The U.S. Department of Labor’s (DOL) Wage and Hour division announced on February 27, 2026, a proposed rule to determine whether a worker should be classified as an employee or independent contractor under the Fair Labor Standards Act and related federal laws.
The proposed rule brings back a rule introduced in 2021 during President Donald Trump’s prior term. The Biden administration rescinded the 2021 rule in favor of its own rule, which became final in 2024. The DOL stopped enforcing the Biden rule, however, when Trump took office, and has now proposed reincarnating its 2021 rule.
The 2024 rule applied a six-factor totality-of-the-circumstances test to determine whether a worker should be classified as an employee or independent contractor. The six factors, given equal weight, were (1) the opportunity for profit or loss, (2) investments by the workers 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.
The proposed rule, substantively identical to the 2021 rule, replaces the equally weighted six-factor test with a focus on two “core factors” to assess the “economic reality” of the working relationship. These two factors are the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and investment. Other factors, such as the amount of skill required for the work, the permanence of the working relationship, and whether the work is part of an integrated unit of production, are also considered, but given less weight than the core factors of the economic reality test.
The proposed rule will also consider the reality of the working relationship over theoretical possibilities, regardless of what any written agreement might say about the relationship. So, companies should not rely on written agreements alone as proof of proper classification, and should seek to ensure that the reality of their relationship with workers matches what the written agreement purports to describe.
We anticipate that the DOL’s proposed rule may make it easier for companies to establish that workers are independent contractors rather than employees. This change may benefit employers who rely on large numbers of independent contractors as part of their workforce, such as rideshare companies and delivery services. Keep in mind, however, that many states — including Minnesota, Iowa and North Dakota — have their own independent contractor regulations and their own enforcement priorities. Such state regulations may be more restrictive than the proposed federal rule.
The proposed rule is not yet final. The department has opened a 60-day comment period, which closes on April 28, 2026.
Please reach out to your Fredrikson Employment, Labor & Benefits attorney if you have questions about the proposed rule change and how it may affect your business.
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