New DOL Guidance Hits Pause And Rewind On Independent Contractor Crackdown

The DOL recently signaled the return to a (slightly) more flexible test for independent contractor status. This area of law is far from settled- stay tuned as we anticipate further developments.

The DOL's latest rule related to classifying workers as employees or independent contractors under the Fair Labor Standards Act took effect on March 11, 2024 ("2024 Rule"). The 2024 Rule focused on the "economic realities" of the worker's relationship with their employer. The 2024 Rule adopted a non-exhaustive, six-factor test with each of the factors receiving equal weight to evaluate the economic dependence of a worker on their employer. The factors are:

1. The worker's opportunity for profit or loss.
2. The worker's investment in equipment or materials required for the task.
3. The degree of permanence of the working relationship.
4. The nature and degree to which the employer controls how the work is done.
5. The extent to which the service rendered is an integral part of the employer's business.
6. The amount of skill and initiative required.

On May 1, 2025, the DOL Wage and Hour Division ("WHD") issued a field assistance bulletin, explaining that it is reconsidering the 2024 Rule, including whether to rescind the regulation. Thus, the WHD will no longer apply the 2024 Rule's analysis in FLSA investigations moving forward. Rather, WHD will enforce the FLSA in accordance with Fact Sheet #13 from July 2008, further informed by Opinion Letter FLSA 2025-2.

The July 2008 test looks at the "total activity or situation which controls." The factors examined include:

1. The extent to which the services rendered are an integral part of the principal's business.
2. The permanency of the relationship.
3. The amount of the alleged contractor's investment in facilities and equipment.
4. The nature and degree of control by the principal.
5. The alleged contractor's opportunities for profit and loss.
6. The amount of initiative, judgment or foresight required in open market competition with others for the success of the claimed independent contractor.
7. The degree of independent business organization and operation.

At first glance, while many of the factors appear substantially similar to the 2024 Rule, we anticipate the DOL is signaling its intention to revert to a more flexible, employer-friendly test.

Notably, however, until further action is taken, the 2024 Rule remains in effect for purposes of private litigation. Additionally, employers should remain mindful of the federal and state law variances in how classification is construed. For example, California makes notable distinctions governing worker classification. Additionally, this DOL bulletin does not impact current worker classification analysis conducted by other federal agencies, such as pursuant to the Internal Revenue Code, the National Labor Relations Act or other federal laws.

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