The U.S. Department of Labor announced it will move to rescind the Biden administration's 2024 independent contractor rule on Friday, according to a document set to be published in the Federal Register.
DOL’s Wage and Hour Division looks to return to the “economic reality test” for determining whether a worker is an independent contractor under the Fair Labor Standards Act.
The economic reality test weighs whether the work is an individual’s main source of income through two core factors: the degree of a worker’s control over their work, and the opportunity for profit or loss based on initiative, investment or both.
This approach largely revives a final rule that was adopted in 2021 during President Donald Trump’s first term.
DOL also would use that analysis in implementing the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, it said.
The rule would replace the Biden-era “totality-of-the-circumstances” framework used to determine whether a worker was an independent contractor or an employee. At the time, SHRM said the 2024 rule “fosters ambiguity, deterring businesses from extending essential training to independent workers, a detrimental scenario for both parties involved.”
Why replace the 2024 final rule
In a press briefing Thursday morning, a WHD administrator said it was important to replace the 2024 final rule — not just rescind it — because the DOL was concerned that the multiple economic reality factors described by the 2024 rule “were viewed as setting a higher and … broader bar” than the U.S. Supreme Court and other courts used to determine independent contractor status.
Ultimately, the spokesperson said, the goal is to “provide greater clarity” for businesses and workers when determining independent contractor status during the hiring process.
“Doing that properly under the proposal would lead to a reduced number of misclassifications in both directions,” he added.
What the proposed rule means for workers and employers
Is this proposed regulation less worker-friendly? It may be hard to say.
“Commentators like to call the newer rule ‘employer-friendly’ and the prior 2024 rule ‘employee-friendly,’ but in my experience, that is reductive and ignores the nuance these situations present,” Nisha Verma, a labor and employment attorney for Dorsey & Whitney, told HR Dive via email.
Workers might actually favor the 2026 independent contractor classification because they’re working with several firms and don’t want to be “beholden to one corporation,” Verma said. Individuals are making these choices often because of layoffs and the state of the economy, she added, so DOL’s proposal “comes at the right time.”
“I would like to see worker choice play more of a role in the analysis going forward, particularly since workers are more aware of their own tax circumstances, ability to earn other income, and need for flexibility than the business,” Verma said.
A 60-day public comment period begins Friday and ends on April 28. DOL would then need to adopt a final rule.
