By Melissa R. Lock, Esquire, and Julia Caple, Esquire
On February 26, 2026, the U.S. Department of Labor’s Wage and Hour Division announced a proposed rule that aims to allow workers and potential employers to better understand the distinction between employee relationships and independent contractor relationships under the Fair Labor Standards Act (“FLSA”), and other acts including the Family and Medical Leave Act (“FMLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MPSA”).
The proposed rule would rescind the six-part “totality of the circumstances” test codified during the Biden Administration and replace it with a framework more closely aligned with earlier economic reality tests utilizing “long-standing legal principles used in federal courts across the country.” The “totality of the circumstances” test was criticized for being vague and causing uncertainty for both employers and workers.
What Changed: Under the proposed rule, the core inquiry focuses on whether a worker is economically dependent on an employer (and, thus, is an employee) or truly in business for themselves as a contractor. To aid in the analysis, the proposed rule identifies two core factors to be afforded the most weight, namely: 1) the nature and degree of control over the work, and 2) the individual’s opportunity for profit or loss based on initiative and investment. In addition to the two core factors, the proposed rule encourages the consideration of other factors historically considered in the economic realities test including, but not limited to, the skill required for the task, the permanence of the relationship between the worker and the employer, and the integration of the worker into the employer’s production process. However, the proposed rule makes clear that when the core factors are aligned it is substantially unlikely that the other factors will outweigh the favor of the core factors.
The proposed rule also departs from the Biden-era rule as it places greater emphasis on the actual practices between the employer and the worker, as opposed to the level of control that the employer could theoretically impose on the worker based on contractual language.
What Does This Mean For Employers: The proposed rule provides greater certainty over worker classification, at least with respect to the DOL’s administrative actions. The effect of the proposed regulation in litigation is limited, however, because it is not binding on courts. Whether and how the courts will apply the proposed rule remains to be seen. Generally, the proposed rule is considered to be more favorable to employers, as it will likely result in more independent contractor classifications than under the Biden-era rule.
Employers should begin to analyze their policies to ensure they are compliant with the proposed rule and that workers are correctly classified. Employers that hire independent contractors are encouraged to review those relationships under the proposed rule, and to reclassify workers as necessary, in order to avoid both federal and state fines and liability for unpaid wages, overtime pay, unpaid taxes, and/or workers’ compensation as well as potential implications under the FMLA and MSPA. Employers should scrutinize their actual working relationships, including decision-making authority, how assignments are managed, the degree of autonomy, and economic dependency. This is especially important for businesses that rely heavily on contingent labor, such as IT consultants, gig-economy partners, and freelance professionals. Employers should also coordinate with legal counsel to ensure that workforce documentation, such as contracts, invoices, performance reviews and engagement records, accurately reflect the realities of the working relationship.
The DOL is accepting public comments on the proposed rule through April 28, 2026. Employers, HR professionals and employer associations should consider commenting if they believe aspects of the rule need clarification or adjustment.
Please contact Melissa R. Lock, Esq., Chair of Lock Gordon Law Group’s Labor and Employment Law practice group, with questions about any of these changes or any aspect of employment law.