Today, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) proposing to rescind the 2024 independent contractor rule and reinstate—largely—the 2021 rule’s analytical framework for determining employee versus independent contractor status under the Fair Labor Standards Act (FLSA). The proposal would also expressly apply that framework to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
For HR leaders and employment counsel, this is not just another technical regulatory update. It represents a significant recalibration of the economic reality test—one that could materially affect classification strategy, litigation risk and workforce design.
Here’s what you need to know:
The Core Proposal: Rescind the 2024 Rule, Reinstate (Modified) 2021 Rule
The NPRM proposes to:
- Rescind the 2024 final rule currently codified at 29 C.F.R. Part 795.
- Readopt the 2021 rule’s analytical structure, with some modifications.
- Apply the same analysis to the FMLA and MSPA, both of which incorporate the FLSA’s “suffer or permit” definition of employment.
In short: the DOL is signaling that the 2024 “totality-of-the-circumstances” model did not provide sufficient clarity and that the 2021 rule better aligns with Supreme Court precedent and practical business realities.
A Quick Refresher: The Competing Frameworks
The 2024 Rule (Currently in Effect)
The 2024 rule adopted a six-factor economic reality test, treating all factors as part of a holistic, totality-of-the-circumstances analysis:
- Opportunity for profit or loss (managerial skill)
- Investments by the worker and employer
- Permanence of the relationship
- Nature and degree of control
- Integral nature of the work
- Skill and initiative
The rule emphasized:
- No factor or subset is dispositive.
- Weight depends on the facts of the relationship.
- The “whole activity” governs.
While consistent with appellate formulations, the DOL now argues that this framework has created a host of issues:
1. Lack of Predictability
The Department argues that emphasizing the “whole activity” without guidance on weighting factors leaves businesses with a “kaleidoscope” of facts but no rule of decision—borrowing language from Judge Easterbrook. For HR and counsel, this translates into:
- Greater classification ambiguity
- More conservative reclassification decisions
- Increased litigation exposure
2. Over-Generalization of Factors
The DOL suggests the 2024 rule broadens certain factors in ways that could raise the bar for independent contractor status beyond what the law requires.
Particularly in industries where workers are integral to the business model (e.g., gig platforms, healthcare staffing, logistics), the “integral part” factor may skew toward employee status even where workers operate with substantial independence.
3. Redundancies and Factor Overlap
The DOL critiques the 2024 rule for repeating similar concepts (e.g., “business initiative,” “managerial skill”) across multiple factors, potentially compounding weight without analytical clarity.
The 2021 Rule (Proposed to Be Reinstated)
The 2021 rule also used familiar economic reality factors—but introduced a crucial structural distinction:
- Two “core” factors:
- Nature and degree of control
- Opportunity for profit or loss
- Three additional factors:
- Skill required
- Permanence of relationship
- Integration into an integrated unit of production
The 2021 rule stated that if the two core factors point in the same direction, there is a substantial likelihood that classification follows. The remaining factors typically carry less probative weight and additional factors are relevant only if directly tied to economic dependence.
The proposed Rule expressly defends this prioritization of control and opportunity as more consistent with Supreme Court precedent and the “ordinary understanding of being in business for oneself.”
Why This Matters for HR and Legal Counsel
If finalized, the reinstated 2021 framework would make operational control, managerial discretion and entrepreneurial opportunity the primary drivers of classification outcomes.
This means classification analysis should focus sharply on:
- Who sets schedules?
- Who determines rates?
- Can the worker market services to others?
- Does the worker bear business risk?
- Is compensation tied to managerial decisions?
Employers should expect plaintiffs and agencies to frame cases around these “core” elements.
Practical Steps for Employers Now
While the rulemaking process unfolds, HR and employment counsel should consider re-running high-risk classifications under both tests. If classification fails under both, remediation may be prudent. It also may be time for some broader auditing of contract language, actual operational practices and documentation of entrepreneurial independence. Reminder: both rules emphasize that actual practice outweighs theoretical contract rights.
Second, for employers in multiple jurisdictions, keep in might that the federal rules do not displace state ABC tests (e.g., California); state-specific wage statutes; and joint employment standards. Therefore, a DOL pivot does not eliminate layered compliance risk.
The DOL’s proposal reflects a renewed emphasis on clarity, predictability and the centrality of control and entrepreneurial opportunity in defining independent contractor status. Whether the final rule mirrors the 2021 framework exactly—or modifies it further—employers should anticipate renewed focus on what it truly means to be “in business for oneself.” In any event, for HR and employment counsel, the lesson is clear: classification strategy cannot depend solely on regulatory text. It must rest on defensible economic realities that withstand shifting administrative interpretations.
We will continue monitoring developments and are advising clients to proactively reassess independent contractor classifications in light of this proposed shift.
