DOL
Earlier today, the U.S. Department of Labor (“DOL”) announced a proposed rule intended to provide greater clarity for both workers and employers on how to determine whether a worker should be classified as an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”) and other related laws.
Issued on February 26, 2026, the proposal – titled “Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act” – would rescind the Biden era rule (the “2024 Rule”) and replace it with a framework very similar to what we saw adopted in 2021 during the first Trump administration (the “2021 Rule”).
Level One: Ancient Origins
Under the FLSA, the central question in determining worker classification is whether the individual is economically dependent on the operation, indicating employee status, or is truly “in business for themselves,” which supports independent contractor status. This distinction matters because workers classified as employees are entitled to FLSA protections, including minimum wage and overtime requirements.
While agricultural employers may benefit from certain exemptions under the FLSA, the analysis does not end there. Many state labor laws look to the FLSA’s definition of “employee” when deciding whether their own wage and hour protections apply. In some cases, state laws impose broader requirements and offer greater protections than federal law. Independent contractors, by contrast, are not covered by FLSA wage and hour protections and generally exempt from state labor law requirements.
Classification of a worker is vitally important because misclassification can come with harsh consequences. If misclassification is discovered, whether through a DOL investigation, a worker complaint, or a lawsuit, the employer may be required to pay back wages, civil money penalties imposed by the DOL, and any attorneys’ fees and court costs should the matter end up in litigation. Beyond wage-and-hour issues, misclassification can trigger additional liability under other federal and state laws. This might include civil claims for unpaid payroll taxes, unemployment insurance contributions, or workers’ compensation violations, as well as potential criminal penalties in extreme cases of willful or repeated noncompliance.
Level Two: Trial by Fire
As originally enacted, the FLSA does not lay out a precise test for distinguishing an employee from an independent contractor. Over time, the DOL looked to the courts to develop a workable standard for making such determinations. Through those decisions, the “economic realities test” emerged and became the framework for evaluating whether a worker should be classified as an employee or independent contractor.
The economic realities test is a “totality of the circumstances” approach, meaning that no single factor controls the outcome. Instead, all relevant factors must be considered and weighed together to assess the true nature of the working relationship. Those factors include:
- The nature and degree of control;
- The individual’s opportunity for profit or loss;
- The permanency of the work relationship;
- Whether the work being performed is an integral part of the employer’s business;
- The worker’s investment in facilities and equipment; and
- Skill and initiative.
For decades courts and the DOL have applied these factors, or slight variations of them, to determine worker status under the FLSA. Over time, however, application of the test varied across jurisdictions, with some courts placing greater emphasis on certain factors than others. This inconsistency led to differing and inconsistent interpretations of worker classification around the country.
Level Three: The 2021 Rulebook Rewrite
In 2021, the DOL attempted to address the inconsistent and often subjective application of the economic realities test by issuing a formal independent contractor rule. This 2021 Rule marked the agency’s first effort to create a more standardized framework for distinguishing between employees and independent contractors.
The 2021 Rule used a variation of the economic realities test but explicitly gave greater probative value to “two core factors.” The two core factors are:
- The nature and degree of control over the work; and
- The individual’s opportunity for profit or loss.
The Department did not eliminate the other factors of the economic realities test; those factors remained part of the analytical framework under the 2021 Rule. However, the DOL did determine that the two “core factors” carried the most weight when determining whether an individual is economically dependent on an employer. The DOL further explained that when both core factors pointed toward the same classification, there was a “substantial likelihood” that the resulting classification was the correct classification.
Level Four: The 2024 Reset
In early 2024, the DOL published another rule, repealing the 2021 Rule and reverting back to a totality of the circumstances analysis of the economic realities test in which there are no core factors, and all factors are weighed evenly. The 2024 Rule went into effect on March 11, 2024.
Level Five: 2026 Counterattack
The latest proposed rule would reinstate the framework of the 2021 Rule, with several targeted adjustments designed to provide clearer guidance and promote more consistent interpretation/application of the test. The stated goal is to reduce uncertainty and, in turn, lower the risk of misclassification claims or enforcement actions that can disrupt day-to-day operations.
In addition to reinstating and slightly modifying the 2021 Rule, the proposal would also apply the independent contractor analysis to the Family and Medical Leave Act (“FMLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”), each relying on the FLSA’s definition of “employ.”
In its proposal, the DOL explained that the 2024 Rule failed “to provide effective guidance on how different factors in its multi-factor balancing test should be weighed or applied together.” The DOL contends that it’s two core factor economic realities test is just a result of decades and decades of case law. The Department indicates that after reviewing numerous judicial decisions, “the Department determined that courts tended to focus on two economic reality factors – control and the opportunity for profit or loss.” Thus, the DOL determined that in effect, judges were giving greater weight to these two factors to determine a worker’s classification under the FLSA.
However, the DOL emphasizes that even when the two core factors point toward the same classification they are not “controlling.” Their combined weight may still be outweighed by other considerations, making it “necessary to consider both [core and non-core] factors.” In short, the test that the DOL seeks to readopt is not intended to be applied “in a mechanical way that precludes consideration of all relevant facts and factors.”
Some other modifications proposed by this new rule include:
- Clarification on how an employee’s economic dependence on an employer differs from the relationship between independent businesses working together.
- Highlighting that worker classification hinges on dependence for the work, not on how much money the worker makes.
- Modifying the real-world examples used to apply the proposed 2026 framework to avoid potential ambiguity in the law; and
- Emphasis on the fact that the actual practice of the worker and potential employer is more relevant than what may be contractually or theoretically possible.
You can read the proposed rule here.
Boss Level Unlocked: Power Up with Public Comment
Ever wished you could help shape the rulebook? Well, now’s your chance!
The proposed rule kicks off a 60-day public comment period, closing April 28, 2026. You can submit a comment on the proposed rule to help provide greater clarity or protections for your specific industry or area of interest.
You might be wondering, “Can my comment really make a difference?” The answer: absolutely! Agencies are required to consider all substantive comments, and those that are unique, evidence-based, and grounded in real-world experiences are far more likely to influence the final rule than generic statements along the lines of “this is good” or “this is bad.”
If you have noticed gaps or issues that the DOL has not addressed in this proposal, now is the perfect time to bring them to light. Don’t miss the opportunity to make your voice heard, you never know, your input could truly change the law!
Comments can be submitted at https://www.regulations.gov (Docket No. WHD-2026-0001). Once comments are closed, the DOL will review and consider those comments, make any final modifications, and publish the final rule.
As always, as we learn more about this proposed rule and any final rule, we will keep you up to date.
Tags: FLSA, Independent Contractor, Department of Labor, DOL, Fair Labor Standards Act, Employee, Worker Classification
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The U.S. Department of Labor (“DOL”) has introduced a new independent contractor rule, aiming to provide clarity and guidance for both employers and workers. The classification of workers as employees or independent contractors has become increasingly complex in recent years, resembling an endless carousel ride for many businesses, particularly those in the agricultural sector that frequently hire part-time and seasonal help. The DOL's new rule, published under the Fair Labor Standards Act of 1938 (“FLSA”), seeks to put an end to this perpetual uncertainty surrounding worker classification once and for all.
Background
The FLSA establishes federal standards for overtime pay, minimum wage, and child labor. Ohio law explicitly aligns its interpretation of the term "employee" with that of the FLSA for wage and hour purposes. For the FLSA to apply to an agricultural employer, an employment relationship must be established. This entails determining whether a worker is classified as an employee or an independent contractor.
However, the FLSA itself is silent on how to exactly distinguish an independent contractor from an employee. So, for years the DOL relied on the court system to develop the standard for determining whether a worker should be classified as an employee or an independent contractor. The court system developed an “economic realities test” to help determine whether an employment relationship exists with a worker. The economic realities test is a totality of the circumstances test – which means all factors should be weighed evenly – and relies on six factors. These factors are:
- The nature and degree of control over the work;
- The individual’s opportunity for profit or loss;
- The permanency of the work relationship;
- Whether the work being performed is an integral part of the Employer’s business;
- The worker’s investment in facilities and equipment; and
- Skill and initiative.
For decades courts and the DOL have applied these factors, or a similar variation of them, to help define employee and independent contractor under the FLSA. However, courts across the country have applied the factors inconsistently and have given certain factors different degrees of weight.
2021 Independent Contractor Rule
In 2021, the DOL sought to resolve the inconsistent and subjective application of the factors by publishing a formal independent contractor rule (“2021 IC Rule”). This 2021 IC Rule marks the DOL’s first attempt to establish a standardized test for distinguishing between independent contractors and employees.
The 2021 IC Rule used a variation of the economic realities test but gave greater weight to “two core factors” rather than applying each factor equally. The “two core factors” are:
- The nature and degree of control over the work; and
- The individual’s opportunity for profit or loss.
In the 2021 IC Rule, the DOL stated that the two core factors “are the most probative as to whether or not an individual is an economically dependent ‘employee’ . . . and each therefore typically carries greater weight in the analysis than any other factor.” The DOL also stated that if the two core factors “both point towards the same classification, whether employee or independent contractor, there is a substantial likelihood that is the individual’s accurate classification.” This is because, according to the DOL, the other factors are less probative and may not be probative at all and are “highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.”
In other words, the DOL established a rule that looked at two core factors to determine the economic reality of the relationship between a worker and an employer. Thus, under the 2021 IC Rule, the economic realities test looked something like this:
- Core Factors
- The nature and degree of control over the work; and
- The individual’s opportunity for profit or loss.
- Other Factors
- The permanency of the work relationship;
- Whether the work being performed is an integral part of the Employer’s business;
- The worker’s investment in facilities and equipment;
- Skill and initiative; and
- Any additional factors
New 2024 Rule
The carousel ride does not stop at the 2021 IC Rule, unfortunately. In January of 2024, the DOL published another rule, repealing the 2021 IC Rule and reverting back to a totality of the circumstances analysis of the economic realities test in which there are no core factors, and all factors are weighed evenly. The new rule, effective March 11, 2024, evaluates the following factors:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the employer’s business;
- Skill and initiative; and
- Any additional factors.
Below is a more detailed analysis of the above seven factors.
- Opportunity for profit or loss depending on managerial skill. This factor assesses whether a worker possesses managerial abilities that impact their capacity to generate profit or incur losses. Relevant considerations include:
- Negotiating pay for services rendered
- Having the freedom to accept or decline jobs
- Choosing the order or time in which jobs are completed
- Engaging in marketing, advertising, or other business expansion efforts
- Making decisions regarding hiring, purchasing materials and equipment, or renting space
If a worker lacks the opportunity for profit or loss, they are likely an employee.
- Investments by the worker and the employer. This factor examines whether a worker’s investments are capital or entrepreneurial in nature. Costs incurred by a worker to perform their job, like purchasing tools or equipment, are not indicative of entrepreneurial investment and suggest employee status. Conversely, investments supporting an independent business, such as expanding capabilities, reducing costs, or broadening market reach, suggest entrepreneurial investment and independent contractor status.
- Degree of permanence of the work relationship. If the work relationship is indefinite in duration or continuous, the worker is probably an employee. If the work relationship is definite in duration, non-exclusive, project-based, or sporadic because the worker is in business for himself or herself and marketing his or her services or labor to multiple entities, then the worker is probably an independent contractor.
- Nature and degree of control. This factor assesses the level of control the employer exercises over the work and economic aspects of the relationship. Greater control by the employer suggests and employee relationship, while more control by the worker indicates independent contractor status. Factors include the employer setting the worker’s schedule, supervising work performance, limiting the worker’s ability to work for others, using technological means for supervision, reserving the right to supervise or discipline workers, determining who sets the prices or rates for services provided by the worker, and the marketing of the services or products that the worker provides.
- Extent to which the work performed is an integral part of the employer’s business. This factor evaluates whether the work performed is essential to the employer's business operations. It focuses on the function performed rather than the individual worker. If the service provided is indispensable for the employer's functioning, it favors an employee classification. Conversely, if the work is not crucial to the employer's core business, it leans towards independent contractor status.
- Skill and initiative. The skill and initiative factor evaluates whether the worker utilizes specialized skills and demonstrates entrepreneurial initiative in their work. If the worker lacks specialized skills or relies on employer-provided training, it suggests employee status. Conversely, if the worker brings specialized skills and exhibits business-like initiative, they are likely an independent contractor.
- Any Additional Factors. Additional factors may be relevant in determining the status of a worker. These additional factors may indicate whether the worker operates as an independent business entity or is economically reliant on the potential employer for work opportunities.
Under the new rule, no one factor is dispositive of determining whether a worker is an employee or independent contractor. For example, a landscaper may perform work that does not require specialized skills, but application of the other factors may demonstrate that the landscaper is an independent contractor (e.g. the landscaper may determine the price charged for the work, make decisions affecting opportunity for profit or loss, determine the extent of capital investment, work for many clients, and/or perform work for clients for which landscaping is not integral).
What does it all mean?
In announcing the new rule, the DOL said “[i]t is the Department’s obligation to administer and enforce the FLSA to ensure that workers who should be covered under the [FLSA] are properly classified as employees.” Many seem to suggest that this new rule is more employee friendly and makes it easier to classify a worker as an employee than the 2021 IC Rule.
The new rule, however, only affects a worker’s classification under the FLSA. The same standard does not apply to other federal laws, like the Internal Revenue Code. Nevertheless, those standards used in other federal laws may look eerily similar to the standard used here.
Lastly, the carousel ride may not yet be over. There are already legal challenges to the new rule that might put the DOL’s hopes of ushering in a new period of clarity at risk (See Warren v U.S. Dep’t of Labor, 2:24-cv-00007, N.D. Ga.).
Consequences of Misclassifying Workers.
Misclassifying a worker can come with harsh consequences. An employer that misclassifies a worker may be required to pay unpaid wages owed to the employee, civil money penalties, and/or attorneys’ fees associated with litigation. Furthermore, employers may be held criminally and/or civilly liable under other federal and state statues for misclassifying a worker. It is vital that agricultural employers take classification of a worker seriously because all it takes is one disgruntled misclassified worker or workplace injury to a misclassified worker to seriously jeopardize an operation.
Sources:
Independent Contractor Status Under the Fair Labor Standard Act, 86 CFR 1168
Employee or Independent Contractor Classification Under the Fair Standards Act, 89 CFR 1638
