In February 2024, we reported the U.S. Department of Labor (DOL) issued a Final Rule revising the DOL’s guidance on how to analyze who is an employee or independent contractor for purposes of minimum wage and overtime pay issues under the Fair Labor Standards Act (FLSA) (the “2024 Rule”). The Biden-era 2024 Rule included a new multi-factor “economic realities” test, which made it more likely a worker would be classified as an employee (and not an independent contractor) for purposes of the FLSA. The test focuses on whether the worker is economically dependent on the employer, and, if so, would weigh in favor of the worker being classified as an employee, and thus protected under the FLSA.
The 2024 Rule took effect on March 11, 2024. Shortly thereafter, several lawsuits were filed in federal courts challenging the Rule.
In a news release and accompanying Field Assistance Bulletin No. 2025-1 (FAB 2025-1) issued on May 1, 2025, the DOL announced it is pausing enforcement of the 2024 Rule (the “Pause”). The DOL plans to either reformulate the test for determining whether a worker is an employee or independent contractor or rescind the 2024 Rule altogether.
During the Pause, the DOL will rely on the former multi-factor “economic reality” test (the “Reinstated Test”) originally set forth in Fact Sheet #13 (published in July 2008) and Opinion Letter FLSA2019-6 (published in 2019 and duplicated in this year's linked FLSA2025-2), pertaining to independent contractor classifications in virtual marketplaces. The Reinstated Test essentially questions whether the worker is economically dependent on the employer for work (thus an employee) or a worker in business for themselves (thus an independent contractor). No one factor should be considered in isolation and no one factor is more important than another. Rather, the DOL encourages employers to consider the following factors as a guide when assessing independent contractor classifications under the Reinstated Test:
- Opportunity for profit or loss depending on managerial skill, meaning to what extent does the worker have an opportunity to earn profit or suffer losses through the business due to their own independent decision making;
- Investments by the worker and employer, meaning whether the worker makes investments in the business that are entrepreneurial in nature to support the business’ growth;
- Degree of permanence of the work relationship, meaning the nature (e.g., project based) and length (e.g., sporadic, fixed end dates) of the worker’s relationship to the business;
- The nature and degree of control the employer has over the worker’s performance, meaning the degree to which the employer can direct, control and manage the worker, and the extent of the worker’s autonomy in making business decisions affecting the work relationship;
- Extent to which the work performed is integral to the employer’s business, meaning the degree to which the worker’s contribution to the business is critical, integral, necessary or central to the employer’s business;
and
- Skill and initiative, meaning the extent to which the worker uses their own specialized skills together with business initiative to perform work for the business.
Despite the DOL’s Pause, independent contractor issues that arise in the context of private litigation will still rely on the 2024 Rule. The DOL’s decision to stay enforcement, however, signals it will ultimately issue a completely revised rule.
In the meantime, employers should still exercise caution and make thoughtful assessments when determining independent contractor status during the Pause and avoid wholesale (re)classifications. In addition, while the DOL rule applies to FLSA determinations, states are not bound to use the DOL tests in state law contexts. We address some of these tests in our February 14, 2024 alert.
