DOL Independent Contractor Rule Proposal Signals Major Shift in Worker Classification Standards

by Anna D’Agostino and Jenna Leslie

On February 26, 2026, the US Department of Labor (DOL) proposed a new rule for classifying workers as employees or independent contractors.  This proposed rule adjusts the existing method and criteria involved in determining which category a worker falls into.  As employee classification affects other federal employment laws and benefits, this proposed rule may have significant implications for employers, workers, and litigators.

The Proposed Rule: What is Changing?

The proposed rule essentially reverts the employee-independent contractor classification standards to the DOL’s 2021 framework published under the first Trump administration, rescinding the changes made in 2024 Biden-era final rule. According to the DOL, the proposed rule would alter the longstanding “economic reality” test to streamline decisions on employee classification.  The thrust of the proposed rule is to make it easier for employers to classify workers as independent contractors instead of as employees.

The proposed rule keeps the “economic reality” test to determine whether workers are in business for themselves as independent contractors or employees economically dependent on an employer.  However, instead of looking to the “totality of the circumstances,” as with the existing rule, the proposed rule establishes two “core factors” to determine economic dependence: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit or loss based on initiative and/or investment.

The first factor asks who controls key aspects of work, like project selection, scheduling, and the ability to work for competitors.  The second factor considers entrepreneurial decision-making and asks whether the worker can earn more through business judgment or investment in tools, equipment, or helpers.  If a worker exercises significant control over her work and has ample opportunity for profit based on her own initiative and investment, she is more likely to be correctly classified as an independent contractor.

The proposed rule gives less weight to “secondary” employment classification factors, including: (1) the skill required in the performance of the work; (2) the permanence of the worker-employer relationship; and (3) whether the work is part of an integrated unit of production.

In short, the proposed rule would broaden the scope of workers who may be permissibly classified as independent contractors.  As many federal statutes, including the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA) provide rights and protections to employees but not independent contractors, the new rule could have a serious impact on workers’ rights.

Impact on Other Federal Statutes

In addition to the FLSA, the DOL seeks to apply the proposed rule to federal statutes which use the FLSA’s definition of “employ,” such as the FMLA and MSAWPA.  These laws provide important rights and protections for employees, explained below.

Fair Labor Standards Act

The FLSA guarantees a minimum wage and overtime pay for employees.  As the proposed rule could increase the number of workers classified as independent contractors, these workers may miss out on FLSA benefits.

Family and Medical Leave Act

The FMLA provides for unpaid, job-protected leave for employees in certain circumstances, such as newborn childcare or child placement, caring for family members with serious health problems, or recovering from a medical procedure.  As the proposed rule makes it easier to classify workers as independent contractors, workers who were formerly considered employees may lose their right to job-protected leave.  Fortunately, many states provide protections additional to those of the FMLA, and the proposed rule will not affect those state laws.

Migrant and Seasonal Agricultural Worker Protection Act

The MSAWPA provides protections for migrant and seasonal workers in agriculture jobs who are considered employees.  The proposed rule may particularly impact these workers, as the realities of their working situation may cause them to be reclassified as independent contractors under the proposed rule.

Practical Implications of the Proposed Rule

If the proposed rule becomes final, it will likely make it easier for employers to argue that their workers are independent contractors rather than employees.  However, the rule will not be binding on federal or state courts and will not affect state laws providing additional worker protections.  While businesses may benefit from greater certainty in worker classification, state agencies and courts will continue to scrutinize misclassification claims.

State Laws and Agencies Continue to Provide Worker Protections

As the proposed rule marks the third change in the DOL’s employment classification standards in only five years, many states are passing their own laws regarding employee versus independent contractor status.  Employers should be cognizant of the fact that the policy in their state may differ from the federal rule.

For example, New York recently passed Senate Bill S1514, which introduced stop-work orders for misclassification violations.  New Jersey’s Department of Labor and Industry recently announced a regulation solidifying the use of the ABC test for worker classification, instead of the DOL’s economic realities test.  California, Massachusetts, and Illinois have all also recently indicated their skepticism of independent contractor relationships and signaled their commitment to worker protection measures.

Consequences of Misclassification Remain Severe

Although the proposed rule would make it easier for a worker to be deemed an independent contractor under federal law, misclassification still carries substantial risks.  An employer found to be improperly treating workers as independent contractors instead of as employees may be liable for missing wages, payroll taxes, unpaid overtime and benefits, and compensation for missed break or rest periods.

Employers accused of misclassification may find themselves at the center of costly lawsuits, including class actions.  Beyond the legal fees and settlements or judgments such disputes engender, companies may suffer loss of good will and difficulty attracting talent.  Thus, proper worker classification is one of the best ways for businesses to protect their bottom line.

Conclusion

The DOL accepted public comments on the proposed rule until April 28, 2026.  Although the rule is not yet final, employers and employees may take this time to evaluate their current practices and circumstances.  If the rule becomes final, many workers may be facing a wave of reclassification.

With often changing rules and varying layers of federal and state regulations, employment law can seem intimidating.  If you think you were potentially misclassified as an independent contractor, Miller Shah may be able to help.  Similarly, Miller Shah can help employers evaluate their labor and employment policies for compliance with applicable state and federal laws.  Contact us today for a free consultation.