On February 26, 2026, the U.S. Department of Labor (DOL) proposed a new rule that would rescind the Biden-era 2024 independent contractor regulation and replace it with a framework more closely aligned with the DOL’s 2021 approach. According to the DOL, the proposed rule is intended to streamline the independent contractor classification analysis and better align with Supreme Court and federal appellate precedent.

The proposed rule emphasizes the “economic reality” test, which looks at whether a worker is truly operating as an independent business or is economically dependent on the company. In particular, the DOL places greater emphasis on two core factors: (1) the degree of control over the work, and (2) the worker’s opportunity for profit or loss. The rule would apply under the Fair Labor Standards Act (FLSA) and, by extension, under statutes that incorporate the FLSA definition of “employ,” including the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

2024 Rule vs. Proposed Rule

The key shift between the two rules is from a flexible, all-factors analysis to a more streamlined approach that prioritizes certain factors over others.

Under the DOL’s 2024 rule, worker status is determined using a broad, totality-of-the-circumstances approach. The analysis considers several factors, including the worker’s opportunity for profit or loss, the relative investments of the worker and the employer, the permanence of the relationship, the employer’s level of control, whether the work is integral to the business, and the worker’s skill and initiative. No single factor is given greater weight, and all aspects of the working relationship must be considered together.

Under the proposed rule, the analysis is streamlined and places greater emphasis on fewer considerations. The primary focus is on the degree of control over the work and the worker’s opportunity for profit or loss. Additional factors include the level of skill required, the permanence of the relationship, and whether the work is part of an integrated unit of production. Unlike the 2024 rule, the proposed rule signals that control and profit opportunity will carry greater weight in determining worker status.

The DOL has explained that this revised framework is intended to provide greater clarity by emphasizing core economic reality factors. In doing so, the agency has criticized the 2024 rule as too open-ended because it does not prioritize particular factors and instead requires a holistic evaluation of all circumstances. At the same time, critics argue that the proposed rule may reduce flexibility and return to a more rigid analysis.

Another notable distinction is the proposed rule’s emphasis on actual practice rather than theoretical or contractual possibilities. The DOL explains that the analysis should focus on how the working relationship operates in reality, not just what a contract allows. The 2024 rule, by contrast, requires consideration of both actual practices and contractual rights as part of the broader analysis.

Practical Impact

Although the proposed rule would establish the DOL’s framework for determining independent contractor status under the FLSA, its overall legal impact may be limited. Federal courts apply their own versions of the economic reality test based on longstanding case law, and those tests will continue to govern private litigation.

In addition, the proposed rule does not affect how states define independent contractors under state law. Many states apply stricter standards, such as the ABC test, which often results in more workers being classified as employees. The rule also does not change classification standards under federal laws that do not rely on the FLSA definition of “employ.”

Risk Considerations for Employers

Worker classification remains a high-risk area under both federal and state law. Misclassification can expose employers to liability for unpaid minimum wages, overtime, penalties, and other damages. These risks are particularly significant because the FLSA’s wage and hour requirements apply only to employees, not independent contractors.

Importantly, while the 2024 rule remains in effect for now, enforcement priorities and regulatory guidance may shift depending on the status of the proposed rule. State-level enforcement also continues to expand, especially in jurisdictions with stricter classification standards.

Takeaways for Employers

Given the evolving legal landscape, employers should closely monitor developments in DOL rulemaking, as well as changes in the courts and at the state level. This period of uncertainty also presents an opportunity to proactively evaluate independent contractor relationships.

Employers may wish to conduct a wage and hour audit to assess classification practices, identify potential risks, and ensure compliance with both federal and state requirements.

If you have any questions about independent contractor classifications, please contact Wesley Davis or any member of Ice Miller's Workplace Solutions Practice Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.