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On February 27, 2026, the U.S. Department of Labor (“DOL”) published a Notice of Proposed Rulemaking (“NPRM”) that would rescind the 2024 Independent Contractor Rule and largely reinstate the 2021 framework for determining whether a worker is an employee or an independent contractor under federal law.<a href="#_ftn1" id="_ftnref1">[1]</a> The proposed rule change stands to impact businesses in all industry sectors as the proliferation of the “gig economy” and flexible freelance work models have grown in popularity and practice across the nation. This shift in the labor marketplace has generated increased scrutiny—and litigation—over the question of when an enterprise may classify a worker as an independent contractor.&nbsp;&nbsp;

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If finalized, the new rule would reestablish the former five-factor “economic reality” test with two key changes. First, the proposed rule would place greater emphasis on two core factors, namely, (1) the nature and degree of the worker’s control over their work, and (2) the worker’s opportunity for profit or loss. The proposed rule also seeks to have the clarified test serve as a single, uniform standard for purposes of the Fair Labor Standards Act (“FLSA”), the Family and Medical Leave Act (“FMLA”), and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA).

The proposed rule is not yet final, and public comments are due on April 28, 2026.

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Worker classification under federal wage and hour law has been the subject of frequent regulatory changes. In 2024, the DOL adopted a six factor “totality of the circumstances” test without assigning relative weight to any factor.<a href="#_ftn2" id="_ftnref2">[2]</a> The Department now concludes that the 2024 approach created uncertainty, discouraged legitimate independent contractor relationships, and produced unpredictable outcomes.

The current proposal would reverse course and return to a more structured analysis based on longstanding Supreme Court precedent.<a href="#_ftn3" id="_ftnref3">[3]</a>

The proposed rule articulates a clarified “economic dependence” that examines whether, as a matter of economic reality, a worker is either: economically dependent on the business for work (an “employee”) or in business for themself (an “independent contractor”). The Department emphasizes that economic dependence is not measured by the amount of income earned, and that a worker may have multiple sources of income and still be an employee if they are economically dependent on a particular business for work.

The DOL identifies the following five factors that inform this “economic dependence” analysis, with the first two factors emphasized as “core factors” to determine whether a worker is an employee or independent contractor:

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The proposal reaffirms that actual practice outweighs contractual language. Theoretical rights (e.g., the right to work for others or negotiate rates) carry little weight if, in reality, the worker cannot exercise them. Conversely, unused contractual rights to control may be less relevant if never exercised.

Additionally, unlike the 2024 rule, the proposed rule would extend this same classification framework to the FMLA and the MSPA. This change is intended to eliminate inconsistent standards across statutes that share the same definition of “employ.”

If finalized, the proposed rule should have welcomed implications for employers, including: (1) increased predictability in federal classification decisions; (2) reduced pressure to classify bona fide contractors as employees solely to mitigate legal risk; (3) lower litigation exposure where workers exercise meaningful control and have real profit-and-loss opportunities; and (4) renewed attention to day-to-day practices, not just contract drafting.

Employers should note that this proposed rule is not yet effective. The Department is currently accepting comments from stakeholders who wish to weigh in on the proposed rule. If your organization is interested in submitting a comment on the proposed rule, be sure to submit your comments before the April 28 deadline.

Additionally, employers should be aware that even if the proposed rule is adopted and finalized, many states, including California<a href="#_ftn4" id="_ftnref4">[4]</a>, Illinois<a href="#_ftn5" id="_ftnref5">[5]</a>, Massachusetts<a href="#_ftn6" id="_ftnref6">[6]</a>, and New Jersey<a href="#_ftn7" id="_ftnref7">[7]</a>, have more stringent standards for independent contractor status (with numerous significant industry carve-outs and exceptions). We encourage you to double-check the governing standard in your local jurisdiction to ensure compliance with both federal and state worker classification regulations.

Our team will continue to monitor developments as the DOL moves forward with this proposal. If you have any questions regarding how the proposed rule may affect your organization and its relationship with contractors, please contact David Szwarcsztejn or any member of the Michael Best Labor and Employment team to discuss these developments.

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<a href="#_ftnref1" id="_ftn1">[1]</a> Employee of Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, 91 Fed. Reg. 9932 (Feb. 27, 2026) (notice of proposed rule; request for comments).

<a href="#_ftnref2" id="_ftn2">[2]</a> Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638 (Jan. 10, 2024) (effective Mar. 11, 2024).

<a href="#_ftnref3" id="_ftn3">[3]</a> NLRB v. Hearst Publish., Inc., 322 U.S. 111, 123–25 (1944) (“employment” under broad remedial statutes is determined by “underlying economic facts rather than … technical … legal classifications”); United States v. Silk, 331 U.S. 704, 712–16 (1947) (establishing the “economic reality” inquiry and identifying five non‑exhaustive factors, while emphasizing that “no one [factor] is controlling nor is the list complete”); Rutherford Food Corp. v. McComb, 331 U.S. 722, 729–30 (1947) (holding that worker status under the FLSA turns on “the circumstances of the whole activity,” including whether workers are “part of an integrated unit of production,” rather than on contractual labels); Bartels v. Birmingham, 332 U.S. 126, 130–32 (1947) (rejecting reliance on common‑law control and holding that employees under social‑legislation statutes are those “who as a matter of economic reality are dependent upon the business to which they render service”); Goldberg v. Whitaker House Coop., Inc., 366 U.S. 28, 32–33 (1961) (reaffirming that “‘economic reality’ rather than ‘technical concepts’” governs FLSA classification and finding homeworkers to be employees where they were “regimented under one organization”); Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 324–26 (1992) (contrasting the FLSA’s broad “suffer or permit” standard with the narrow common‑law test and recognizing that FLSA’s coverage is more expansive than traditional agency principles).

<a href="#_ftnref4" id="_ftn4">[4]</a> Cal. Lab. Code § 2775.

<a href="#_ftnref5" id="_ftn5">[5]</a> 820 ILCS 185; 56 Ill. Adm. Code § 240.320.

<a href="#_ftnref6" id="_ftn6">[6]</a> M.G.L. ch. 149, § 148B.

<a href="#_ftnref7" id="_ftn7">[7]</a> N.J.S.A. 43:21-19(i)(6)(A)–(C).

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Department of Labor Proposes New Independent Contractor Rule

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