Back To The Future: DOL And NLRB Hit Rewind On Worker Classification And Joint Employer Standards

On February 26, 2026, the U.S. Department of Labor (DOL) and National Labor Relations Board (NLRB) took major steps to roll back Biden-era employment and labor regulations and largely reinstate rules promulgated in the first Trump administration. The DOL published a proposed rule to rescind its 2024 independent contractor classification rule under the Fair Labor Standards Act (FLSA) and replace it with the "economic reality" test substantially similar to the rule adopted during President Trump's first term in 2021. And the NLRB issued a final rule formally withdrawing its court-vacated 2023 joint employer standard and reinstating the employer-friendly 2020 rule. Together, these actions signal a shift toward more business-friendly federal standards governing both worker classification and joint employer liability.

DOL Proposes Rule to Rescind Independent Contractor Standard and Return to "Economic Reality" Test

The DOL's proposed rule, if finalized, would formally rescind the Biden administration's 2024 independent contractor classification rule under the FLSA. The proposed rule readopts the analysis from the DOL's 2021 rule issued in the final days of the first Trump administration and marks a return to the "economic reality test" for determining whether a worker is an independent contractor or an employee under the FLSA. The DOL has also indicated that the proposed rule would apply the economic reality analysis in implementing the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.

In the comments to the proposed rule, the DOL stated that the "principal flaw" of the 2024 rule is "its failure to provide effective guidance on how different factors in its multi-factor balancing test should be weighed or applied together," and expressed concern that the 2024 rule's description of the economic reality factors "could be viewed as setting a higher bar to find independent contractor status than the law requires."

The proposed rule is subject to a 60-day public comment period ending on April 28, 2026.

Economic Dependence Test Under Proposed Regulations

The proposed rule would readopt the 2021 rule's "core factor" framework, under which the two "core" or primary economic reality factors are:

1. The nature and degree of the worker's control over the work performed for the potential employer; and
2. The worker's opportunity for profit or loss based on his or her initiative or investment in the work.

Under the first factor, if a worker exercises "substantial control over key aspects of the performance of the work," such as setting his or her own schedule, selecting projects, and the ability to work for others, including the potential employer's competitors, then the first core factor will weigh in favor of finding that the worker is an independent contractor. Notably, the proposed rule provides that requiring the individual to "comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses (as opposed to employment relationships) does not constitute control" that makes the individual more or less likely to be an employee.

The second core factor weighs toward independent contractor status to the extent the individual has an opportunity to earn profits or incur losses based on his or her "exercise of initiative (such as managerial skill or business acumen or judgment) or management of his or her investment in or capital expenditure on, for example, helpers or equipment or material."

The three secondary factors identified by the DOL as additional guides for employers are:

1. The amount of skill required for the work performed by the worker;

1. The degree of permanence of the working relationship between the worker and the potential employer; and
2. Whether the work being performed is part of an integrated unit of production for the potential employer.

If both core factors point toward the same classification (either employee or independent contractor), the proposed rule states there is a "substantial likelihood" that it is the individual's accurate classification. The three secondary factors "serve as additional guideposts but are less probative in the analysis (and, in some cases, may not be probative at all)." Namely, if the core factors point toward the same classification, the three secondary factors "are very unlikely either individually or collectively[] to outweigh the combined probative value" of the two core factors.

What This Means for Employers

This proposed rule would generally make it easier for businesses to classify workers as independent contractors, which would have significant implications for the gig economy and other industries that rely on temporary, seasonal or project-based workers. However, employers should keep the following important considerations in mind:

The Proposed Rule Is Not Yet Final

The proposed rule must undergo a 60-day public comment period ending April 28, 2026, and the DOL must then review those comments and issue a final rule before any changes take effect.

The FLSA Is Not the Only Standard That Applies

The proposed rule would only revise the DOL's interpretation under the FLSA and would not affect other federal, state or local laws that use different standards for worker classification. Several states impose stricter tests for worker classification, including California's "ABC" test and similar tests in states such as Illinois, Massachusetts and New Jersey.

Courts Are Not Bound by DOL Rules

While the DOL's classification standard is persuasive, courts have historically applied their own interpretations of the economic reality test and are not required to follow the DOL's rule. This is even more the case now, following the U.S. Supreme Court's 2024 decision in Loper Bright Enterprises, Inc. v. Raimondo and Relentless, Inc. v. Department of Commerce, which jettisoned the Chevron doctrine and declared that, instead of deferring to agency interpretations of ambiguous statutes, courts now must exercise their "independent judgment" to determine whether an agency acted within its statutory authority.

We strongly encourage employers to carefully review existing independent contractor and employee classifications, as well as decisions regarding classification of newly engaged workers, with the assistance of counsel.

NLRB Issues Final Rule on Joint Employer Status and Formally Reinstates the 2020 Standard

The NLRB's final rule formally withdraws the Biden-era 2023 joint employer rule and reinstates the narrower 2020 standard for determining joint employer status under the National Labor Relations Act (NLRA). The final rule is effective immediately.

History of the National Labor Relations Board's Joint Employer Rule

During the first Trump administration, the Board promulgated a final rule in February 2020 that required companies to "possess and exercise substantial direct and immediate control" over essential terms and conditions of employment before a joint employer relationship could be established. The mere existence of reserved joint control or indirect control without such control being exercised was insufficient to establish a joint employer relationship.

In 2023, the Board published a new final rule, which rescinded the 2020 rule and adopted a significantly broader standard. On March 8, 2024, however, a federal court vacated the 2023 rule before it ever went into effect, holding that it did not provide a meaningful two-part test to determine joint employer status, and that the NLRB's reason for rescinding the 2020 rule was arbitrary and capricious. Accordingly, the court vacated the 2023 rule and reinstated the 2020 rule.

The Reinstated 2020 Joint Employer Rule

The February 2026 final rule formally replaces the text of the vacated 2023 rule with the language of the 2020 rule, restoring the "substantial direct and immediate control" standard. Under the reinstated standard, an employer may be considered a joint employer of another employer's employees only if the two employers "share or codetermine the employees' essential terms and conditions of employment." Critically, establishing joint employer status requires demonstrating that an entity possesses and exercises "substantial direct and immediate control" over one or more essential terms or conditions of employment such that it "meaningfully affects matters relating to the employment relationship." The rule further clarifies that "substantial direct and immediate control" must have a "regular or continuous consequential effect" on employment terms, and that control exercised only on a "sporadic, isolated, or de minimis basis" is not sufficient.

The reinstated 2020 rule defines the "essential terms and conditions of employment" as a narrower, eight-factor list traditionally considered core terms of the employment relationship: (1) wages; (2) benefits; (3) hours of work; (4) hiring; (5) discharge; (6) discipline; (7) supervision; and (8) direction. This is notably more limited than the 2023 rule's seven broader categories, which included more expansive terms such as "work rules and directions governing the manner, means, and methods of the performance of duties" and "working conditions related to the safety and health of employees."

What This Means for Employers

Employers and other entities with contractor-subcontractor, franchise-franchisee, user-supplier and parent-subsidiary relationships should review their agreements to determine how the NLRB's rule may affect potential joint employer liability. In general, the final rule will make it more difficult for a party to show that an entity is a joint employer, as it increases the amount of control an entity must have over the other employer's employee(s) in order to be liable as a joint employer under the NLRA.

Importantly, however, the final rule only affects joint employer status under the NLRA. Other federal agencies, including the DOL and EEOC, apply different standards for determining joint employer status under different statutory frameworks, and therefore could reach a different conclusion as to an entity's joint employer status. Similarly, joint employer tests under state laws likely diverge from the NLRB's new rule in material respects. Accordingly, businesses must be aware of the various state and federal joint employer tests to evaluate their potential joint employer exposure.

For More Information

If you have any questions about this Alert, please contact Christopher D. Durham, Elisabeth Bassani, any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.