DOL proposes independent contractor rule to replace Biden-era standard

On February 26, 2026, the United States Department of Labor (DOL)’s Wage and Hour Division unveiled a proposed rule that would rescind the Biden Administration's 2024 independent contractor regulation and replace it with a framework similar to the one adopted in 2021 during the first Trump Administration.

The proposed rule applies an "economic reality" test to determine whether a worker qualifies as an independent contractor or is an employee entitled to protections under the Fair Labor Standards Act (FLSA). The rule would also extend the same analytical framework to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, both of which rely on the FLSA's statutory definition of "employ."

According to the DOL, the proposed rule is intended to provide greater clarity for workers and employers, improve compliance, and help reduce misclassification and potential litigation.

Two core factors

At the heart of the proposed rule are two "core factors" that the DOL says carry the greatest weight in determining whether a worker is an employee or an independent contractor:

• The nature and degree of control over the work. This factor examines the extent to which the potential employer exercises control over how the work is performed.
  
  
• The worker's opportunity for profit or loss based on initiative and/or investment. This factor considers whether the worker can affect their earnings through their own initiative, business acumen, or capital investment.

The proposed rule also identifies several additional factors that may inform the classification 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.

Notably, the rule advises that the parties’ actual practice is more relevant than what may be contractually or theoretically possible – a provision that could prove significant in disputes where written agreements conflict with day-to-day working arrangements.

The proposed rule includes eight fact-specific examples that apply the factors to real-life circumstances, which the DOL says are intended to provide practical guidance to workers and employers navigating classification questions.

Regulatory shifts

The proposal represents the latest development in a series of regulatory shifts related to independent contractor classification. In January 2021, just before the end of the first Trump Administration, the DOL issued a final rule adopting the economic reality test with the same two core factors featured in the new proposal.

The Biden Administration delayed and eventually rescinded that test, later issuing its own regulation in 2024. The Biden-era rule utilized a multi-factor, "totality-of-the-circumstances" analysis that examined many of the same factors but without placing emphasis on any single factor. That rule took effect in March 2024 despite legal challenges.

After President Donald Trump returned to office in January 2025, the DOL ordered staff not to enforce the 2024 rule. In May 2025, the agency issued Field Assistance Bulletin 2025-1, formally instructing investigators to stop applying the Biden-era independent contractor standard and revert to the previous economic reality test.

The proposed rule announced on February 26, 2026 would codify that enforcement posture through formal rulemaking.

Implications for employers

The gig economy and industries that rely heavily on independent contractors – including transportation, delivery services, technology platforms, and creative services – may be most affected by the rule change. The two-factor test could make it easier to establish independent contractor status compared to the totality-of-the-circumstances approach.

However, state laws continue to apply their own classification tests, with states such as California, Massachusetts, and New Jersey maintaining stricter standards than the federal framework. California, in particular, continues to apply the ABC test under AB 5, though recent legislation (AB 1514, effective January 1, 2026) has modified certain exemptions for creative professionals, consultants, and technology services.

Comment period

The DOL is accepting public comments on the proposed rule for 60 days. Comments must be submitted by 11:59pm ET on April 28, 2026.

If you have questions about classification or other wage and hour issues, please contact the author or your DLA Piper relationship attorney.