On May 1, 2025, the Wage and Hour Division (“WHD”) of the U.S. Department of Labor (“DOL”) issued a Field Assistance Bulletin stepping back from a restrictive independent contractor rule issued under the Biden administration—a move manufacturers and franchisors should welcome to the extent they depend on business models including independent contractors. (More Foley on this issue can be found here and here and here). Although the 2024 rule remains on the books, the DOL’s has issued an enforcement guidance signaling a shift back toward a more business-friendly framework.
Specifically, the DOL position in the 2024 Fact Sheet and the 2024 regulations (“2024 Rule”) stated that the “economic realities” of the worker’s relationship with the purported employer would determine whether a worker’s status—employee or independent contractor. Under the 2024 Rule, if a worker was economically dependent on the employer for work, the worker was an employee. Conversely, if the worker was truly in business for him/herself, then the worker was an independent contractor.
The factors described are significantly more lenient than the 2024 Biden-era rule. This signals a return to a more predictable and flexible standard allowing for more workers to be considered as independent contractors.
The New (Old) Test Is Effective Immediately
Effective May 1, DOL investigators will evaluate independent contractor status under traditional “economic realities” principles. This means weighing several factors to determine whether a worker is truly in business for themselves or dependent on the hiring entity. The announcement further stated that the DOL would return to the enforcement position from its 2008 Fact Sheet and 2019 Opinion Letter applying the more traditional “economic realities” test.
The factors are:
- Whether the work is integral to the business;
- The duration and permanency of the relationship;
- The worker’s investment in equipment or materials;
- The business’s degree of control over the worker;
- The worker’s opportunity for profit or loss;
- The level of market competition and initiative exercised; and
- The degree of independent business operation.
The 2024 Rule Still Exists (For Now)
It is important to note that while the DOL will no longer enforce the 2024 Rule, it has not yet been rescinded or revised. Therefore, it remains in place for private litigants until the DOL takes further action. But, in its May 1 announcement, the DOL stated its intention to develop regulations for how workers should be classified.
Key Takeaways
- Audit your workforce by jurisdiction even if your national strategy aligns with federal guidance. Local laws could create hidden landmines. Many states—especially California, New Jersey, and Massachusetts—have adopted more rigid standards like the ABC test, making it harder to maintain contractor classifications.
- Reassess current contractor relationships in light of the relaxed enforcement stance, especially in roles involving logistics, field services, and third-party distribution.
- Work with legal counsel to create classification models that align with both federal and applicable state law.
- Monitor regulatory developments as the DOL is likely to propose a formal rescission or new rule later this year.
- Be flexible and prepared for any changes you implement now should be easy to reverse in case the political winds shift again.
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