Brauner
The proposed rule titled “Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act” would revert to a modified version of the 2021 “core factors” framework from the first Trump administration for determining independent contractor status under the FLSA, and, for the first time, extend the rule to such determinations under the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
In the 2021 rule, the DOL affirmed the “economic reality” test under the FLSA to determine whether a worker is in business for themselves (an independent contractor) or is instead economically dependent on an employer for work (an employee). In applying the long-standing “economic realities” test for determining who is an employee rather than an independent contractor, the ultimate inquiry focuses on an individual’s “economic dependence” for work. In other words, employees are “those who, as a matter of economic reality, are dependent upon the business to which they render service.”
Under the DOL’s proposed rule, the “economic realities” test would prioritize two “core” factors from the 2021 rule: (1) the nature and degree of control that the worker has over the work and (2) the worker’s opportunity for profit or loss based on their own initiative or investment, as most probative of whether an individual is an economically dependent employee. When both core factors point toward the same classification, there is a “substantial likelihood” that the classification is correct.
Three additional “other” factors—(1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the individual and the potential employer; and (3) whether the work is part of an integrated unit of production; and additional facts showing whether the worker is in business for themselves or economically dependent on the employer—serve as supplementary guideposts. These factors, however, may be less probative and are “highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.” Even so, the DOL points out that the proposed rule “does not state, and should not be interpreted to apply in a mechanical way that precludes consideration of all relevant facts and factors.” The proposed rule also updates illustrative examples of the economic reality factors to help employers assess how the DOL will apply those factors in determining independent contractor or employee classification.
The most significant substantive change to the 2021 rule is the addition of two clarifying sentences regarding economic dependence as the ultimate inquiry. The proposed rule adds: “Though both employees and independent contractors are dependent on others in some sense, economic dependence in this context means the dependence that a typical employee has on an employer for work (emphasis added), as opposed to an individual who has more of the nature and character of a business owner who has a separate business. Economic dependence does not focus on the amount of income the worker earns (emphasis added), or whether the worker has other sources of income.”
This language is intended to (1) clarify the nature and character of economic dependence as distinct from a business-owner relationship, and (2) reinforce the DOL’s longstanding guidance that economic dependence for work rather than economic dependence for income is the proper inquiry for determining employee versus independent contractor status.
Conclusion
If the proposed rule becomes final, employers must remain mindful of complying with: (1) state labor laws that may have more restrictive tests for determining independent contractor status than the DOL’s final rule under the FLSA, (2) different state agencies that have their own standards for determining such worker classifications for workers’ compensation purposes, unemployment insurance, and the like; and (3) federal agencies like the National Labor Relations Board and the Internal Revenue Service that may also have standards for determining independent contractors that differ from the DOL’s interpretation under the FLSA, FMLA, and MSPA. Comments to the DOL’s proposed rule must be received by 11:59 ET on April 28, 2026.
Whiteford will continue to monitor these developments and provide an update once the DOL’s Final Rule is issued. If you have any questions, please contact your Whiteford labor and employment attorney.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.