DOL Proposes Rescinding 2024 Independent Contractor Rule and Readopting Modified 2021 Framework

The U.S. Department of Labor, Wage and Hour Division ("DOL") has issued a Notice of Proposed Rulemaking ("NPRM") to rescind its 2024 final rule on worker classification and largely readopt the 2021 rule's "economic reality" framework, with targeted modifications. The proposal would also unify the worker-classification analysis under the Fair Labor Standards Act ("FLSA"), Family and Medical Leave Act ("FMLA"), and Migrant and Seasonal Agricultural Worker Protection Act ("MSPA"). The DOL's stated goals are to replace what it views as an ambiguous 2024 analysis, restore a clearer "core factor" approach grounded in Supreme Court precedent, and provide a single standard across all three statutes.

Below is a summary of the key points for employers and businesses that engage independent contractors.

Key Takeaways

1. Rescission of the 2024 Rule and Readoption of 2021 Framework

The NPRM would rescind the current 2024 rule in 29 C.F.R. part 795 and readopt the 2021 rule's "economic reality" framework for FLSA employee/independent-contractor determinations, with limited refinements and updated examples. It would extend the same analysis to FMLA and MSPA by cross-reference. Notably, the rescission of the 2024 rule is intended to be severable from the new guidance—even if the new Part 795 is later enjoined or invalidated, the 2024 rule would remain rescinded.

2. The Economic Reality Test

The ultimate question remains whether, as a matter of "economic reality," the worker is "in business for him- or herself" (independent contractor) or is "economically dependent" on the putative employer for work (employee). The proposal clarifies that "economic dependence" means dependence for work in the way a typical employee depends on an employer—not dependence for income in general.

3. Return of "Core Factors" With Greater Presumptive Weight

The proposed rule identifies two primary ("core") factors as most probative of economic dependence: (1) nature and degree of control over the work, and (2) the worker's opportunity for profit or loss based on initiative or investment. These core factors are to be considered first and "typically carry greater weight" than other factors. If both point to the same classification, there is a "substantial likelihood" that classification is correct. Three additional factors—skill, permanence, and integrated unit of production—remain in the analysis but are described as "less probative" and unlikely to outweigh both core factors where they align.

4. The Six Named Factors

Core Factors:

Control over the work. This factor favors independent contractor status where the worker substantially controls key aspects of the work, such as schedule, project selection, and ability to work for others, including competitors. It favors employee status where the employer substantially controls those aspects. Importantly, compliance with legal obligations, health and safety standards, insurance requirements, and typical contractual deadlines or quality standards do not constitute employment-type control.

Opportunity for profit or loss. This factor favors independent contractor status where the worker can realize profits or incur losses based on managerial skill, business acumen, or management of investments—either initiative or investment can suffice. It favors employee status where the worker cannot meaningfully affect earnings except by working more hours or faster. The proposal rejects comparing the worker's investment to the business's overall investment.

Other Factors:

Skill required. Favors independent contractor status where the work requires specialized training or skill the business does not provide; favors employee status where it does not.

Permanence of relationship. Favors independent contractor status where the relationship is, by design, definite in duration or sporadic; favors employee status where it is indefinite or continuous. The proposal removes "exclusivity" and "initiative" from this factor to avoid redundancy.

Integrated unit of production. Favors independent contractor status where the worker's services are segregable from the business's integrated production process; favors employee status where the work is a component of that process. This is distinct from whether the work is "important" or "central" to the business.

Additional factors. Other factors may be considered only if they shed light on whether the worker is in business for him- or herself.

5. Actual Practice Over Contract Language

The proposed rule restores explicit regulatory text providing that "the actual practice of the parties" is more relevant than what is contractually or theoretically possible. For example, a worker's theoretical right to negotiate prices or work for competitors is less meaningful if the worker is prevented from exercising those rights in practice. Reserved contractual rights may still matter where they are actually enforced or shape conduct, but the rule directs focus to economic reality rather than labels or unexercised rights.

6. Treatment of Compliance, Safety, and Quality Requirements

In a significant policy choice, the DOL proposes that a business's imposition of legal compliance measures, health and safety standards, insurance requirements, or typical contractual deadlines and quality standards does not constitute "control" indicative of employment. The DOL cites stakeholder concerns that the 2024 rule's treatment of such requirements could chill legitimate safety practices and legal compliance.

7. Why the DOL Is Walking Away From the 2024 Rule

The DOL identifies several concerns with the 2024 rule, including lack of clarity and predictability due to six broad, equally weighted factors with limited guidance on resolving conflicts among them, and overlapping concepts across factors that invite duplicative weighing. The DOL also cites a potential chilling effect on legitimate independent contracting—for example, the "relative investments" factor could signal employee status in nearly all cases because a company's overall investment almost always dwarfs a contractor's. Finally, the DOL views the 2024 rule as misaligned with Supreme Court precedent and the modern economy, noting that certain traditional factors may have less predictive power in a knowledge-based economy with shorter job tenures.

8. Current Enforcement Posture

As of May 1, 2025, the WHD is not using the 2024 rule's analysis in investigations. Instead, it enforces the FLSA in accordance with the July 2008 Fact Sheet #13 and Opinion Letter FLSA2025-2. The 2024 rule remains in effect for private litigation; the WHD's enforcement guidance does not alter private parties' rights or obligations.

What Employers Should Do Now

The 2024 rule remains the governing regulation for private FLSA litigation unless and until this proposal is finalized, but the WHD is already using an alternative economic-reality framework in investigations. The proposed rule, if finalized as drafted, would re-elevate control and opportunity for profit or loss as the central guideposts, provide more explicit protection for typical business-to-business contract terms from being treated as "control" indicative of employment, and offer a single, uniform DOL standard for FLSA, FMLA, and MSPA.

Businesses that use or are considering using independent contractors should evaluate how their arrangements fare under the proposed core factors, with special attention to who actually controls schedules, work methods, and the ability to work for others, and whether and how workers can increase profit or incur loss through initiative and investment related to the work.

Employers should also consider submitting comments on the NPRM, particularly regarding experiences applying the 2021 and 2024 rules, the clarity and utility of the "core factor" structure, the treatment of safety and compliance requirements, and any industry-specific examples that would assist in applying the proposed test.

If you would like assistance assessing how this proposed rule may affect your current use of independent contractors under the FLSA, FMLA, or MSPA, please reach out to your Quarles employment law attorney with questions about this new development, or:

• Edward (Ted) Hollis: (317) 399-2834 / edward.hollis@quarles.com

Please visit our Federal Policy Watch: Monitoring White House Developments page for more insight about navigating changes at the federal level.