On May 1, 2025, the U.S. Department of Labor (DOL) issued a Field Assistance Bulletin confirming that it will no longer enforce a 2024 Biden-era independent contractor rule. The 2024 rule defined "independent contractor" under the Fair Labor Standards Act (FLSA) and set forth a six-factor test to classify workers as employees or independent contractors. The 2024 rule had been subject to numerous legal challenges in district courts across the country.
The DOL has announced it is currently reviewing and developing a revised standard for determining employee versus independent contractor status. In the meantime, the DOL confirmed that it will enforce the FLSA in accordance with both DOL Fact Sheet #13, published July 2008, and a 2019 Opinion Letter addressing independent contractor classifications in virtual marketplaces.
Background
Classifying workers as independent contractors or employees has long been a source of confusion and litigation for businesses. Prior to 2021, the DOL never promulgated formal regulation on the topic—instead, the DOL published Fact Sheet #13, providing seven factors intended to assist with worker classification. Fact Sheet #13 noted that these factors served only as informal guidelines, while the circumstances of the worker-employer relationship remained controlling.
During the first Trump administration, the DOL sought to formally define the test utilized to determine whether a worker was an employee or independent contractor. The DOL ultimately published a final rule in January 2021 which contained a new five-factor test. The 2021 rule focused on two "core" factors: (1) the principal's right to control; and (2) the worker's opportunity for profit or loss. If those factors pointed in the same direction, i.e., towards classification as an employee or independent contractor, the analysis ended. But if they pointed in different directions or produced no clear result, the rule provided three additional "guidepost" factors: (1) the relationship's length or permanence, including if the relationship is definite in duration or sporadic; (2) the worker's special skills that the employer does not provide; and (3) the work's integration into the principal's operations.
President Biden was inaugurated only a few days after the January 2021 rule went into effect. The Biden DOL quickly sought to rescind the rule. After unsuccessful delays to the rule's implementation and business groups' challenges to the withdrawal, the Biden DOL elected to promulgate a new rule with a new six-factor test focusing on the "economic reality" of the relationship between an employer and a worker. The test asked whether the worker depends on the employer for continued employment or operates an independent business. The Biden DOL rule provided six factors for consideration: (1) the worker's opportunity for profit or loss; (2) investments by the worker and potential employer; (3) the degree of permanence of the relationship; (4) the nature and degree of the potential employer's control over the work; (5) the extent to which the work is "integral" to the potential employer's business; and (6) the worker's skill or initiative. The new rule formally rescinded the January 2021 rule and became final in January 2024.
Impact of the 2025 Field Assistance Bulletin
The DOL's May 1, 2025, announcement does not formally rescind the 2024 Biden-era rule, but it does suggest that substantive changes to the rule will be forthcoming. DOL investigators will now utilize the Fact Sheet #13 and 2019 Opinion Letter to conduct audits and other enforcement actions. In the absence of an explicit test for worker classification, now that the 2021 rule has been rescinded and the 2024 rule will no longer be enforced, employers should carefully review Fact Sheet #13 and 2019 Opinion Letter for guidance. Employers should also be mindful of any state and local laws governing employees versus independent contractors.
What this Means for Employers
As many employers are aware, compliance with the FLSA is complicated. The proper classification of workers as employees or independent contractors is important because misclassification of workers can be costly. Employers should evaluate their existing employee classifications in light of the DOL's announcement to ensure that employees are properly classified to avoid violations of the FLSA's requirements, including minimum wage, overtime, and recordkeeping.
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