US Department of Labor Proposes New Independent Contractor Rule
On February 26, 2026, the US Department of Labor’s Wage and Hour Division announced a proposed rule intended to clarify how to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA) and related federal laws.
Rescission of 2024 Rule; Return to 2021 Framework
The proposed rule would rescind the Department’s 2024 final rule addressing independent contractor classification and replace it with an analysis similar to the approach adopted by the Department in 2021. According to the Department, the proposal aligns with long‑standing Supreme Court and federal circuit court precedent and is intended to make worker classification more predictable for both workers and employers.
Economic Reality Test with Core Factors
The proposed rule applies an 'economic reality' test to determine whether a worker is economically dependent on an employer (and therefore an employee) or is in business for themself as an independent contractor. The rule highlights two core factors: (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.
Additional Factors Considered
In addition to the core factors, the Department identifies other considerations relevant to the analysis, including the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production. The proposal emphasizes that the actual practice of the parties is more important than contractual labels or theoretical possibilities when determining worker status.
Expanded Application Beyond the FLSA
The proposed rule would also apply this streamlined classification analysis to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), both of which rely on the FLSA’s statutory definition of 'employ.'
Illustrative Guidance
The proposal includes eight fact‑specific examples demonstrating how the economic reality factors would be applied in common, real‑world scenarios.
Read the Proposed Rule
The full proposed rule is available here.
Please feel free to contact the authors of this Client Alert or your Butzel attorney for more information.
Brett Miller
313.225.5316
millerbr@butzel.com
Catherine Fleming
517.372.4382
flemingc@butzel.com
