Understanding Independent Contractor Misclassification: The DOL’s Latest Enforcement Signals a Shift

DOL Bulletin Resets the Standard for Independent Contractor Misclassification

On May 1, 2025, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued Field Assistance Bulletin No. 2025-1, which provides new guidance regarding how the WHD is to classify employees and independent contractors under the Fair Labor Standards Act (FLSA).

In a Departure from prior guidance impacting independent contractor misclassification, the WHD announced it will no longer follow the 2024 Rule, Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1638.

The DOL announced that it is reconsidering this rule, the legality of which is currently being challenged by several lawsuits pending in federal courts, including, for instance, Frisard’s Transp., LLC v. United States DOL, No. 24-30223, an appeal pending in the Fifth Circuit Court of Appeals.

Independent Contractor Misclassification and the Return to the 2008 Rule

Instead, and for the time being, the WHD will enforce the FLSA in accordance with the 2008 Rule, Fact Sheet #13, further informed by 2019 Opinion Letter FLSA2019-6 with respect to any matters for which no payment to individuals or the DOL has been made for back wages or civil money penalties.

Notably, the Field Assistance Bulletin does not revoke the 2024 Rule, which currently remains in effect for private litigation. The DOL will use the 2008 Rule and Opinion Letter FLSA2019-6, which has been redesignated as Opinion Letter FLSA2025-2, for its audits and enforcement actions.

Economic Reality Test: DOL’s Standard for Independent Contractor Misclassification

The 2008 Rule states that “[i]n the application of the FLSA an employee, as distinguished from a person who is engaged in a business of his or her own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves.”

The DOL references Supreme Court rulings that there is no single rule or test by which it interprets whether an individual is an employee or an independent contractor under the FLSA.  Under the newly restored “economic reality” standard, the DOL will consider the following seven factors, which the Supreme Court has previously indicated are significant:

1) The extent to which the services rendered are an integral part of the principal’s business;

2) The permanency of the relationship;

3) The amount of the alleged contractor’s investment in facilities and equipment;

4) The nature and degree of control by the principal;

5) The alleged contractor’s opportunities for profit and loss;

6) The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and

7) The degree of independent business organization and operation.

What Doesn’t Affect Independent Contractor Misclassification Status

Additionally, the reinstituted 2008 Rule holds that certain factors, such as where an individual performs work, the time or mode of payment to the worker, the state/local government licenses held by the worker, and the absence of a formal employment agreement do not impact the worker’s classification as an employee or independent contractor.

How the New DOL Guidance Impacts On-Demand and Gig Workers

This set of seven pertinent factors—none of which are individually decisive—is more favorable to employers compared to the now-rescinded 2024 Rule, which used a complex six-factor test based on a non-exhaustive “totality of the circumstances” approach to classify individuals.

Similarly, the reinstated 2019 Opinion Letter (dated April 29, 2019, and previously withdrawn on February 19, 2021), cuts in favor of classification of workers as independent contractors, specifically for on-demand workers at virtual marketplace companies.

This impacts the classification of technology-based service workers in sectors like transportation, delivery, and shopping.

Preventing Independent Contractor Misclassification Penalties

Still, employers must continue to monitor their compliance with the FLSA and state and local classification standards and should carefully evaluate their workers’ classification under this new guidance to avoid costly penalties for independent contractor misclassification.

Although the DOL’s FLSA guidance applies to all employers, additional state and local classification standards can differ significantly among jurisdictions.

Additionally, given that the DOL is evaluating the 2024 Rule, employers should stay up to date on any forthcoming changes to the DOL’s enforcement guidelines.

Miller Shah has extensive experience advising employers about their workers’ classification and representing workers in wage and hour lawsuits, including independent contractor misclassification suits. For example, in Bernstein et al. v. Virgin America, Inc. et al., case number 4:15-cv-02277-JST (U.S. Dist. Ct. for N. Dist. Cal.), Miller Shah secured a $31 million settlement against Alaska Airlines and Virgin America for the airlines’ alleged violations of the California Labor Code, California Unfair Competition Law, and California Private Attorneys General Act (PAGA).