A New Landscape: Understanding the Proposed DOL Rule on Employee vs. Independent Contractor Status

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Patricia Tsipras

March 19, 2026

On February 26, 2026, the U.S. Department of Labor (DOL) unveiled a highly anticipated proposed rule titled Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act.  As its name suggests, this proposed rule aims to clarify the criteria for determining whether a worker is classified as an employee or an independent contractor under federal labor laws, including the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The Purpose of the Proposed Rule

The DOL’s proposed rule seeks to replace the 2024 rule, which had adopted a six-factor “economic reality” test, with a framework that more closely resembles the 2021 rule’s two-core-factor approach.  The goal is to provide greater clarity and predictability for businesses and workers navigating modern work arrangements.  According to the DOL, the proposed rule will help ensure that workers who are economically dependent on an employer are classified as employees, while those who are truly in business for themselves are recognized as independent contractors.

Key Features of the Proposed Rule

• Economic Reality Test: The proposed rule reintroduces the “economic reality” test, which focuses on whether a worker is economically dependent on an employer or operates independently. This test is designed to align with federal court interpretations of the law.
• Core Factors: The rule emphasizes two primary factors as the most probative in determining economic dependence:

1. 1. The nature and degree of control over the work
   2. The worker’s opportunity for profit or loss based on managerial skill

• Additional Factors: While the two core factors carry the most weight, the proposed rule also considers other factors, such as the worker’s investment in equipment or materials, the degree of permanence of the working relationship, and whether the work is integral to the employer’s business.
• Application Across Federal Laws: The proposed rule extends its analysis to the FMLA and MSPA, ensuring a unified approach to worker classification under these statutes.

Implications for Businesses and Workers

The classification of workers as employees or independent contractors has significant implications for both parties.  Employees are entitled to protections such as minimum wage, overtime pay, and benefits under federal labor laws, while independent contractors typically do not receive these protections.  Misclassification can lead to legal disputes, financial penalties, and reputational damage for businesses.

The DOL has emphasized that the proposed rule is not intended to disrupt legitimate independent contractor relationships.  However, some business groups have expressed concerns that the rule may create confusion and lead to the misclassification of independent contractors as employees.  This could increase compliance costs and administrative burdens for businesses.

Public Comment Period

The DOL has opened a public comment period for the proposed rule, which will run until April 28, 2026.  This comment period provides an opportunity for businesses, workers, and other stakeholders to share their perspectives and concerns.  The feedback received during this period will play a crucial role in shaping the final rule.

What Should Businesses Do Now?

Given the potential impact of the proposed rule, businesses should take proactive steps to prepare for possible changes in worker classification standards.  Key actions include:

• Review Current Worker Classifications: Assess whether your current classifications align with the proposed rule’s criteria.
• Consult Legal Counsel: Seek guidance from experienced labor and employment attorneys to understand the implications of the proposed rule for your business.
• Participate in the Public Comment Process: Share your insights and concerns with the DOL during the public comment period.

This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice.  Always consult an attorney with specific legal issues.