The Department of Labor Changes Its Approach On Independent Contractor Rule

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Patricia Tsipras

January 22, 2024

Update:  On May 1, 2025, the U.S. Department of Labor (DOL) Wage and Hour Division published a Field Assistance Bulletin to provide guidance to its staff regarding the analysis for determining employee or independent contractor status for purposes of enforcing the Fair Labor Standards Act (FLSA).

By way of background, in response to a number of lawsuits challenging the legality of the DOL’s 2024 rule (see 89 Fed. Reg. 1638) that outlined the framework for determining employee or independent contractor status under the FLSA, the DOL decided to no longer apply the 2024 Rule in FLSA investigations.  Instead, the DOL will enforce the FLSA in accordance with Fact Sheet #13 (July 2008), and as further informed by Opinion Letter FLSA2019-6, with respect to any matters, as of May 1, 2025, for which no payment has been made directly to individuals or to the DOL for back wages and/ or civil money penalties.

The 2024 Rule remains in effect for purposes of private litigation and nothing in the Field Assistance Bulletin changes the rights of employees or the responsibilities of employers under the FLSA.  See Fact Sheet #13 (March 2024).

On January 9, 2024, the U.S. Department of Labor (DOL) published a final rule, effective March 11, 2024, revising its guidance on how to analyze whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).

Why the employee versus independent contractor distinction is important
Under the FLSA, employees are entitled to minimum wage, overtime pay, and other benefits.  Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple entities.

The DOL’s Final Rule rescinds the Independent Contractor Status Under the Fair Labor Standards Act rule that was published in January 2021 and replaces it with an analysis that is more consistent with the manner in which courts have interpreted the FLSA.  Specifically, the 2021 rule’s two core factors – control over the work and opportunity for profit or loss – carried greater weight in determining the status of independent contractors.  Under the DOL’s Final Rule, employers will use a totality-of-the-circumstances economic realities test (i.e., a worker is not an independent contractor if they are economically dependent on an employer for work) where no one factor carries greater weight.

How to analyze whether a worker is an employee or independent contractor under the Final Rule
The Final Rule applies the following six factors to analyze employee or independent contractor status under the FLSA:

1. The worker’s opportunity for profit or loss:  If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee.  If the worker has such opportunities, then they likely are independent contractors.
2. The worker’s investment in equipment or materials required for the task:  This factor considers whether any of the worker’s investments are capital or entrepreneurial in nature.  If they are, the worker is more likely an independent contractor.  If they are not, the worker is more likely an employee.
3. The degree of permanence of the work relationship:  This factor looks at the duration and exclusivity of the work.  If the work relationship is indefinite in duration, continuous, or exclusive of work for other employers, this factor weighs in favor of employee status.  If the work relationship is definite in duration, non-exclusive, project-based, or sporadic because the worker is in business for themselves and markets their services to multiple entities, then this factor weighs in favor of independent contractor status.
4. The degree to which the employer controls how the work is done:  This factor considers the employer’s control over the performance of the work and the economic aspects of the working relationship.  More employer control favors employee status; more worker control favors independent contractor status.
5. The extent to which the service rendered is an integral part of the employer’s business:  This factor considers whether the work performed (not the individual worker) is an integral part of the employer’s business.  It looks at whether the worker’s work is critical, necessary, or central to the employer’s principal business.  If it is, the worker is more likely an employee; if it is not, the worker is more likely an independent contractor.
6. The amount of skill and initiative required for the work:  This factor considers whether the worker uses specialized skills to perform the work and whether those skills contribute to a “business-like initiative.”  A worker who does not use specialized skills in performing the work or who is dependent on training from the employer to perform the work is more likely an employee.  A worker’s use of specialized skills in connection with business-like initiative indicates that the worker is an independent contractor.

The Final Rule does not affect the classification analysis under other laws.
The Final Rule revises only the DOL’s interpretation under the FLSA.  For example, it has no effect on interpretations of the Internal Revenue Service or the National Labor Relations Act, which have different statutory language and judicial precedent governing the distinction between employees and independent contractors.  In addition, the DOL’s Final Rule has no effect on state wage-and-hour laws.  The FLSA does not preempt any other laws that protect workers, so employers must comply with all applicable federal, state, and local laws and ensure that they are complying with the standard that provides workers with the greatest protection.

What to expect going forward
Thought leaders predicted that the Final Rule will be challenged in court before it goes into effect in March.  And they were right.  On January 16, 2024, a group of freelance writers and editors filed an action in the Northern District of Georgia to invalidate the DOL’s Final Rule.  The plaintiffs in the case seek to “vindicate the right of individual entrepreneurs to remain independent in the face of a concerted effort to force them into employment relationships they neither want nor need.”[1]  In addition, Senator Bill Cassidy (Republication from Louisiana) announced that he will introduce a Congressional Review Act resolution to repeal the rule. [2]

In the meantime, the Final Rule is expected to spark an increase in misclassification lawsuits.  It also is expected to impact the gig economy because app-based platforms typically classify delivery drivers and other gig workers as independent contractors.  For similar reasons, construction, transportation, trucking, and media industries could be impacted.

For now, take inventory of your independent contractors and assess their arrangement in light of the Final Rule.

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.

[1]              Warren v. United States Department of Labor, et al. Civ. Action No. 2:24-CV-0007-RWS (N.D.Ga).

[2]              On January 17, 2024, the United States Supreme Court heard oral argument in two cases challenging the courts’ continued deference to federal agencies’ interpretation of statutes or regulations.  “Chevron deference” is the idea that courts should defer to an agency’s reasonable interpretation of an ambiguous statute or regulation.  Court observers noted that, based on comments from the Justices at oral argument, it seems unlikely that Chevron deference will survive in its current form.  Ultimately, if Chevron deference is limited, challenges to the DOL’s Final Rule may grow stronger.