DOL Proposes to Rescind Biden-Era Independent Contractor Rule, Reinstate Modified 2021 Standard

The U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) on February 27, 2026, published a long-awaited proposed rule that would rescind and replace the Biden Administration's 2024 independent contractor classification regulation under the Fair Labor Standards Act (FLSA). 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 return DOL to a structured framework that prioritizes two core factors over an unweighted, six-factor totality-of-the-circumstances test. Notably, the rule would also extend this Fair Labor Standards Act (FLSA) classification framework to the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA), establishing a uniform standard for all three statutes. The public comment period runs through April 28, 2026.

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." WHD Administrator Andrew Rogers confirmed that the proposed rule's economic reality test is "generally similar" to the 2021 rule from President Donald Trump's first term.

Background

The proposed rule is the latest development in a regulatory saga spanning nearly a decade, during which successive administrations have adopted different approaches to independent contractor classification under the FLSA. The proposed rule's preamble describes the history in detail, and understanding it provides context helpful for evaluating the current proposal.

Early Guidance

As early as a 1949 WHD opinion letter, DOL has advised the public of its evolving views concerning worker classification. From then through 2008, WHD issued regulations of limited scope and guidance documents describing various factors relevant to the inquiry.

The Obama-Era Guidance (2015)

On July 15, 2015, WHD issued guidance described as Administrator's Interpretation No. 2015-1, "The Application of the Fair Labor Standards Act's 'Suffer or Permit' Standard in the Identification of Employees Who Are Misclassified as Independent Contractors[.]" This document adopted an expansive view of employment under the FLSA and warned that in WHD's view, employee misclassification was increasingly common. The guidance applied a six-factor economic realities test and emphasized that no single factor, including control, should be given disproportionate weight, reflecting the guidance's position that the FLSA should be interpreted broadly to maximize employee coverage. WHD withdrew this guidance on June 7, 2017.

The 2019 WHD Opinion Letter

In April 2019, WHD issued Opinion Letter FLSA2019-6, addressing the classification of service providers working through a virtual marketplace. Applying the six economic reality factors derived from U.S. Supreme Court precedent, the WHD concluded that the workers were independent contractors because the facts demonstrated economic independence rather than economic dependence. The opinion emphasized the workers' autonomy to choose when, where and for whom to work, as well as their ability to work simultaneously for competitors and capacity to influence earnings through managerial skill and initiative.

Although withdrawn by the Biden Administration in February 2021, the opinion letter was reinstated and redesignated as Opinion Letter FLSA2025-2 on May 2, 2025, signaling an early shift by the current administration toward a more business-friendly approach to independent contractor classification.

The 2021 Rule

On January 7, 2021, DOL published a final rule that, for the first time, organized the long-standing economic reality factors into formal regulatory guidance. The 2021 rule identified two "core" factors: 1) the nature and degree of the individual's control over the work and 2) the individual's opportunity for profit or loss. These factors were "the most probative as to whether or not an individual is an economically dependent 'employee,'" so they carry "greater weight in the analysis than any other factor." Three additional factors served as secondary guideposts: skill, permanence of the working relationship and whether the work is part of an integrated unit of production. The rule also included illustrative examples and a provision affirming the primacy of actual working practices over contractual or theoretical possibilities.

The Biden Administration delayed, then withdrew the 2021 rule before it took effect. However, in March 2022 a federal district court vacated both the delay and withdrawal rules. Following that decision, the Trump-era 2021 rule was deemed to have been in effect since its original effective date of March 8, 2021.

The 2024 Rule

On January 10, 2024, the Biden Administration's WHD published a final rule again rescinding the 2021 rule and replacing it with a modified analysis. The 2024 rule identified six factors as "tools or guides to conduct a totality-of-the-circumstances analysis": 1) opportunity for profit or loss depending on managerial skill, 2) investments by the worker and the potential employer, 3) degree of permanence of the work relationship, 4) nature and degree of control, 5) extent to which the work performed is an integral part of the potential employer's business, and 6) skill and initiative. Critically, the 2024 rule affirmatively declined to prioritize any factors over any others, advising instead that "no one factor or subset of factors is necessarily dispositive."

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

Signaling its intent to rescind the 2024 rule, WHD moved quickly to change the enforcement landscape. On May 1, 2025, WHD published Field Assistance Bulletin No. 2025-1, announcing that it would no longer apply the 2024 rule's analysis in FLSA investigations and instead would enforce the FLSA in accordance with the 2008 version of Fact Sheet 13 and Opinion Letter FLSA2025-2 (the reissued 2019 opinion letter) as an interim measure pending formal rulemaking.

Key Elements of the Proposed Rule

Return to a "Core Factors" Framework

The centerpiece of the proposed rule is its restoration of the 2021 rule's structured analysis, which designates two "core" or primary factors that typically carry greater weight than the others. These core factors are:

1. The Nature and Degree of Control Over the Work. This factor considers both the individual's control and the potential employer's control. It examines, among other things, whether the individual sets his or her own schedule, selects his or her own projects, and has the ability to work for others, including competitors. Importantly, the proposed rule would restore guidance from the 2021 rule clarifying that actions taken by a potential employer to comply with legal obligations, health and safety standards, or contractually agreed-upon quality control requirements do "not constitute control that makes the individual more or less likely to be an employee under the Act."
2. The Individual's Opportunity for Profit or Loss. This factor favors independent contractor status to the extent the individual has an opportunity to earn profits or incur losses based on the exercise of initiative – such as managerial skill, business acumen or judgment – or through the management of the individual's own investment in or capital expenditure on helpers, equipment or materials.

WHD explained that when both core factors point toward the same outcome, there is a strong likelihood the classification is correct and that departures from that result would be rare and exceptional.

3 Secondary Factors

The proposed rule retains three subordinate factors that, generally speaking, act as tiebreakers when the two core factors conflict. WHD characterized them as "less probative and, in some cases, … [not] probative at all." The factors are 1) the amount of skill required for the work, 2)  degree of permanence of the working relationship and 3) whether the work is part of an integrated unit of production. WHD noted that additional factors beyond these three may also be considered if they bear directly on the ultimate question of economic dependence, though WHD "expects that additional factors will not be considered in many cases because the identified factors will be more than sufficient to make the determination."

Actual Practice over Contract Language

The proposed rule affirms that actual practice, not contractual labels or theoretical rights, governs the economic-reality analysis. WHD emphasizes that unexercised contractual authority and hypothetical freedoms carry little weight where they are not reflected in day-to-day operations, citing traditional legal principles that employment status turns on economic reality rather than technical form. According to WHD, this aspect of the proposal would restore clarity by demarcating real‑world practice from theoretical legalities.

Neutral Treatment of Compliance Requirements

The proposed rule would treat neutrally compliance measures such as legal adherence, safety, contractual deadlines and quality control standards. According to WHD, this change would address concerns that the 2024 rule could discourage requiring workers to follow safety or regulatory controls lest they be viewed as employees.

What the Proposed Rule Changes

The proposed rule would make several key shifts from the 2024 rule:

• replace the 2024 rule's unweighted, six-factor totality-of-the-circumstances test with a structured analysis that prioritizes two core factors and describes three subordinate tiebreaker factors
• streamline the analysis by eliminating redundancies and endogeneity in the 2024 rule, where the same concepts, such as "business initiative," were embedded across multiple factors
• restore the 2021 rule's treatment of compliance-related control as neutral, abandoning the 2024 rule's more complex distinctions between actions taken for "the sole purpose of complying" with a specific law versus actions that "go beyond" compliance
• refocus the investment inquiry on the worker's investment alone, rather than comparing it to the potential employer's investment
• reintroduce illustrative examples into the regulatory text, instead of appearing only in the preamble

What the Proposed Rule Leaves Unchanged

The proposed rule does not alter the fundamental legal framework governing worker classification. Like the 2024 rule, it applies the economic reality test and confirms that the ultimate inquiry remains whether a worker is economically dependent on an employer for work (employee) or is in business for himself or herself (independent contractor). Both rules also evaluate substantially the same underlying factual considerations and require an assessment of the circumstances of the whole activity.

Uniform Application Across the FLSA, FMLA and MSPA

The proposed rule would create a uniform standard for the FLSA, FMLA and MSPA, each of which relies on the FLSA's definition of who counts as an "employer."

Practical Implications for Employers

If finalized, the proposed rule would materially affect how employers assess and manage independent contractor relationships.

Greater Clarity and Predictability

WHD asserts that the proposed rule will improve outcomes for both workers and businesses by restoring a more predictable classification framework. WHD says that its two core factors, each of which is objectively ascertainable, make for an easy-to-apply rule. In contrast, the 2024 rule's unweighted balancing test generates uncertainty when factors point in different directions without guidance for resolving the conflict.

Potential Expansion of Independent Contracting Relationships

WHD estimates that the proposed rule could increase the number of independent contractors by approximately 1 percent to 3 percent, or 250,000 to 750,000 additional relationships nationwide. The agency also estimates annual cost savings of approximately $682.7 million, mostly from employers' time saved performing classification analyses. WHD also noted that the clarity of its test could encourage workforce entry.

Safety and Compliance Requirements

The proposed rule would treat employers' delivery deadlines, customer-service standards, safety requirements, regulatory compliance measures and similar measures as neutral rather than as favoring employee status. If the rule is finalized, employers may be able to implement such requirements with more robustness and less fear of regulatory enforcement.

Cross-Statute Uniformity

Finally, the DOL maintains that applying a single classification standard across the FLSA, FMLA and MSPA would simplify compliance for employers operating under multiple federal statutes and reduce confusion arising from the application of differing tests to the same working relationship.

Interpretive but Powerful Guidance

Although the proposed rule is undergoing a notice-and-comment process, it is not entirely clear whether it is a substantive rule or an interpretive rule. That said, The U.S. Congress has granted the WHD Administrator special powers. Private parties can use as a defense in FLSA litigation any WHD Administrator "rulings, interpretations, practice, or enforcement policies" until and unless they are changed by WHD or a court. 29 U.S.C. § 259.

The Rule Is Proposed, Not Final

The proposed rule is subject to a 60-day public comment period, which closes 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, although WHD is no longer applying the 2024 rule's analysis in its own investigations.

During the 60-day comment period, employers should consider whether to submit comments on the proposed rule, particularly if specific provisions would materially affect their operations or workforce models. Employers should also use this period to audit existing independent contractor relationships to assess how current working arrangements align with the proposed rule's core factors framework. Employers with questions about how the proposed rule may affect their workforce classification practices should consult experienced employment counsel to evaluate their specific circumstances.

For questions about how the proposed independent contractor rule or related worker classification requirements may affect your workforce, please contact the authors or your Holland & Knight relationship attorney.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.