Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act
Federal RegisterFeb 27, 2026
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 500, 795, and 825
[Docket No. WHD-2026-0001]
RIN 1235-AA46
Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act
AGENCY:
Wage and Hour Division, Department of Labor.
ACTION:
Notice of proposed rule; request for comments.
SUMMARY:
The Department is proposing to rescind the analysis for determining employee or independent contractor status under the Fair Labor Standards Act (FLSA) currently set forth in 29 CFR part 795 and replace it with the analysis that it published and adopted in a prior final rule dated January 7, 2021, with a few modifications. In addition, the Department proposes to apply this analysis to the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA), both of which incorporate the FLSA's scope of employment.
DATES:
Comments must be received on or before April 28, 2026.
ADDRESSES:
You may submit comments, identified by Regulatory Information Number (RIN) 1235-AA46, by either of the following methods:
•
Electronic Comments:
Submit comments through the Federal eRulemaking Portal at
https://www.regulations.gov.
Follow the instructions for submitting comments.
•
Mail:
Address written submissions to: Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210.
Instructions:
Response to this NPRM is voluntary. The Department requests that no business proprietary information, copyrighted information, or personally identifiable information be submitted in response to this NPRM. Commenters submitting file attachments on
https://www.regulations.gov
are advised that uploading text-recognized documents—
i.e.,
documents in a native file format or documents which have undergone optical character recognition (OCR)—enable staff at the Department to more easily search and retrieve specific content included in your comment for consideration.
Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record and will be posted without change to
https://www.regulations.gov.
The Department posts comments gathered and submitted by a third-party organization as a group under a single document ID number on
https://www.regulations.gov.
All comments must be received by 11:59 p.m. ET on April 28, 2026, for consideration in this rulemaking; comments received after the comment period closes will not be considered.
The Department recommends that commenters submit their comments electronically via
https://www.regulations.gov
to ensure timely receipt prior to the close of the comment period. Please submit only one copy of your comments by only one method.
Docket:
For access to the docket to read background documents or comments, go to the Federal eRulemaking Portal at
https://www.regulations.gov.
In accordance with 5 U.S.C. 553(b)(4), a summary of this rule may also be found at
https://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Daniel Navarrete, Director, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division (WHD), U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-free number). Alternative formats are available upon request by calling 1-866-487-9243. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.
Questions of interpretation or enforcement of the agency's existing regulations may be directed to the nearest WHD district office. Locate the nearest office by calling the WHD's toll-free help line at (866) 4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time zone, or log onto WHD's website at
https://www.dol.gov/agencies/whd/contact/local-offices
for a nationwide listing of WHD district and area offices.
SUPPLEMENTARY INFORMATION:
I. Background
A. Relevant FLSA, FMLA, and MSPA Definitions
Enacted in 1938, the FLSA requires that, among other things, covered employers pay their nonexempt employees at least the federal minimum wage for every hour worked and overtime pay for every hour worked over 40 in a workweek, and it mandates that employers keep certain records regarding their employees.
1
The FLSA does not define the term “independent contractor,” but defines “employer” in section 3(d) to “include[ ] any person acting directly or indirectly in the interest of an employer in relation to an employee”; “employee” in section 3(e)(1) to mean, subject to certain exceptions, “any individual employed by an employer”; and “employ” in section 3(g) to include “to suffer or permit to work.”
2
The Supreme Court has recognized that “there is in the [FLSA] no definition that solves problems as to the limits of the employer-employee relationship under the Act.”
Rutherford Food Corp.
v.
McComb,
331 U.S. 722, 728 (1947).
1
See
29 U.S.C. 206(a) (minimum wage requirements); 207(a) (overtime pay requirements); 29 U.S.C. 211(c) (recordkeeping requirements).
2
29 U.S.C. 203(d), (e), (g). The FLSA defines a “person” as “an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons.” 29 U.S.C. 203(a).
The Supreme Court has interpreted the phrase “suffer or permit” that defines FLSA employment to be broad and more inclusive than the common law standard. In
Nationwide Mutual Insurance Co.
v.
Darden,
the Court explained that section 3(g)'s “suffer or permit” language “stretches the meaning of `employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles.”
3
However, the Court also recognized that the FLSA's “statutory definition[s] . . . have [their] limits.”
Tony & Susan Alamo Found.
v.
Sec'y of Labor,
471 U.S. 290, 295 (1985) (internal citation omitted);
see also Walling
v.
Portland Terminal Co.,
330 U.S. 148, 152 (1947) (“The definition `suffer or permit to work' was obviously not intended to stamp all persons as employees[.]”). The Supreme Court specifically recognized that “[t]here may be independent contractors who take part in production or distribution who would alone be responsible for the wages and hours of their own employees.”
Rutherford Food,
331 U.S. at 729. Accordingly, federal courts of appeals have uniformly held, and the Department has consistently maintained, that independent
contractors are not “employees” for purposes of the FLSA.
4
3
503 U.S. 318, 326 (1992);
see also U.S.
v.
Rosenwasser,
323 U.S. 360, 362-63 (1945) (explaining that “[a] broader or more comprehensive coverage of employees within the stated categories would be difficult to frame” in ruling that employees paid by piece rates may be covered by the FLSA's requirements).
4
See, e.g., Saleem
v.
Corporate Transp. Grp., Ltd.,
854 F.3d 131, 139-40 (2d Cir. 2017);
Karlson
v.
Action Process Serv. & Private Investigation, LLC,
860 F.3d 1089, 1092 (8th Cir. 2017).
Enacted in 1983, MSPA protects migrant and seasonal agricultural workers by establishing employment standards related to wages, housing, transportation, disclosures and recordkeeping.
5
Agricultural employers, agricultural associations, and farm labor contractors (as those terms are defined in MSPA) must comply with such applicable standards in their employment of migrant and seasonal agricultural workers.
6
MSPA also requires farm labor contractors to register with the Department and obtain a certificate of registration.
7
It is a violation of MSPA to threaten, discharge, or in any manner discriminate against any migrant or seasonal agricultural worker because such worker, with just cause, files a complaint, institutes a proceeding, testifies or is about to testify in a proceeding, or exercises any right under MSPA.
8
MSPA expressly adopts the FLSA's definition of “employ” as MSPA's definition of “employ” and thus incorporates the “suffer or permit” standard for determining the scope of employment relationships.
9
5
See generally
29 U.S.C. 1801,
et seq.
6
See
29 U.S.C. 1821-1823, 1831-32, 1841-1844.
7
See
29 U.S.C. 1811-1815.
8
29 U.S.C. 1855(a).
9
29 U.S.C. 1802(5) (“The term `employ' has the meaning given such term under [the FLSA, 29 U.S.C. 203(g)].”).
Enacted in 1993, the FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave.
10
Eligible employees who take such leave must generally be restored to the same or an equivalent position when they return to work after FMLA leave.
11
An employer cannot interfere with, restrain, or deny an employee's exercise of or attempt to exercise any rights under the FMLA.
12
The FMLA adopts the FLSA's definitions of “employ” and “employee” and thus incorporates the FLSA's standard for determining the scope of employment relationships.
13
10
See
29 U.S.C. 2611-2614.
11
See
29 U.S.C. 2614.
12
See
29 U.S.C. 2615.
13
29 U.S.C. 2611(3) (providing that the terms “employ” and “employee” for purposes of the FMLA have the same meanings given such terms in 29 U.S.C. 203(e) and (g)). The FMLA has its own definitions for whether an employee is “eligible” for FMLA leave and whether his or her employer is covered by the FMLA.
See
29 U.S.C. 2611(2), (4).
B. Economic Dependence and the Economic Reality Test
1. Supreme Court Development of the Economic Reality Test
Less than a decade after the FLSA was enacted, the U.S. Supreme Court explored the limits of the employer-employee relationship in a series of cases from 1944 to 1947 under three different federal statutes: the FLSA, the National Labor Relations Act (NLRA), and the Social Security Act (SSA). These cases established an “economic reality” test to distinguish between employees and independent contractors which is still used today in FLSA cases.
14
Although the longstanding “economic reality” descriptor is often repeated and is the lens through which the individual worker's relationship with the employer is viewed, the ultimate inquiry focuses on an individual's “economic dependence” for work.
14
See
Dep't of Labor, Independent Contractor Status Under the Fair Labor Standards Act, Notice of Proposed Rulemaking, 85 FR 60600, 60601 (Sept. 25, 2020).
In the first of these cases,
NLRB
v.
Hearst Publications, Inc.,
322 U.S. 111 (1944), the Supreme Court held that the NLRA's definition of employment, which merely defined “employee” to “include any employee,”
id.
at 113 n.1, was broader than that of the common law.
Id.
at 123-25. Congress responded by amending the definition of employment under the NLRA on June 23, 1947, with the “obvious purpose of . . . hav[ing] the [National Labor Relations] Board and the courts apply general agency principles in distinguishing between employees and independent contractors under the [NLRA].”
15
15
NLRB
v.
United Ins. Co. of Am.,
390 U.S. 254, 256 (1968).
On June 16, 1947, 1 week before Congress amended the NLRA in response to
Hearst,
the Supreme Court decided
United States
v.
Silk,
331 U.S. 704 (1947), which addressed the distinction between employees and independent contractors under the SSA (which did not define “employee”). In that case, the Court relied on
Hearst
to hold that “economic reality,” as opposed to “technical concepts” of the common law, such as master and servant, determines workers' classification.
Id.
at 712-14. Although the Court found it to be “quite impossible to extract from the [SSA] a rule of thumb to define the limits of the employer-employe[e] relationship,” it identified five factors as “important for decision”: “degrees of control, opportunities for profit or loss, investment in facilities, permanency of relation[,] and skill required in the claimed independent operation.”
Id.
at 716. The Court added that “[n]o one [factor] is controlling nor is the list complete.”
Id.
Nevertheless, based on the factors that it identified, the Court found that the coal unloaders were employees by referencing, among other things, the employer's supervision and the workers' lack of opportunity for profit based on initiative and investment.
16
In addition, the Court held that the truck drivers in that case were independent contractors by emphasizing facts related to control, opportunity for profit, initiative and investment.
17
16
Silk,
331 U.S. at 717-18 (finding that the employer “was in a position to exercise all necessary supervision over their simple tasks” and that the unloaders “had no opportunity to gain or lose except from the work of their hands and the[ir] simple tools”).
17
Id.
at 719 (“They own their own trucks. They hire their own helpers. In one instance they haul for a single business, in the other for any customer. The distinction, though important, is not controlling. It is the total situation, including the risk undertaken, the control exercised, the opportunity for profit from sound management, that marks these driver-owners as independent contractors.”).
One week after
Silk
and on the same day Congress amended the NLRA, the Court reiterated these five factors in
Bartels
v.
Birmingham,
332 U.S. 126 (1947), another case involving employee or independent contractor status under the SSA. In
Bartels,
the Court explained that under the SSA, employee status “was not to be determined solely by the idea of control which an alleged employer may or could exercise over the details of the service rendered to his business by the worker”; instead, employees are “those who as a matter of economic reality are dependent upon the business to which they render service.”
Id.
at 130. The Court held that a dance hall's contractual right of control was insufficient to establish an employment relationship with a band leader that it hired.
Id.
at 132.
The same day as it decided
Silk,
the Court ruled in
Rutherford Food
that certain workers at a slaughterhouse were employees under the FLSA, and not independent contractors, by examining facts pertaining to most of the five factors identified in
Silk.
18
The
Court also considered whether the work was “a part of the integrated unit of production” (meaning whether the putative independent contractors were integrated into the assembly line alongside the company's employees) to assess whether they were employees or independent contractors under the FLSA.
Id.
at 729-30.
18
For example, the Court noted that the slaughterhouse workers performed work on the “premises and equipment of [the employer],” indicating little investment by the workers. 331 U.S. at 730. The workers had a continuous relationship with the slaughterhouse, indicating a permanent work arrangement.
Id.
“The managing official of the plant kept close touch on the operation,” indicating
control by the alleged employer.
Id.
And “[w]hile profits to the boners depended upon the efficiency of their work, it was more like piecework than an enterprise that actually depended for success upon the initiative, judgment or foresight of the typical independent contractor.”
Id.
In November 1947, 5 months after
Silk
and
Rutherford Food
were decided, the Department of the Treasury (Treasury) proposed regulations defining when an individual was an independent contractor or employee under the SSA, which used a test that balanced the following factors: (1) degree of control of the individual, (2) permanency of relation, (3) integration of the individual's work in the business to which he renders service, (4) skill required by the individual, (5) investment by the individual in facilities for work, and (6) opportunity of the individual for profit or loss.
19
19
See
12 FR 7966.
Factors one, two, and four through six corresponded directly with the five factors identified as being “important for decision” in
Silk,
331 U.S. at 716, and the third factor corresponded with
Rutherford Food'
s consideration of the fact that the workers were “part of an integrated unit of production.” 331 U.S. at 729. The Treasury proposal further relied on
Bartels,
332 U.S. at 130, to apply these factors to determine whether a worker was “dependent as a matter of economic reality upon the business to which he renders services.”
20
20
Id.
The Treasury proposal was never finalized because Congress amended the SSA to foreclose the proposal.
Congress rejected the interpretations of the definitions of “employee” adopted in
Hearst
for the NLRA and in
Silk
and
Bartels
for the SSA “to demonstrate that the usual common-law principles were the keys to meaning.”
Darden,
503 U.S. at 324-25. Congress did not, however, similarly amend the FLSA following
Rutherford Food.
In 1961, in
Goldberg
v.
Whitaker House Cooperative, Inc.,
the Supreme Court revisited independent contractor status under the FLSA and reaffirmed that “the `economic reality' rather than `technical concepts' ” is the “the test of employment” under the FLSA.
21
It found that certain homeworkers were “not self-employed . . . [or] independent, selling their products on the market for whatever price they can command,” but instead were “regimented under one organization, manufacturing what the organization desires and receiving the compensation the organization dictates,” and thus employees.
22
Finally, in
Darden,
the Supreme Court reiterated that the FLSA's test for employee status comes from its definition of “employ” in 29 U.S.C. 203(g) as including to “suffer or permit” to work and is thus broader than the common law test.
23
21
366 U.S. 28, 33 (1961) (citing the FLSA's definition of “employ,”
Silk,
331 U.S. at 713, and
Rutherford Food,
331 U.S. at 729).
22
Id.
at 32.
23
503 U.S. at 326 (citing
Rutherford Food,
331 U.S. at 728).
2. Application of the Economic Reality Test by WHD and Federal Courts of Appeals
a. WHD's Early Guidance Applying Economic Reality Test Under the FLSA
Since the
Silk, Rutherford Food,
and
Whitaker House
decisions, WHD has applied variations of the economic reality analysis when considering whether a worker is an employee under the FLSA or an independent contractor, with an eye to facilitating its real-world application by workers and businesses.
For example, on June 23, 1949, the Wage and Hour Division (WHD) issued an opinion letter distilling six “primary factors which the Court considered significant” in
Rutherford Food
and
Silk:
“(1) the extent to which the services in question are an integral part of the `employer[']s' business; (2) the amount of the so-called `contractor's' investment in facilities and equipment; (3) the nature and degree of control by the principal; (4) opportunities for profit and loss; . . . (5) the amount of initiative judgment or foresight required for the success of the claimed independent enterprise[;] and [(6)] permanency of the relation.”
24
The 1949 opinion letter cautioned that no single factor is controlling, and “[o]rdinarily a definite decision as to whether one is an employee or an independent contractor under the [FLSA] cannot be made in the absence of evidence as to [the worker's] actual day-to-day working relationship with [their] principal. Clearly a written contract does not always reflect the true situation.”
25
24
WHD Op. Ltr. (June 23, 1949).
25
Id.
Subsequent WHD opinion letters addressing employee or independent contractor status under the FLSA have provided similar recitations of the factors, sometimes omitting one or more of the six factors described in the 1949 opinion letter, and sometimes adding (or substituting) a seventh factor: the worker's “degree of independent business organization and operation.”
26
In 1964, WHD stated, “The Supreme Court has made it clear that an employee, as distinguished from a person who is engaged in a business of his own, is one who as a matter of economic reality follows the usual path of an employee and is dependent on the business which he serves.”
27
Indeed, the various factors are directed to evaluating the nature of an individual's “dependence” for work.
26
See, e.g.,
WHD Op. Ltr. (Aug. 13, 1954) (applying six factors); WHD Op. Ltr. (Oct. 12, 1965) (discussing degree of independent business organization); WHD Op. Ltr. (Feb. 18, 1969) (same); WHD Op. Ltr. FLSA-314 (Dec. 21, 1982) (discussing three of the
Silk
factors); WHD Op. Ltr. FLSA-164 (Jan. 18, 1990) (discussing four of the
Silk
factors); WHD Op. Ltr., 2000 WL 34444352, at *1 (Jul. 5, 2000) (identifying seven factors); WHD Op. Ltr., 2000 WL 34444342, at *3-6 (Dec. 7, 2000) (discussing six factors); WHD Op. Ltr., 2002 WL 32406602, at *2-3 (Sept. 5, 2002) (same).
27
WHD Op. Ltr. (Sept. 30, 1964).
In 1962, the Department revised the regulations in 29 CFR part 788, which generally provides interpretive guidance on the FLSA's exemption for employees in small forestry or lumbering operations, and added a provision addressing the distinction between employees and independent contractors.
28
Citing to
Silk, Rutherford Food,
and
Bartels,
the regulation advised that “an employee, as distinguished from a person who is engaged in a business of his own, is one who `follows the usual path of an employee' and is dependent on the business which he serves.”
29
To “aid in assessing the total situation,” the regulation then identified a partial list of “characteristics of the two classifications which should be considered,” including “the extent to which the services rendered are an integral part of the principal's business; the permanency of the relationship; the opportunities for profit or loss; the initiative, judgment or foresight exercised by the one who performs the services; the amount of investment; and the degree of control which the principal has in the situation.”
30
28
27 FR 8032;
see
29 U.S.C. 213(b)(28) (previously codified at 29 U.S.C. 213(a)(15)).
29
27 FR 8033 (29 CFR 788.16(a)).
30
Id.
In 1972, the Department added similar guidance on independent contractor status at 29 CFR 780.330(b), in a provision addressing the employment status of sharecroppers and tenant farmers under the FLSA.
31
This regulation was nearly identical to the
independent contractor guidance for the logging and forestry industry previously promulgated at 29 CFR 788.16(a), including an identical description of the same six economic reality factors.
32
Both provisions—29 CFR 780.330(b) and 788.16(a)—remained unchanged until 2021.
31
See
37 FR 12084, 12102 (introducing 29 CFR 780.330(b)).
32
Id.
b. Federal Appellate Courts' Application of the Economic Reality Test
In the 1970s and 1980s, federal courts of appeals began to adopt versions of a multifactor “economic reality” test based on
Silk, Rutherford Food,
and
Bartels
and similar to WHD's early guidance to analyze whether a worker was an employee or an independent contractor under the FLSA. Drawing on the Supreme Court precedent discussed above, courts have recognized that the heart of the inquiry is whether “as a matter of economic reality” the workers are “dependent upon the business to which they render service.”
Usery
v.
Pilgrim Equip. Co.,
527 F.2d 1308, 1311 (5th Cir. 1976) (quoting
Bartels,
332 U.S. at 130);
see also Mednick
v.
Albert Enters., Inc.,
508 F.2d 297, 299-300 (5th Cir. 1975). Courts have clarified that this question of economic dependence may be boiled down to asking “whether, as a matter of economic reality, the workers depend upon someone else's business for the opportunity to render service or are in business for themselves.”
Saleem,
854 F.3d at 139 (internal quotation marks and citations omitted).
33
Courts have also explained that a non-exhaustive set of factors—derived from
Silk
and
Rutherford Food
—shape and guide this inquiry.
See, e.g., Usery,
527 F.2d at 1311 (identifying “[f]ive considerations [which] have been set out as aids to making the determination of dependence, vel non”);
Real
v.
Driscoll Strawberry Assocs., Inc.,
603 F.2d 748, 754 (9th Cir. 1979) (articulating a six-factor test).
33
See also Chavez-DeRemer
v.
Med. Staffing of Am., LLC,
147 F.4th 371, 397 (4th Cir. 2025);
Parrish
v.
Premier Directional Drilling, L.P.,
917 F.3d 369, 379 (5th Cir. 2019);
Keller
v.
Miri Microsystems LLC,
781 F.3d 799, 807 (6th Cir. 2015);
Iontchev
v.
AAA Cab Serv., Inc.,
685 F. App'x 548, 551 (9th Cir. 2017);
Dole
v.
Snell,
875 F.2d 802, 804 (10th Cir. 1989);
Scantland
v.
Jeffry Knight, Inc.,
721 F.3d 1308, 1311 (11th Cir. 2013).
In
Driscoll,
the Ninth Circuit Court of Appeals described its six-factor test as follows: (1) the degree of the alleged employer's right to control the manner in which the work is to be performed, (2) the alleged employee's opportunity for profit or loss depending on his managerial skill, (3) the alleged employee's investment in equipment or materials required for his task, or his employment of helpers, (4) whether the service rendered requires a special skill, (5) the degree of permanency of the working relationship, and (6) whether the service rendered is an integral part of the alleged employer's business. 603 F.2d at 754.
Most courts of appeals articulate a similar test, but application between courts may vary.
Compare, e.g., Sec'y of Labor
v.
Lauritzen,
835 F.2d 1529, 1534-35 (7th Cir. 1987) (applying six-factor economic reality test to hold that pickle pickers were employees under the FLSA),
with Donovan
v.
Brandel,
736 F.2d 1114, 1117 (6th Cir. 1984) (applying the same six-factor economic reality test to hold that pickle pickers were not employees under the FLSA). Courts of appeal also vary somewhat in their articulation of the factors. For example, the Second Circuit has analyzed opportunity for profit or loss and investment (the second and third factors listed above) together as one factor.
See, e.g., Brock
v.
Superior Care, Inc.,
840 F.2d 1054, 1058 (2d Cir. 1988). The Fifth Circuit has not adopted the sixth factor listed above, which analyzes the integrality of the work, as part of its standard,
see, e.g., Usery,
527 F.2d at 1311, but has at times assessed integrality as an additional factor,
see, e.g., Hobbs
v.
Petroplex Pipe & Constr., Inc.,
946 F.3d 824, 836 (5th Cir. 2020).
Some courts of appeals have made noteworthy modifications to the economic reality factors as originally articulated in 1947 by the Supreme Court.
34
First, the “skill required” factor identified in
Silk,
331 U.S. at 716, is now articulated more expansively by some courts to include “initiative.”
See, e.g., Parrish,
917 F.3d at 379 (considering “the skill and initiative required in performing the job”);
Karlson,
860 F.3d at 1093 (same);
Superior Care,
840 F.2d at 1058-59 (considering “the degree of skill and independent initiative required to perform the work”).
34
See
85 FR 60603-04.
Second,
Silk
analyzed workers' investments, 331 U.S. at 717-19. However, the Fifth Circuit has revised the “investment” factor to instead consider “the extent of the relative investments of the worker and the alleged employer.”
Hopkins
v.
Cornerstone America,
545 F.3d 338, 343 (5th Cir. 2008). Some other circuits also apply this “relative investment” approach but continue to use the phrase “worker's investment” to describe the factor.
See, e.g., Keller,
781 F.3d at 810;
Snell,
875 F.2d at 805, 810.
Third, although the permanence factor under
Silk
was understood to mean the continuity and duration of working relationships,
see
12 FR 7967, some courts of appeals have expanded this factor to also consider the exclusivity of such relationships.
See, e.g., Scantland,
721 F.3d at 1319;
Keller,
781 F.3d at 807.
Finally,
Rutherford Food'
s consideration of whether work is “part of an integrated unit of production,” 331 U.S. at 729, has now been replaced by many courts of appeals by consideration of whether the service rendered is “integral,” which those courts have applied as meaning important or central to the potential employer's business.
See, e.g., Verma
v.
3001 Castor, Inc.,
937 F.3d 221, 232 (3rd Cir. 2019) (concluding that workers' services were integral because they were the providers of the business's “primary offering”);
Acosta
v.
Off Duty Police Servs., Inc.,
915 F.3d 1050, 1055 (6th Cir. 2019) (concluding that services provided by workers were “integral” because the potential employer “built its business around” those services);
McFeeley
v.
Jackson Street Entertainment, LLC,
825 F.3d 235, 244 (4th Cir. 2016) (considering “the importance of the services rendered to the company's business”).
Courts of appeals have cautioned against the “mechanical application” of the economic reality factors.
See, e.g., Saleem,
854 F.3d at 139. “Rather, each factor is a tool used to gauge the economic dependence of the alleged employee, and each must be applied with this ultimate concept in mind.”
Hopkins,
545 F.3d at 343. Further, courts of appeals make clear that the analysis should draw from the totality of circumstances, with no single factor being determinative by itself.
See, e.g., Keller,
781 F.3d at 807 (“No one factor is determinative.”);
Baker
v.
Flint Eng'g & Constr. Co.,
137 F.3d 1436, 1441 (10th Cir. 1998) (“None of the factors alone is dispositive; instead, the court must employ a totality-of-the-circumstances approach.”).
c. The Department's More Recent Application of the Economic Reality Test Under the FLSA, FMLA, and MSPA
In 1995, the Department promulgated a regulation at 29 CFR 825.105(a) addressing employee status under the FMLA and the distinction between employees and independent contractors.
35
The regulation currently explains that “[t]he definition of employ for purposes of FMLA is taken from the Fair Labor Standards Act, § 3(g), 29 U.S.C. 203(g),” meaning a broader scope
of employment than at the common law.
36
The regulation further explains that determining employee status “depends `upon the circumstances of the whole activity' including the underlying `economic reality.' ”
37
The regulation adds that: “In general an employee, as distinguished from an independent contractor who is engaged in a business of his/her own, is one who `follows the usual path of an employee' and is dependent on the business which he/she serves.”
38
The regulation does not provide any specific economic reality factors to apply. A separate regulation, 29 CFR 825.102, defines various terms under the FMLA, and consistent with the FMLA's adoption of the FLSA's statutory definitions, defines “employ” to mean “to suffer or permit to work” and “employee” to generally mean “any individual employed by an employer.”
35
See
60 FR 2240.
36
29 CFR 825.105(a);
see also
29 U.S.C. 2611(3).
37
29 CFR 825.105(a).
38
Id.
In 1997, the Department promulgated a regulation applying a multifactor economic reality analysis for distinguishing between employees and independent contractors under MSPA, which—like the FMLA—statutorily adopts the FLSA's “suffer or permit” definition of employment by reference.
39
The regulation explains that “[t]he definition of the term
employ
may include consideration of whether or not an
independent contractor
or
employment
relationship exists under the Fair Labor Standards Act.”
40
The regulation advises that in determining if the farm labor contractor or worker is an employee or an independent contractor, the ultimate question is the economic reality of the relationship—whether there is economic dependence upon the agricultural employer/association or farm labor contractor, as appropriate.
41
The regulation elaborates that “[t]his determination is based upon an evaluation of all of the circumstances, including the following: (i) The nature and degree of the putative employer's control as to the manner in which the work is performed; (ii) The putative employee's opportunity for profit or loss depending upon his/her managerial skill; (iii) The putative employee's investment in equipment or materials required for the task, or the putative employee's employment of other workers; (iv) Whether the services rendered by the putative employee require special skill; (v) The degree of permanency and duration of the working relationship; (vi) The extent to which the services rendered by the putative employee are an integral part of the putative employer's business.”
42
This description of six economic reality factors is very similar to the earlier description of the six factors test to evaluate the economic reality, that is an individual's economic dependence for work, on a putative employer, provided in 29 CFR 780.330(b) and 788.16(a).
39
See
62 FR 11734, 11747;
see also
29 U.S.C. 1802(5) (“The term `employ' has the meaning given such term under section 3(g) of the [FLSA]”).
40
29 CFR 500.20(h)(4).
41
Id.
42
Id.
Also in 1997, WHD issued Fact Sheet #13, “Employment Relationship Under the Fair Labor Standards Act (FLSA).”
43
Like WHD opinion letters, Fact Sheet #13 advises that an employee, as distinguished from a person who is engaged in a business of their own, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent on the business which he or she serves. The fact sheet identifies six familiar economic realities factors, as well as consideration of the worker's degree of independent business organization and operation.
43
See
WHD Fact Sheet #13 (1997),
https://web.archive.org/web/19970112162517/http:/www.dol.gov/dol/esa/public/regs/compliance/whd/whdfs13.htm.
WHD made minor revisions to Fact Sheet #13 in 2002 and 2008, before a more substantial revision in 2014. In 2018, WHD reverted back to the 2008 version of Fact Sheet #13, which the Department is currently applying (available at
https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf
).
On July 15, 2015, WHD issued Administrator's Interpretation No. 2015-1, “The Application of the Fair Labor Standards Act's `Suffer or Permit' Standard in the Identification of Employees Who Are Misclassified as Independent Contractors” (AI 2015-1).
44
AI 2015-1 explained that, “under the FLSA, courts use the multi-factorial `economic realities' test, which focuses on whether the worker is economically dependent on the employer or in business for him or herself,” and it identified and provided guidance regarding the application of six economic realities factors. AI 2015-1 further explained that its FLSA analysis “should also be applied in determining whether a worker is an employee or an independent contractor in cases arising under [MSPA] and the [FMLA]” because both statutes adopt the FLSA's definition of “employ.”
44
AI 2015-1 was withdrawn on June 7, 2017, and is no longer in effect.
In 2019, WHD issued an opinion letter, FLSA2019-6 (later redesignated as FLSA2025-2),
45
addressing whether service providers who used a “virtual marketplace” company to be referred to end-market consumers were employees or independent contractors of the virtual marketplace company under the FLSA. The opinion letter generally applied principles and factors similar to those described in the prior opinion letters and the 2008 version of Fact Sheet #13, but not the “independent business organization” factor because it did not add to the analysis as a separate factor and was “[e]ncompassed within” the other factors. WHD Opinion Letter FLSA2025-2 at 5. It also stated that the investment factor should focus on the “amount of the worker's investment in facilities, equipment, or helpers.”
Id.
Based on the facts provided, WHD concluded that the service providers at issue appeared to be independent contractors and not employees of the virtual marketplace company. WHD found that it was “inherently difficult to conceptualize the service providers' `working relationship' with [the virtual marketplace company], because as a matter of economic reality, they are working for the consumer, not [the company].”
Id.
at 7-8. Because “[t]he facts . . . demonstrate economic independence, rather than economic dependence, in the working relationship between [the virtual marketplace company] and its service providers,” WHD opined that they were not employees of the company under the FLSA but rather were independent contractors.
Id.
at 11.
45
WHD withdrew WHD Opinion Letter FLSA2019-6 on February 19, 2021, but reissued the opinion letter on May 2, 2025, redesignating it as Opinion Letter FLSA2025-2, available at
https://www.dol.gov/sites/dolgov/files/WHD/opinion-letters/FLSA/FLSA2019-6.pdf.
C. The 2021 Rule
On January 7, 2021, the Department published a final rule (2021 Rule) which—for the first time—organized and distilled the longstanding economic reality factors into practical regulatory guidance for workers and business to aid the proper classification of employees and independent contractors under the FLSA for use in any industry.
46
The Department explained that the 2021 Rule was intended to combine longstanding legal and judicial frameworks in a practicable package that could be broadly applied in workplaces across the nation—promoting certainty for stakeholders, reducing litigation, and encouraging innovation in the economy.
46
See
Dep't of Labor, Independent Contractor Status Under the Fair Labor Standards Act, Final Rule, 86 FR 1168 (Jan. 7, 2021).
In the 2021 Rule, the Department affirmed the “economic reality” test under the FLSA to determine whether a worker is in business for himself or
herself (an independent contractor) or is instead economically dependent on an employer for work, as an employee conventionally depends on his employer for work.
47
The Department framed five familiar “factors,” drawn from the longstanding approach articulated by the Supreme Court and courts of appeals, to “guide the determination” of workers' “economic reality.” Like the components of those tests, the Department explained that the “factors are not exhaustive” and “no single factor is dispositive.”
48
Based on its experience and case law, the Department further identified two of those factors (the nature and degree of control over the work and the individual's opportunity for profit or loss) as “core” factors that, across a wide spectrum of work arrangements, are “the most probative as to whether or not an individual is an economically dependent `employee' ” and “therefore typically carr[y] greater weight in the analysis than any other factor.”
49
The Department added that, “[g]iven these two core factors' greater probative value, if they both point towards the same classification, whether employee or independent contractor, there is a substantial likelihood that is the individual's accurate classification.”
50
Similarly, the Department explained that other factors are “less probative and, in some cases, may not be probative at all” in answering the ultimate “economic reality” inquiry to which these tests are directed. Typically, these other factors “are highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.”
51
47
86 FR 1246 (§ 795.105(b)).
48
86 FR 1246 (§ 795.105(c)).
49
Id.
50
Id.
51
Id.
The Department provided guidance in the 2021 Rule on how to apply the control and opportunity for profit or loss factors, including that an individual's opportunity for profit or loss could be based on “his or her exercise of initiative (such as managerial skill or business acumen or judgment) or management of his or her investment in or capital expenditure on, for example, helpers or equipment or material to further his or her work.”
52
The Department identified three other factors to be considered with the two core factors and provided guidance on each: the amount of skill required for the work, the degree of permanence of the working relationship between the individual and the potential employer, and whether the work is part of an integrated unit of production.
53
The Department added that “[a]dditional factors may be relevant in determining whether an individual is an employee or independent contractor for purposes of the FLSA, but only if the factors” are directly material to the “economic reality” inquiry that determines whether an individual's relationship with a potential employer is more akin to that of another business or an employee.
54
The Department further advised that, when applying the factors, “the actual practice of the parties involved is more relevant than what may be contractually or theoretically possible.”
55
The Department also provided six “illustrative examples” of how the factors may be applied in certain factual situations.
56
And, the Department included a severability provision explaining that the Department would still give “maximum effect” to the rule in the event that any of its provisions are enjoined or invalidated.
57
52
86 FR 1246-47 (§ 795.105(d)(1)(i)-(ii)).
53
86 FR 1247 (§ 795.105(d)(2)(i)-(iii)).
54
86 FR 1247 (§ 795.105(d)(2)(iv)).
55
86 FR 1247 (§ 795.110).
56
86 FR 1247-48 (§ 795.115).
57
86 FR 1248 (§ 795.120).
In the 2021 Rule, the Department also revised the industry-specific guidance provided at 29 CFR 780.330(b) (addressing the employment status of sharecroppers and tenant farmers) and 788.16(a) (workers in forestry or logging). The Department replaced the recitation of the six economic reality factors identified in those regulatory subsections with cross-references to the 2021 Rule's updated and generally applicable guidance.
58
58
86 FR 1246.
Finally, the 2021 Rule noted that the Department had received several comments addressing the possibility of applying that rule's analysis to determining employee or independent contractor status under MSPA, including by revising 29 CFR 500.20(h)(4).
59
The Department recognized in the 2021 Rule that “MSPA adopts by reference the FLSA's definition of `employ,'
see
18 U.S.C. 1802(5), and that 29 CFR 500.20(h)(4) considers `whether or not an independent contractor or employment relationship exists under the Fair Labor Standards Act' to interpret independent contractor status under MSPA.”
60
The Department added that “the regulatory standard for determining an individual's classification status under MSPA is generally consistent with the FLSA guidance finalized in this rule.”
61
The Department determined at the time that it did “not see a compelling need to revise” the MSPA regulation because it was “unsure whether application of the six factor economic reality test described in that regulation has resulted in confusion and uncertainty in the more limited MSPA context similar to that described in the FLSA context.”
62
The Department concluded that it “prefers to proceed incrementally at this time by leaving the MSPA regulation at 29 CFR 500.20(h)(4) unchanged.”
63
59
86 FR 1177.
60
Id.
61
Id.
62
Id.
63
Id.
The effective date of the 2021 Rule was March 8, 2021.
D. Attempts To Delay and Withdraw the 2021 Rule
On March 4, 2021, the Department published a final rule (Delay Rule) delaying the effective date of the 2021 Rule until May 7, 2021—60 days after its original March 8, 2021, effective date.
64
The Delay Rule stated that it took effect immediately upon its publication in the
Federal Register
.
65
On May 6, 2021, the Department published a final rule withdrawing the 2021 Rule (Withdrawal Rule).
66
The Withdrawal Rule stated that it took effect immediately upon its publication in the
Federal Register
.
67
64
See
Dep't of Labor, Independent Contractor Status Under the Fair Labor Standards Act (FLSA): Delay of Effective Date, 86 FR 12535 (Mar. 4, 2021).
65
See id.
at 12537.
66
See
Dep't of Labor, Independent Contractor Status Under the Fair Labor Standards Act (FLSA): Withdrawal, 86 FR 24303 (May 6, 2021).
67
See id.
at 24320.
On March 14, 2022, in a lawsuit challenging the Department's Delay and Withdrawal Rules under the Administrative Procedure Act (APA), a district court in the Eastern District of Texas issued a decision vacating the Department's Delay and Withdrawal Rules.
See Coalition for Workforce Innovation
v.
Walsh,
No. 1:21-CV-130, 2022 WL 1073346 (E.D. Tex. Mar. 14, 2022) (
CWI
Decision). While acknowledging that the Department engaged in separate notice-and-comment rulemakings in promulgating both of these rules, the district court concluded that the Department “failed to provide a meaningful opportunity for comment in promulgating the Delay Rule,”
id.
at *9,
68
failed to show “good
cause for making the [Delay Rule] effective immediately upon publication,”
id.
at *11, and acted in an arbitrary and capricious manner in its Withdrawal Rule by “fail[ing] to consider potential alternatives to rescinding the [2021] Rule,”
id.
at *13. Accordingly, the district court vacated the Delay and Withdrawal Rules and ruled that the 2021 Rule “became effective as of March 8, 2021, the rule's original effective date, and remains in effect.”
Id.
at *20.
68
The district court specifically faulted the Department's use of a shortened 19-day comment period (instead of 30 days) in its proposal to delay the 2021 Rule's original effective date, and for failing to consider comments beyond its proposal to delay the 2021 Rule's effective date. 2022 WL 1073346, at *7-10.
The Department filed a notice of appeal of the district court's decision to the Fifth Circuit Court of Appeals.
See Coal. for Workforce Innovation
v.
Su,
No. 22-40316 (5th Cir. appeal filed, May 13, 2022). The Fifth Circuit entered successive orders staying the appeal while the Department engaged in further rulemaking. Once the Department's further rulemaking concluded, the Fifth Circuit dismissed the appeal, vacated the district court's decision as moot, and remanded the case to the district court.
See
No. 22-40316, 2024 WL 2108472 (5th Cir. Feb. 19, 2024).
E. The 2024 Rule
On January 10, 2024, the Department published a final rule (2024 Rule) to rescind the 2021 Rule and replace it with a modified analysis for determining employee or independent contractor classification under the FLSA, which is currently set forth in 29 CFR part 795.
69
Like the 2021 Rule, the 2024 Rule advises that the FLSA's “definitions are meant to encompass as employees all workers who, as a matter of economic reality, are economically dependent on an employer for work,” elaborating that “[a] worker is an independent contractor, as distinguished from an `employee' under the [FLSA], if the worker is, as a matter of economic reality, in business for themself.”
70
The 2024 Rule identifies six factors as “tools or guides to conduct a totality-of-the-circumstances analysis”: (1) opportunity for profit or loss depending on managerial skill, (2) investments by the worker and the potential employer, (3) degree of permanence of the work relationship, (4) nature and degree of control, (5) extent to which the work performed is an integral part of the potential employer's business, and (6) skill and initiative.
71
The 2024 Rule does not identify any core factors or otherwise elaborate on the relative importance of these factors, advising instead that “no one factor or subset of factors is necessarily dispositive” and “the weight to give each factor may depend on the facts and circumstances of the particular relationship.”
72
The Department added that the six factors “are not exhaustive” and “[a]dditional factors may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the potential employer for work.”
73
The 2024 Rule advises that the outcome of its analysis “does not depend on isolated factors but rather upon the circumstances of the whole activity to answer the question of whether the worker is economically dependent on the potential employer for work or is in business for themself.”
74
69
See
Dep't of Labor, Employee or Independent Contractor Classification Under the Fair Labor Standards Act, Final Rule, 89 FR 1638 (Jan. 10, 2024).
70
29 CFR 795.105(b).
71
29 CFR 795.110(a)(1), (b)(1)-(6).
72
29 CFR 795.110(a)(2).
73
29 CFR 795.110(a)(2), (b)(7).
74
29 CFR 795.110(a)(1).
In addition, the Department made minor revisions to the industry-specific guidance provided at 29 CFR 780.330(b) and 788.16(a) by updating the cross-references to 29 CFR part 795 that the 2021 Rule had added.
75
Also, like the 2021 Rule, the Department included a severability provision in the 2024 Rule.
76
75
See
89 FR 1741.
76
See
29 CFR 795.115.
Like in the 2021 Rule, the Department in the 2024 Rule “did not propose to make any revisions to the MSPA regulation, which adopts by reference the FLSA's definition of `employ,' and considers `whether or not an independent contractor or employment relationship exists under the Fair Labor Standards Act' to interpret employee or independent contractor status under MSPA.”
77
The Department explained that the guidance provided in the MSPA regulation is “substantially similar” to the economic reality test adopted by the 2024 Rule, the comments received did not address MSPA, and the Department “is not revising the MSPA regulation at this time.”
78
77
89 FR 1664.
78
Id.
Unlike the 2021 Rule, the 2024 Rule's regulatory text does not include any illustrative examples of how to apply the economic reality test or address the relevance of parties' actual practice as compared to what may be contractually or theoretically possible. However, the Department provided examples of how to apply each economic reality factor and addressed the actual practice issue in the 2024 Rule's preamble.
79
79
See
89 FR 1718-22 (discussing the relevance of actual practice);
see also
89 FR 1722-24 (discussing commenter feedback on illustrative examples provided in the preamble of the Department's 2022 Notice of Proposed Rulemaking).
The 2024 Rule took effect on March 11, 2024.
F. Litigation Challenging the 2024 Rule and WHD's 2025 Field Assistance Bulletin
Five lawsuits were filed challenging the legality of the 2024 Rule. Each lawsuit remains pending, although each has been stayed based on the Department's representation that it intends to reconsider the 2024 Rule, including whether to issue a notice of proposed rulemaking to rescind the rule.
In
Frisard's Transportation, L.L.C.
v.
Department of Labor,
the district court denied a motion for temporary restraining order and preliminary injunction that sought to enjoin the 2024 Rule because the trucking companies and business association challenging the 2024 Rule failed to meet their burden of showing irreparable harm.
See
Dkt. No. 19, No. 2:24-cv-00347-EEF-MBN (E.D. La. Mar. 8, 2024). The trucking companies and business association appealed the denial of preliminary injunction to the Fifth Circuit Court of Appeals, and the district court later stayed its proceedings. The Fifth Circuit has stayed the appeal.
In
Warren
v.
Department of Labor,
the district court ruled in favor of the Department without addressing the legality of the 2024 Rule, concluding that the freelancers challenging the 2024 Rule do not have standing to do so.
See
Dkt. No. 42, No. 2:24-CV-7-RWS (N.D. Ga. Oct. 7, 2024). The freelancers appealed to the Eleventh Circuit Court of Appeals, which has stayed the appeal.
In
Colt & Joe Trucking, LLC
v.
Department of Labor,
the district court ruled in favor of the Department, concluding that the trucking company challenging the 2024 Rule does not have standing to do so and also rejecting its various arguments that the 2024 Rule is unlawful.
See
No. 24-cv-00391-KWR-GBW, 2025 WL 56658 (D.N.M. Jan. 9, 2025). The trucking company appealed to the Tenth Circuit Court of Appeals, which has stayed the appeal.
In
Littman
v.
Department of Labor,
the district court ruled in favor of the Department without addressing the legality of the 2024 Rule, affirming the magistrate judge's report and recommendation that found that the
freelancers challenging the 2024 Rule do not have standing to do so.
See
No. 3:24-cv-00194, 2025 WL 763583 (M.D. Tenn. Mar. 11, 2025). The freelancers appealed to the Sixth Circuit Court of Appeals, and that appeal has been stayed by the court's Mediation Office.
In
Coalition for Workforce Innovation
v.
Walsh,
the business associations that had challenged the Delay and Withdrawal Rules amended their complaint following remand to challenge the 2024 Rule. Dkt. No. 40, No. 1:21-CV-130 (E.D. Tex. Mar. 5, 2024). In 2024, the business associations filed a motion for summary judgment arguing that the 2024 Rule is unlawful, and the Department filed a cross-motion arguing that the case should be dismissed for lack of standing and that it should be granted summary judgment because the 2024 Rule is lawful. The parties fully briefed the motions, and the district court later stayed the case.
On May 1, 2025, WHD published Field Assistance Bulletin (FAB) No. 2025-1, providing enforcement guidance in FLSA cases.
80
FAB No. 2025-1 explained that the Department has taken the position in the lawsuits challenging the 2024 Rule that it is reconsidering the rule, including whether to rescind it. The FAB added that “WHD is currently reviewing and developing the appropriate standard for determining FLSA employee versus independent contractor status,” and advised WHD staff that “WHD will no longer apply the 2024 Rule's analysis when determining employee versus independent contractor status in FLSA investigations.” In its place, “WHD will enforce the FLSA in accordance with [the 2008 version of Fact Sheet #13], and as further informed by [WHD Opinion Letter FLSA2025-2] with respect to any matters for which no payment has been made, directly to individuals or to DOL, for back wages and/or civil money penalties as of May 1, 2025.” FAB No. 2025-1 noted that, “[u]ntil further action is taken, the 2024 Rule remains in effect for purposes of private litigation and nothing in this FAB changes the rights of employees or responsibilities of employers under the FLSA.”
80
The FAB is available at
https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf.
II. Need for Rulemaking
The Department is concerned that the 2024 Rule broadens and generalizes a variation of the longstanding legal analysis in ways that complicate and frustrate its application by workers and businesses. Repeated emphasis on the “whole activity” and little direction regarding how its factors should be used to answer the ultimate question resulted in a rule that fails to provide an analysis for distinguishing between independent contractors and employees under the FLSA that is sufficiently clear and leads to predictable outcomes. The Department is separately concerned that the 2024 Rule's description of several economic reality factors could be viewed as setting a higher bar to find independent contractor status than the law requires. Among other harms, an open-ended balancing analysis of six ambiguous elements can deter businesses from engaging with bona fide independent contractors or induce them intentionally to unnecessarily classify such contractors as employees. Indeed, these and other concerns have been emphasized by many self-identified independent contractors who have participated in the Department's recent rulemakings on this topic. The Department believes that replacing the 2024 Rule with a modified and updated 2021 Rule would avoid this outcome and facilitate the more accurate and predictable classification of individuals, with a familiar and clear analysis drawn from established case law that is more amenable to the modern economy and fully effective in preventing the misclassification of employees. In particular, and as explained in greater detail in section III.E. of this NPRM, the Department believes that the 2021 Rule's elevation of control and opportunity as “core” factors in the analysis used to identify independent contractors better aligns with the Supreme Court's original application of the economic reality test, as well as the ordinary understanding of being in business for oneself. Accordingly, in this rulemaking, the Department is proposing to rescind the 2024 Rule and readopt the analysis provided in the 2021 Rule, with a few modifications, which the Department has successfully applied in WHD investigations.
81
For the reasons provided herein, the Department believes this proposed analysis represents the best construction of the FLSA with respect to whether an individual is an independent contractor or an employee.
81
WHD began applying the 2021 Rule's analysis after the
CWI
Decision (issued on March 14, 2022) in its FLSA cases involving work performed by an alleged independent contractor from March 8, 2021, to March 10, 2024 (
i.e.,
from the 2021 Rule's intended effective date until its rescission by the 2024 Rule).
A. Concerns That the 2024 Rule Fails To Provide Needed Clarity
The principal flaw of the 2024 Rule is its failure to provide effective guidance on how different factors in its multi-factor balancing test should be weighed or applied together. In the absence of such guidance, engaging individuals as independent contractors could be confusing and risky when different factors point to different classification outcomes. Imagine, for example, that a company is evaluating its longstanding relationship with an individual who works from home, has the ability to accept or decline any project without repercussion, sets her own schedule, and negotiates her compensation with the company as well as several other companies with which she works. Under the 2024 Rule, some economic reality factors in this scenario might indicate that the individual is an independent contractor—
i.e.,
the company's lack of control over her, her opportunity for profit and loss, and her skill and business-like initiative.
82
However, other factors might indicate an employment relationship—
i.e.,
her work may be an “integral part” of the company's business,
83
the parties have a “continuous” (though non-exclusive) relationship,
84
and the individual may lack significant investments (at least in comparison to the company's “investments in its overall business”).
85
In this scenario, although the individual may well be an independent contractor under the 2024 Rule, that outcome may be uncertain because the factors point in different directions and “the weight to give each factor may depend on the facts and circumstances of the particular relationship.”
86
Accordingly, the company might believe that engagement of the individual would require classification of the individual as an employee under the FLSA (which may or may not be possible given both the business's and the individual's circumstances), given that the 2024 Rule lacks clear guidance on how to weigh the factors, repeatedly emphasizing the totality not only of the six factors but all potentially relevant considerations. One can point to a myriad of additional scenarios involving workers who are in business for themselves (and thus are bona fide independent contractors), but where two or more factors from the 2024 Rule arguably indicate an employment relationship, particularly in industries where those workers are “integral” to the businesses in those industries.
82
See
29 CFR 795.110(b)(1), (4), (6).
83
29 CFR 795.110(b)(5).
84
See
29 CFR 795.110(b)(3).
85
See
29 CFR 795.110(b)(2).
86
29 CFR 795.110(a)(2).
As Judge Frank Easterbrook noted in 1987, “`[economic] reality' encompasses millions of facts, and unless we have a
legal rule with which to sift the material from the immaterial, we might as well examine the facts through a kaleidoscope. Which facts matter, and why? A legal approach calling on judges to examine all of the facts, and balance them, avoids formulating a rule of decision.”
87
It is precisely this ambiguity that motivated the Department to initially propose regulatory guidance for analyzing employee or independent contractor status under the FLSA in 2020.
88
In that rulemaking, after reviewing decades of judicial decisions applying
Silk
and
Rutherford,
the Department determined that courts tended to focus on two economic reality factors—control and the opportunity for profit or loss. The Department determined that courts tended to treat the direction in which they pointed as a reliable indicator of employee or independent contractor status, effectively—if not formally—giving them more weight and an elevated status. As the Department explained, control and opportunity “strike at the core of what it means to be in business for oneself.”
89
It is logical that those factors would and should have more weight in assessing the legality of an independent contractor arrangement than the ancillary considerations regarding the skill of the individual worker at issue, the permanency of the individual's relationship with a particular business, and whether the work is an “integral part” of that business.
90
87
Sec'y of Labor
v.
Lauritzen,
835 F.2d 1529, 1539 (7th Cir. 1987) (Easterbrook, J., concurring).
88
For example, Judge Easterbrook has generally observed that “[u]nless some obstacle such as inexperience with the subject, a dearth of facts, or a vacuum in the statute books intervenes, we should be able to attach legal consequences to recurrent factual patterns. Courts have had plenty of experience with the application of the FLSA to migrant farm workers. Fifty years after the Act's passage is too late to say that we still do not have a legal rule to govern these cases.”
Id.
89
86 FR 1199. The 2021 Rule reflected thoughtful analysis of the caselaw that has situated the core of the employee vs. independent contractor analysis in the control and opportunity for profit and loss factors. The 2024 Rule does not cite a single case where these two core factors (when pointing to the same classification) were overridden.
90
See
86 FR 1196-97.
In the Department's recent rulemakings on this topic, numerous self-identified independent contractors and businesses that engage independent contractors commented positively on the 2021 Rule for its identification of control and opportunity as “core” factors in the FLSA's multi-factor economic reality test.
91
As a policy matter, these commenters asserted that the Department's identification of core factors brought helpful clarity and assurance. In the 2024 Rule, the Department largely rejected such policy arguments, believing that identifying “core” and “non-core” factors “would . . . likely [cause] confusion and uncertainty” if left in place.
92
Upon reconsideration, the Department finds compelling the sentiment expressed by workers and businesses who did not share that view and sought added clarity in how different factors from the economic reality test should be balanced in predictable ways. As described in greater detail in section III of this NPRM, the Department can apply an economic reality test grounded in federal case law that provides more clarity to interested stakeholders than an unguided “totality-of-the-circumstances analysis” in which “the weight to give each factor may depend on the facts and circumstances of the particular relationship.”
93
In advising the public on how it intends to weigh different economic reality factors, the Department can and should do better than “it depends.”
Grossbaum
v.
Indianapolis-Marion Cnty. Bldg. Auth.,
100 F.3d 1287, 1299 (7th Cir. 1996) (noting Judge Easterbrook's observation that real world actors need guidance ahead of time rather than critiques afterward).
91
See
86 FR 1197 (2021 Rule); 86 FR 24308-09 (Withdrawal Rule); 89 FR 1650, 1666-67 (2024 Rule).
92
89 FR 1654.
93
29 CFR 795.110(a)(2).
The Department is additionally concerned that the 2024 Rule features numerous redundancies in its description of the different factors, which the 2021 Rule sought to eliminate to facilitate the proper, clear, and reliable application of the analysis. For example, the phrases “managerial skill (including initiative or business acumen or judgment),” “business-like initiative,” and “independent business initiative” appear in the guidance provided for three different factors in the 2024 Rule.
94
Both the “control” and the “opportunity for profit or loss” factors consider whether the worker determines or negotiates their pay.
95
The “opportunity” factor considers “whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space,”
96
despite a separate factor examining “evidence of capital or entrepreneurial investment.”
97
The control factor examines “whether the potential employer . . . explicitly limits the worker's ability to work for others” or “places demands or restrictions on workers that do not allow them to work for others,”
98
while the “permanence” factor separately inquires whether “the work relationship is . . . exclusive of work for other employers.”
99
Finally, the “permanence” factor states in circular fashion that an impermanent work arrangement is only indicative of independent contractor status if it is “based on the worker being in business for themself,”
100
which of course is the overarching inquiry of the economic reality test.
101
And, the factor further states that a worker must be “marketing their services or labor to multiple entities” for an impermanent relationship to be indicative of independent contractor status, when “whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work” is separately considered under the 2024 Rule's “opportunity” factor.
102
94
29 CFR 795.110(b)(1), (3), and (6).
95
Compare
29 CFR 795.110(b)(1) (examining “whether the worker determines or can meaningfully negotiate the charge or pay for the work provided”)
with id.
at 795.110(b)(4) (examining “control over prices or rates for services . . . provided by the worker”).
96
29 CFR 795.110(b)(1).
97
29 CFR 795.110(b)(2).
98
29 CFR 795.110(b)(4).
99
29 CFR 795.110(b)(3). The 2024 Rule also addressed ability to work for others in its preamble discussion of the “investments” factor.
See
89 FR 1681 (“A worker's investments are most likely to be capital or entrepreneurial in nature if they create or further the worker's ability to work for multiple employers.”).
100
29 CFR 795.110(b)(3).
101
29 CFR 795.110(a)(1) (advising that employee or independent contractor status turns on “whether the worker is economically dependent on the potential employer for work or is in business for themself”).
102
29 CFR 795.110(b)(1). Marketing is also arguably an example of “business-like initiative,” a required element of the “skill and initiative” factor in 29 CFR 795.110(b)(6).
The Department acknowledged in the preamble of the 2024 Rule that “certain relevant facts may overlap among the factors,” but explained that it “does not wish to be overly prescriptive” about such overlap for fear of establishing “a formulaic or rote analysis” that would not be “flexible enough to apply to all kinds of work, and all kinds of workers.”
103
While some degree of factual overlap may be inevitable in a multifactor analysis, the Department now believes that the 2024 Rule crosses the line from natural overlap into unhelpful repetition—particularly where the same concepts (such as “business initiative”) are presented as required elements of multiple factors and are applied for different purposes. These redundancies risk confusing businesses and workers alike, creating uncertainty about whether the same considerations must be counted
multiple times or weighed differently depending on the factor in which they appear. The Department believes that a more concise articulation of each factor, with a clearer delineation of which considerations are most relevant to each, would enhance the clarity and utility of the Department's regulatory guidance on the economic reality test.
103
89 FR 1670.
Ultimately, the Department is concerned that the framework set forth in the 2024 Rule was too general and expected that workers and businesses assess the notion of “economic reality” with six broad and vague factors, as well as any other information that might be relevant—or later deemed relevant—without any direction regarding how those factors should be applied. In this way, the 2024 Rule failed to facilitate proper classification of workers. Instead, the Department believes that the vagueness of the 2024 Rule, and its lack of predictable application, pressured businesses to unnecessarily classify bona fide independent contractors as employees. Although “economic reality” may be an imprecise concept, the Department believes that in most instances, the proper classification of workers under the law can—and should—be reasonably certain and predictable.
B. Concerns That the 2024 Rule's Description of the Factors May Have a Chilling Effect on Independent Contracting Arrangements and Departs From the Supreme Court's Application
In addition to concerns about the 2024 Rule's lack of clarity, the Department has concerns that the 2024 Rule could be viewed as more restrictive of independent contracting than the law requires. As explained below and consistent with comments received during the 2024 rulemaking, the Department is concerned that several of the economic reality factors in the 2024 Rule are described in ways (particularly by including additional considerations that must be met for the factor to indicate independent contractor status) that make proper classification of independent contractors more difficult than the law requires, pressures the unnecessary classification of such workers as employees, or tilts the analysis to make classification in one direction more difficult with more attendant legal risk than the other. In the 2024 Rule, the Department stated that it was attempting to reflect the ways in which a number of courts have viewed the various considerations within the factors. Upon further consideration, the Department believes that referencing a multitude of additional considerations within the factors not only departs from the Supreme Court's articulation of the factors, but also could have a chilling effect on independent contractor arrangements involving individuals who are, in fact, in business for themselves. Readopting the streamlined analysis in the 2021 Rule better aligns with the Court's precedent and reduces these risks.
The “investments” factor at 29 CFR 795.110(b)(2) is instructive. Before the 2024 Rule, when the Department would enumerate the multi-factor economic reality test for assessing independent contractor arrangements, the Department's description of the investments factor would generally focus on any investments (or lack thereof) made by the individual worker.
104
However, the 2024 Rule expanded this factor to examine “investments by the worker
and the potential employer,
” with guidance elaborating that “the worker's investments should be considered on a relative basis with the potential employer's investments in its overall business.”
105
The Department recognizes that this additional consideration of comparing the worker's investment to the potential employer's investment is applied by some courts, but that approach has no support in Supreme Court cases. This is notable given how close in time the key Supreme Court decisions were to the enactment of the FLSA. But as explained in section III.F.2. below, the Supreme Court has
never
compared investments and instead has focused exclusively on the worker when considering investments.
104
See
WHD Fact Sheet #13 (July 2008),
https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf
(assessing “[t]he amount of the alleged contractor's investment in facilities and equipment”);
see also, e.g.,
WHD Op. Ltr. (June 23, 1949) (examining “the amount of the so-called `contractor's' investment in facilities or equipment”); WHD Op. Ltr. (Aug. 13, 1954) (examining “the amount of investment on the part of the one who performs the service”); WHD Op. Ltr. FLSA2019-6 (April 29, 2019) (considering “the amount of the worker's investment in facilities, equipment, or helpers”).
105
29 CFR 795.110(b)(2) (emphasis added).
Moreover, comparing investments diminishes the probative value of the investment. An independent contractor's investments will almost invariably be smaller than any corporate client's “investments in its overall business,” and so counterfactually tends to indicate employee status.
106
In response to commenter concerns on this point, the Department recognized the problem and clarified in the final 2024 Rule regulatory text that the “worker's investments need not be equal to the potential employer's investments and should not be compared only in terms of the dollar values of investments or the sizes of the worker and the potential employer.”
107
Even with that clarification, however, the 2024 Rule's “investments” factor still undertakes this comparative approach, which is a departure from
Silk
and may obfuscate proper classification of workers.
106
Id.; see
89 FR 1683-84.
107
29 CFR 795.110(b)(2);
see also
89 FR 1684 (explaining that the Department intended for the analysis to “compar[e] the qualitative (rather than primarily the quantitative) value of the investments”).
The 2024 Rule's “permanence” factor, 29 CFR 795.110(b)(3), is another example. The operative text advises that “[t]his factor weighs in favor of the worker being an employee when the work relationship is indefinite in duration, continuous, or exclusive of work for other employers,” while it “weighs in favor of the worker being an independent contractor when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.”
108
Here, the conditional language following the word “sporadic” seems to add further considerations than the law requires in order for an impermanent relationship to indicate independent contractor status. Adding to the perception that it could be more difficult to find that this factor weighs in favor of independent contractor status, the 2024 Rule additionally advises, as some courts have, that “this [permanence] factor is not necessarily indicative of independent contractor status” where “a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ . . . unless the worker is exercising their own independent business initiative.”
109
There is no corresponding language in the other direction, categorically discounting industries where lengthy professional relationships between businesses and independent contractors might be commonplace. The result is a factor framed in a way that may indicate the existence of an FLSA employment relationship when permanence exists but unnecessarily require additional considerations to indicate independent contractor status when permanence does not exist.
108
29 CFR 795.110(b)(3).
109
Id.; see
89 FR 1688 and n.330.
The 2024 Rule's “skill and initiative” factor operates in a similar fashion and also deviates from Supreme Court
precedent. The operative regulatory text begins with straightforward guidance that a lack of skills indicates that a worker is an employee: “This factor indicates employee status where the worker does not use specialized skills in performing the work or where the worker is dependent on training from the potential employer to perform the work.”
110
However, the guidance does not correspondingly state that specialized skills indicate that the worker is an independent contractor and instead inserts an additional consideration that must be met for this factor to indicate that a worker with specialized skills is an independent contractor: “Where the worker brings specialized skills to the work relationship, this fact is not itself indicative of independent contractor status because both employees and independent contractors may be skilled workers. It is the worker's use of those specialized skills in connection with business-like initiative that indicates that the worker is an independent contractor.”
111
Here again, the Department recognizes that this approach is applied by some courts, but the 2024 Rule articulates this factor in a way that makes it more difficult than the law requires to establish that a worker might be an independent contractor rather than an employee. While it is true that “both employees and independent contractors may be skilled workers,” the converse is also true, as other workers who may not possess “specialized skills” are both employees and independent contractors. Moreover, although the 2024 Rule's consideration of initiative as part of the skill factor is supported by some courts, the Supreme Court has not considered initiative in terms of skill. Instead, and as discussed in section III.G.1, it has consistently analyzed whether initiative contributes to the success or profitability of the claimed independent business.
112
110
29 CFR 795.110(b)(6).
111
Id.
112
Silk,
331 U.S. at 716 (finding that truck drivers “depend upon their own initiative, judgment and energy for a large part of their success”);
Rutherford Food,
331 U.S. at 730 (finding that workers' “profits” did not depend “upon the initiative, judgment or foresight of the typical independent contractor”).
The 2024 Rule's “integral” factor departs from
Rutherford Food'
s guidance to consider whether a worker is part of an integrated unit, and it may also unreasonably frustrate finding independent contractor status where appropriate, because this factor weighs in favor of employee status when his or her work is “critical, necessary, or central to the potential employer's principal business.”
113
In some sense, all work performed is in some way necessary to the employer's business. If not, the business would not pay for it to be performed.
114
Indeed, several commenters expressed concerns that the integral factor would “effectively subsume” all independent contractors into employment status because businesses do not pay employees or independent contractors to engage in work that is not in some sense critical or necessary to their operations.
115
Finally, in its descriptive guidance for the “control” factor, the 2024 Rule gives several examples of facts relevant to a potential employer's control over workers but does not provide similar examples of facts relevant to a worker's control, further implying that this factor is not a balanced aid in determining proper classification.
116
113
29 CFR 795.110(b)(5).
114
Lauritzen,
835 F.2d at 1539 (Easterbrook, J., concurring) (“
Everything
the employer does is `integral' to its business—why else do it?”).
115
89 FR 1710.
116
29 CFR 795.110(b)(4).
Taken together, these aspects of the 2024 Rule appear to be misaligned with the Supreme Court's analysis and may have created the perception of an economic reality test with a number of considerations that would make it harder to conclude that an individual who is in business for him- or herself is an independent contractor. While the Department maintains that preventing the misclassification of FLSA-covered employees as independent contractors is an important policy goal, it is equally important that the Department's guidance not be viewed as chilling independent contracting arrangements that comply with the statute.
C. Concerns Over the 2024 Rule's Compatibility With the Modern Economy
In the 2021 Rule, the Department explained that certain technological and social changes have made the traditional articulation of the economic reality test more difficult to apply in the modern economy. For example, it highlighted the effects of several types of change, including societal transition from a predominantly industrial-based to a more knowledge-based economy and shorter job tenures among employees.
117
In 2024, the Department disagreed with its past statements and arguments from some commenters that the 2021 Rule was better suited to the modern economy, asserting that “[m]odern work arrangements . . . are best addressed using the [2024 Rule's] economic reality test, which considers the totality of the circumstances in each working arrangement and offers a flexible, comprehensive, and appropriately nuanced approach which can be adapted to disparate industries and occupations.”
118
However, as discussed earlier in section II.A., generalizing the legal analysis in ways that expand “flexibility” can undermine the utility of a rule—namely to clarify the proper application of statutory provisions, which provides regulated entities with the reasonable certainty and predictability they need to do business. This is particularly true for practices which might be novel and innovative. Moreover, in the 2024 Rule, the Department did not address, much less refute, the points made by the 2021 Rule that the predictive accuracy of certain economic reality factors (investments, permanence, and integrality) may be waning due to recent workplace trends. These trends are no less true today than they were in 2021, reinforcing the need for prioritization among the factors of the economic reality test.
117
See
86 FR 1175.
118
89 FR 1649.
D. Concerns Over Negative Effects if the 2024 Rule Is Left in Place
As a downstream consequence of all the risks described above, the Department is concerned that leaving the 2024 Rule in effect could lead to undesirable outcomes that are not required by, and may be inconsistent with, the law. Specifically, a classification analysis that amplifies ambiguity or is perceived as overly restrictive of independent contracting may deter bona fide independent contracting and related efficiencies and innovations in the broader economy. As the Department acknowledged in the 2024 Rule, “independent contractors and small businesses play an important role in our economy.”
119
Independent contracting offers individuals the ability to control when, where, and how they work, and it provides businesses—particularly small enterprises and new ventures—with access to specialized skills and scalable workforces.
120
119
89 FR 1646.
120
See, e.g.,
Liya Palagashvili,
Exploring How Regulations Shape Technology Startups,
Mercatus Research 23 (May 2021),
https://www.mercatus.org/media/74416/
(reporting that 57 percent of surveyed tech startups indicated that the use of independent contractors was “an indispensable or essential part of their business models”).
While independent contractors are not entitled to FLSA protections, they often prize the autonomy and flexibility their work affords; indeed, many pursue contracting arrangements as a preferred
mode of work.
121
A rule that operates to complicate or discourage these arrangements may inadvertently limit work opportunities for individuals seeking flexibility due to caregiving responsibilities, education, retirement, geographic constraints, or other personal circumstances. For businesses, unclear regulations can deter growth and investment. To the extent that the 2024 Rule curtails or discourages legitimate independent contracting, investment, and innovation, it may lead to negative effects on consumers, who may face higher prices and a reduced number of alternatives to meet their needs. These potential effects are discussed in greater detail in the preliminary regulatory impact analysis for this proposed rule in section IV of this NPRM.
121
For example, in 2023, the Bureau of Labor Statistics reported that 80.3 percent of independent contractors prefer their work arrangement, compared to just 8.3 percent who would prefer a “traditional work arrangement.” Bureau of Labor Statistics, U.S. Department of Labor,
Contingent and Alternative Employment Arrangements—July 2023,
USDL-24-2267 (Nov. 8, 2024),
https://www.bls.gov/news.release/pdf/conemp.pdf.
The Department notes that to the extent the discussion herein could be interpreted to mean that individuals may choose whether to be an employee or an independent contractor as a matter of law under the FLSA, as discussed in the 2021 Rule, “workers who are employees under the facts and law [may not] waive the FLSA's protections by classifying themselves as independent contractors.” 86 FR 1179;
see also
89 FR 1671 (similar discussion in 2024 Rule preamble).
In 2024, the Department explained that its rulemaking to rescind and replace the 2021 Rule was motivated, in part, by concerns that the 2021 Rule had “increased the risk of worker misclassification” by “improperly narrow[ing] the focus of the inquiry in a way that may have led employers to believe the test no longer includes as many considerations,” asserting that “confusion and misapplication of [the 2021 Rule] could deprive many workers of protections they are entitled to under the FLSA.”
122
However, apart from highlighting statements made by some commenters,
123
the Department did not present any evidence or otherwise demonstrate that the 2021 Rule was actually being misapplied in ways that resulted in the misclassification of FLSA-covered employees as independent contractors.
124
To the contrary, the Department issued numerous press releases contemporaneous to the 2022-2024 rulemaking announcing successful enforcement actions where WHD applied the 2021 Rule's analysis.
125
This suggests that the 2021 Rule was no impediment to the Department to appropriately identify, pursue, and remedy the unlawful misclassification of FLSA-covered employees as independent contractors, consistent with its duty to enforce the FLSA.
122
89 FR 1658.
123
89 FR 1656-57.
124
See
89 FR 1726 (suggesting in the 2024 Rule's regulatory impact analysis that the 2024 Rule “
may
reduce misclassification of employees as independent contractors” to the extent that “confusion about how to apply the analysis in the 2021 IC Rule . . .
could
lead to misclassification”) (emphasis added).
125
See, e.g.,
US Department of Labor Recovers $168K in Back Wages for 51 Storm Recovery Workers Misclassified as Independent Contractors, Denied Overtime, WHD Press Release (Jan. 23, 2024),
https://www.dol.gov/newsroom/releases/whd/whd20240123
; US Department of Labor Recovers $532K in Back Wages for 67 Workers After Montgomery Home Care Employer Misclassifies Them as Contractors, WHD Press Release (Nov. 14, 2023),
https://www.dol.gov/newsroom/releases/whd/whd20231114-0
; Department of Labor Recovers $1.6M in Back Wages, Damages from North Carolina Contractor for 188 Workers Misclassified as Independent Contractors, WHD Press Release (Aug. 9, 2023),
https://www.dol.gov/newsroom/releases/whd/whd20230809.
Correctly classifying workers, whether as employees or independent contractors, remains vitally important to the proper application and enforcement of the FLSA. One of the most effective ways to prevent misclassification is to clarify how workers and businesses may properly and reliably apply the appropriate analysis across a wide array of industries, companies, and individual working arrangements. The Department's role is not to incentivize or disincentivize companies from classifying workers as employees or independent contractors, either by placing a regulatory finger on one side of the scale or the other or by allowing legal ambiguity to discourage the correct classification of individuals. In this rulemaking, the Department proposes a rule that is more consistent with Supreme Court precedent, provides a more cogent synthesis of the over 80 years of case law since the FLSA's passage that have helped to define the relevant statutory terms, and also seeks to minimize potential negative effects on independent contractors and their business partners while still effectively addressing misclassification and abuse.
E. The Need for Uniformity and Consistency in the Analysis of Employee or Independent Contractor Status Under the FLSA, FMLA, and MSPA, Which Share the Same Statutory Definitions of Employment
As noted earlier, the FMLA and MSPA both incorporate the FLSA's broad definition of “employ,” including “to suffer or permit to work.”
See
29 U.S.C. 2611(3) (FMLA); 29 U.S.C. 1802(5) (MSPA). Thus, it has been the Department's longstanding position that the analysis for determining whether a worker is an employee or an independent contractor should be the same under all three statutes—
i.e.,
the analysis which applies under the FLSA.
However, the Department's regulations do not currently reflect a single standard for the three statutes.
126
For example, the MSPA regulation currently notes that MSPA and the FLSA share the same employment definitions,
see
29 CFR 500.20(h)(1)-(3), and advises that a determination of employee or independent contractor status “may include consideration of whether” there is an employee or independent contractor relationship under the FLSA,
see
29 CFR 500.20(h)(4). However, the regulation also advises that determining whether agricultural workers or farm labor contractors are independent contractors “should be resolved in accordance with the factors set out” in 29 CFR 500.20(h)(4), “based upon an evaluation of all of the circumstances.”
127
Those factors are not exactly the same as the factors that the Department is proposing to adopt in this NPRM, and of particular relevance, the MSPA regulation does not—like this proposal—advise how to weigh the factors. There are also differences between the economic reality factors in the MSPA regulation and some of the factors described in the 2024 Rule and the analysis from FAB 2025-1 that the Department is currently applying. Thus, retaining the MSPA regulation's instruction to assess employee or independent contractor status “in accordance with” that regulation's enumerated factors could create uncertainty over whether the FLSA guidance issued by the Department on this topic—including the analysis proposed in this rulemaking—also applies in MSPA cases.
126
The FMLA and MSPA both authorize the Department to issue regulations interpreting their provisions.
See
29 U.S.C. 2654 (FMLA); 29 U.S.C. 1861 (MSPA).
127
29 CFR 500.20(h)(4) further advises that the determination should also be made in accordance with “the principles articulated by the federal courts in” five cited court decisions—
Rutherford Food,
331 U.S. 722, and four appellate cases addressing the FLSA employment status of farm labor contractors or agricultural workers.
See Driscoll,
603 F.2d 748;
Lauritzen,
835 F.2d 1529;
Beliz
v.
McLeod & Sons Packing Co.,
765 F.2d 1317 (5th Cir. 1985); and
Castillo
v.
Givens,
704 F.2d 181 (5th Cir. 1983).
Failing to make conforming edits to the MSPA regulation risks confusing agricultural employers, agricultural associations, and farm labor contractors which might be subject to both the FLSA and MSPA, as well as the agricultural workers that such entities engage. Revising the MSPA regulation
(29 CFR 500.20(h)(4)) to conform it to the Department's FLSA regulatory guidance would resolve these concerns and provide uniformity between MSPA and the FLSA on this issue.
The FMLA regulation's guidance for assessing employee or independent contractor status could be similarly unclear if conforming edits are not made. The regulation defines “Employee” in 29 CFR 825.102 as having the same meaning as that term has under the FLSA and notes that the “definition of employ for purposes of FMLA is taken from the [FLSA],” 29 CFR 825.105(a). However, the FMLA regulation does not mention the economic reality factors used to distinguish between employees and independent contractors under the FLSA or advise how the factors should be weighed. Instead, the regulation explains generally that “courts have said that there is no definition that solves all problems as to the limitations of the employer-employee relationship.”
Id.
It further advises that “an employee, as distinguished from an independent contractor who is engaged in a business of his/her own, is one who `follows the usual path of an employee' and is dependent on the business which he/she serves.”
Id.
This language, although accurate in describing the overall analysis, could be misinterpreted as suggesting that—unlike the FLSA (and MSPA)—there is no set of factors for distinguishing between employees and independent contractors in FMLA cases. The Department did not intend to create or imply any discrepancy between the FMLA and FLSA when it added the language in 29 CFR 825.105(a) in 1995.
128
The Department believes that adding cross-references to part 795 in 29 CFR 825.102 (definition of “Employee”) and 825.105(a) would address this concern and provide useful guidance when making the determination under the FMLA.
128
See
60 FR 2186 (“If a particular arrangement in fact constitutes an employee-employer relationship within the meaning of the FLSA (and case law thereunder) as contemplated by the statutory definitions, and the `employee' satisfies FMLA's eligibility criteria, the employee is entitled to FMLA's benefits. A true independent contractor relationship within the meaning of the FLSA would not constitute an employee-employer relationship.”).
The risk that employee or independent contractor status under the FMLA could be assessed without applying FLSA principles is not merely theoretical. In
Alexander
v.
Avera St. Luke's Hospital,
768 F.3d 756, 763-64 (8th Cir. 2014)—the only federal circuit-court-level case to decide such a dispute arising under the FMLA—the Eighth Circuit expressly declined to apply an FLSA economic reality test to determine whether the plaintiff was an employee or independent contractor. While acknowledging that the FMLA incorporates the FLSA's “suffer or permit” language, the Eighth Circuit concluded that “simply applying” an FLSA economic reality test in that FMLA case would “not [be] appropriate,” noting that the plaintiff's “work in a `professional capacity' was totally exempt from the FLSA's minimum standards.”
Id.
at 763 (citing 29 U.S.C. 213(a)(1)). The Department believes that the Eighth Circuit's approach in
Alexander,
even if limited to cases where the worker would be exempt from the FLSA if an employee, is inconsistent with the FMLA's statutory text and the Department's regulations and guidance, as well as the approach taken by most federal district courts, which do apply an FLSA economic reality test to adjudicate employee or independent contractor disputes under the FMLA.
See, e.g., Hay
v.
ALH Admin. Servs.,
283 F. Supp. 3d 1273, 1276 (M.D. Fla. 2017);
Nichols
v.
All Points Transp. Corp. of Mich., Inc.,
364 F. Supp. 2d 621, 630 (E.D. Mich. 2005);
Edwards
v.
Cmty. Enters., Inc.,
251 F. Supp. 2d 1089, 1103 (D. Conn. 2003).
Although the Department is not aware of any court that has declined to apply an economic reality test under MSPA, several courts have cited to the Department's MSPA regulation and applied its formulation of the economic reality test at 29 CFR 500.20(h)(4) to determine whether an individual is an independent contractor or employee under MSPA.
See, e.g., Fanette
v.
Steven Davis Farms, LLC,
28 F. Supp. 3d 1243, 1255-56 (N.D. Fla. 2014);
Arredondo
v.
Delano Farms Co.,
922 F. Supp. 2d 1071, 1075-82 (E.D. Cal. 2013);
Luna
v.
Del Monte Fresh Produce (Se.), Inc.,
No. 1:06-CV-2000-JEC, 2008 WL 754452, at *7-9 (N.D. Ga. Mar. 19, 2008). Of course, it is entirely appropriate for courts to apply the Department's MSPA regulation to adjudicate employee or independent contractor disputes under MSPA, as the Department's MSPA regulation is a legislative rule issued pursuant to an express delegation of rulemaking authority that is binding on regulated entities.
129
However, to the extent the MSPA regulation's specific articulation of the economic reality test differs in meaningful ways from the Department's FLSA guidance (including the analysis proposed in this rulemaking), the Department does not believe it is appropriate to have separate economic reality tests for employee or independent contractor status under laws which share the same statutory definitions for employment.
129
See
29 U.S.C. 1861. The Supreme Court has advised that legislative rules which carry the “force and effect of law” are those which: (1) “affect[ ] individual rights and obligations”; (2) are “rooted in a grant of [legislative] power by the Congress”; and (3) are “promulgat[ed] . . . [in] conform[ity] with any procedural requirements imposed by Congress.”
Chrysler Corp.
v.
Brown,
441 U.S. 281, 302-03 (1979) (internal quotation marks omitted). Similarly, the Department's FMLA regulation is a legislative rule issued pursuant to express rulemaking authority.
See
29 U.S.C. 2654.
The Department declined to revise the MSPA regulations in the 2021 and 2024 Rules as it did not see a compelling need to do so at those times,
130
emphasizing in the 2021 Rule, for example, the Department's preference to “proceed incrementally.”
131
However, the Department recognizes that many stakeholders desire greater uniformity in the analysis for determining employee or independent contractor status across federal laws that explicitly share common statutory terms. As a result, the Department now agrees that it should make clear that the analysis is consistent under the FLSA, FMLA, and MSPA because these statutes share the same relevant FLSA provisions.
130
See supra
sections I.C. and I.E. The Department did not address the FMLA in the 2021 or 2024 Rules.
131
86 FR 1177;
see also
89 FR 1664 (explaining in the 2024 Rule that the Department was “not revising the MSPA regulation
at this time”
) (emphasis added).
In sum, the Department's proposed edits to the FMLA and MSPA regulations are motivated by the fact that the analysis for distinguishing between employees and independent contractors should be the same under those statutes as it is under the FLSA. Workers and businesses alike would benefit from the simplicity and certainty of having a single uniform standard for assessing employee or independent contractor status under all three laws.
F. Request for Comments
The Department invites comments on the need for this rulemaking. The Department specifically welcomes comments on its preliminary reassessment of the 2024 Rule and of any consequences, positive or negative, which have occurred since the 2024 Rule took effect last year. The Department additionally seeks comments on whether any aspects of the 2024 Rule should be retained, and if there have been any significant economic or labor changes since 2021 that should inform this rulemaking. Further, the Department seeks comments on the impact and effects of the 2021 Rule during the period when
it was in effect, and how that may additionally inform the Department's proposal to readopt the 2021 Rule's analysis, as modified. Finally, the Department welcomes comments on its proposal to provide a uniform standard for employee or independent contractor status under the FLSA, FMLA, and MSPA.
III. Proposed Regulatory Provisions
For all of the reasons discussed in section II of this NPRM, the Department is proposing to rescind the 2024 Rule's regulatory guidance on employee or independent contractor classification (presently at 29 CFR part 795) and, separately, to readopt the 2021 Rule's regulatory guidance on independent contractor classification in part 795 with a few modifications. In the Department's view, rescission of the 2024 Rule would operate independently of any regulatory guidance adopted in its place, as the Department intends for its proposed rescission of the 2024 Rule to be independent and severable from its proposal to readopt guidance from the 2021 Rule.
As discussed in greater detail below, the proposal to readopt the 2021 Rule's FLSA guidance in part 795, with a few modifications, includes:
• An introductory provision at § 795.100 explaining the purpose of part 795;
• a provision at § 795.105(a) explaining that independent contractors are not employees under the FLSA;
• a provision at § 795.105(b) discussing the “economic reality” test for distinguishing FLSA employees from independent contractors, including that the ultimate inquiry of economic dependence turns on whether an individual is in business for him- or herself (independent contractor) or is economically dependent on an employer for work (employee) (the Department is additionally proposing to provide further context on the meaning of economic dependence, as explained below);
• provisions at § 795.105(c) and (d) describing factors examined as part of the economic reality test, including two “core” or primary factors—the nature and degree of the individual's control over the work and the individual's opportunity for profit or loss—which, as has been the case in many judicial decisions, here too typically carry greater weight in the analysis, as well as three other factors that may serve as additional guideposts in the analysis (although the Department is proposing one minor non-substantive change to the regulatory text at § 795.105(d)(2)(iii), as explained below);
• a provision at § 795.110 advising that the parties' actual practice is more relevant than what may be contractually or theoretically possible;
• fact-specific examples at § 795.115 (although the Department is proposing minor updates to one example from the 2021 Rule and to add two new examples, as explained below); and
• a severability provision at § 795.120.
Additionally, the Department is proposing to revise the regulations addressing employee or independent contractor status under MSPA and the FMLA so that the analysis in part 795 applies when determining employee or independent contractor status under those statutes too. Specifically, the Department is proposing to revise 29 CFR 500.20(h)(4) in the MSPA regulations to replace the analysis there with a cross-reference to the analysis in 29 CFR part 795, and to revise the definition of “Employee” in 29 CFR 825.102 and the language in 29 CFR 825.105(a) to incorporate into the FMLA regulations the analysis for determining employee or independent contractor classification in 29 CFR part 795.
The Department is not proposing to amend the existing versions of 29 CFR 780.330(b) and 788.16(a), which the 2024 Rule updated to include cross-references to the guidance at 29 CFR part 795.
132
132
See
89 FR 1725 (explaining changes to 29 CFR 780.330(b) and 788.16(a)).
As noted above and for the reasons provided herein, the Department believes this proposed analysis represents the best construction of the FLSA—and by extension the FMLA and MSPA—with respect to whether an individual is an independent contractor or an employee.
A. Introductory Statement (Proposed § 795.100)
The Department is proposing to readopt the regulatory text of § 795.100 from the 2021 Rule, which provided an introductory statement at the beginning of the FLSA regulatory provisions. The introductory statement would advise that: part 795 contains the Department's “general interpretations of the text governing individuals' classification as employees or independent contractors under the [FLSA]”; the WHD Administrator will use the interpretations “to guide the performance of his or her duties under the [FLSA]” and intends them “to be used by employers, employees, and courts to understand employers' obligations and employees' rights under the [FLSA]”; any prior inconsistent or conflicting “administrative rulings, interpretations, practices, or enforcement policies relating to classification as an employee or independent contractor under the [FLSA]” are rescinded; and employers may rely on the interpretations to satisfy the good faith reliance defense in the Portal-to-Portal Act (29 U.S.C. 259), notwithstanding that after any such act or omission in the course of such reliance, any such interpretation is modified or rescinded or is determined by judicial authority to be invalid or of no legal effect.
The Department believes that this introductory statement would provide clarity as to how WHD intends to use part 795 and how employers, businesses, workers, and courts should use part 795. The introductory statement would also address how part 795 relates to prior interpretations, providing further clarity to the public. Finally, the introductory statement would explain how employers can rely on part 795 for purposes of the good faith reliance defense in the Portal-to-Portal Act.
The Department's proposal that became the 2024 Rule stated that the Department was “proposing only clarifying edits” to the § 795.100 published in the 2021 Rule,
133
and the 2024 Rule adopted proposed § 795.100 as the introductory statement “without change” and described it as “very similar to the 2021 IC Rule introductory statement, except to note that these regulations would be interpretive guidance.”
134
133
87 FR 62233.
134
89 FR 1664.
The Department believes that the version of the introductory statement in the 2021 Rule more clearly and concisely summarizes the purposes of part 795 and, therefore, is proposing to readopt that version. In any event, the Department reiterates that proposed § 795.100 (from the 2021 Rule) is very similar to current § 795.100 (from the 2024 Rule).
B. Determining Employee and Independent Contractor Classification Under the FLSA (Proposed § 795.105)
As explained in the following sections of this NPRM, the Department is proposing to readopt the analysis for determining employee or independent contractor classification under the FLSA that it published as § 795.105 of the 2021 Rule.
C. Independent Contractors Are Not Employees Under the Act (Proposed § 795.105(a))
The Department is proposing to readopt the regulatory text of § 795.105(a) from the 2021 Rule, which explained that independent contractors are not employees under the FLSA. In the 2021 Rule, the Department explained that an individual who renders services to a person (a putative or potential employer) as an independent contractor is not an employee of that person under the FLSA, which means that the minimum wage, overtime pay, and recordkeeping obligations for employers under sections 6, 7, and 11 of the FLSA do not apply with respect to services received from the independent contractor.
135
135
86 FR 1177-78.
The 2024 Rule contained a similar provision (current 29 CFR 795.105(a)), explaining that the FLSA's minimum wage, overtime pay, and recordkeeping obligations apply only to workers who are covered employees under the FLSA, and that workers who are independent contractors are not covered by these protections.
136
The Department is therefore proposing in this section to adopt explanatory guidance that it has consistently provided across rulemakings.
136
89 FR 1664-66.
D. Economic Dependence as the Ultimate Inquiry (Proposed § 795.105(b))
The Department is proposing to readopt, with a few modifications, the regulatory text of § 795.105(b) from the 2021 Rule, which explained, as the Supreme Court and courts of appeals have long held, that economic dependence is the ultimate inquiry when determining an individual's status under the FLSA. This section would reference the relevant statutory text, explaining that an “employee” under the FLSA is an individual whom an employer suffers, permits, or otherwise employs to work.
See
29 U.S.C. 203(e)(1), (g). It would further explain that an employer suffers or permits an individual to work as an employee if, as a matter of economic reality, the individual is economically dependent on that employer for work, as distinguished from an independent contractor, who is in business for him- or herself.
In the 2021 Rule, the Department explained that the “touchstone” of the economic reality test is “economic dependence,” that is the nature or character of that dependence, as all workers, whether employees or independent contractors, are dependent on others. 86 FR 1178. As the 2021 Rule further explained: “`Economic dependence is
not
conditioned reliance on an alleged employer for one's primary source of income, for the necessities of life.' ”
Id.
(quoting
Brock
v.
Mr. W Fireworks, Inc.,
814 F.2d 1042, 1054 (5th Cir. 1987)). Rather, courts have framed the question as “ `whether, as a matter of economic reality, the workers depend upon someone else's business for the opportunity to render service or are in business for themselves.' ”
Id.
(quoting
Saleem,
854 F.3d at 139). Moreover, the Department observed in the 2021 Rule that some courts have relied on a worker's entrepreneurship with respect to one type of work to conclude that the worker was also in business for him- or herself in a second, unrelated type of work, but that this “approach is inconsistent with the Supreme Court's instruction that the economic reality analysis be limited to `the claimed independent operation.' ”
Id.
(quoting
Silk,
331 U.S. at 716). Thus, “the relevant question in this context is whether the worker providing certain service to a potential employer is an entrepreneur `in that line of business.' ”
Id.
(quoting
Mr. W Fireworks,
814 F.2d at 1054). Otherwise, businesses would be required to make FLSA classification decisions based on facts outside of the working relationship.
Id.
The 2024 Rule contained a similar provision (current 29 CFR 795.105(b)), explaining that economic dependence is the ultimate inquiry for determining whether a worker is an independent contractor or an employee and clarifying that economic dependence does not focus on the amount the worker earns or whether the worker has other sources of income. 89 FR 1665. The Department is therefore providing explanatory guidance that it has consistently provided across rulemakings that economic dependence for work rather than economic dependence for income is the proper inquiry. As the Third Circuit has explained, economic dependence “does not concern whether the workers at issue depend on the money they earn for obtaining the necessities of life . . . . Rather, it examines whether the workers are dependent on a particular business or organization for their continued employment.”
Donovan
v.
DialAmerica Mktg., Inc.,
757 F.2d 1376, 1385 (3d Cir. 1985). As noted in the 2021 Rule, economic dependence does not mean that a worker who works for other employers, earns a very limited income from a particular employer, or is independently wealthy cannot nevertheless be economically dependent on any particular employer for purposes of the FLSA.
See
86 FR 1173;
see also McLaughlin
v.
Seafood, Inc.,
861 F.2d 450, 452 (5th Cir. 1988),
modified on reh'g,
867 F.2d 875 (5th Cir. 1989) (reasoning that “[l]aborers who work for two different employers on alternate days are no less economically dependent than laborers who work for a single employer”);
Halferty
v.
Pulse Drug Co.,
821 F.2d 261, 267-68 (5th Cir. 1987) (rejecting the employer's argument that the worker's wages were too little to constitute dependence). As the Fifth Circuit has explained, “it is not dependence in the sense that one could not survive without the income from the job that we examine, but dependence for continued employment.”
Halferty,
821 F.2d at 268.
Consistent with the explanations above, and to provide further context on the meaning of economic dependence, the Department is proposing the regulatory text of § 795.105(b) from the 2021 Rule with two modifications. The purpose of the first modification would be to clarify the nature and character of the economic dependence that an employee typically has on an employer for work, as distinct from the relationship that a business owner has to another business with which it works. The purpose of the second modification would be to reinforce the Department's consistent guidance that economic dependence for work rather than economic dependence for income is the proper inquiry. Specifically, the Department has added the following sentences to the end of the proposed § 795.105(b): “Though both employees and independent contractors are dependent on others in some sense, economic dependence in this context means the dependence that a typical employee has on an employer for work, as opposed to an individual who has more of the nature and character of a business owner who has a separate business. Economic dependence does not focus on the amount of income the worker earns, or whether the worker has other sources of income.” The Department welcomes comments on the inclusion of this additional context on economic dependence into § 795.105(b).
E. Determining Economic Dependence (Proposed § 795.105(c))
The Department is proposing to readopt the regulatory text of § 795.105(c) from the 2021 Rule, which explained that certain non-exhaustive “economic reality” factors are more probative to the determination of whether the relationship between an
individual and a potential employer is of the sort of economic dependence characteristic of an employee or of an independent contractor. 86 FR 1246 (§ 795.105(c)). As in the 2021 Rule, the Department is proposing that two primary, or “core” economic reality factors described in § 795.105(d)(1)—namely, the control and opportunity for profit or loss factors—are the most probative of whether an individual is an economically dependent “employee,” and that these two core factors will typically carry greater weight in the analysis than any other factor. Thus, these two factors should be considered first, and if both point toward the same classification (either employee or independent contractor), there is a substantial likelihood that is the accurate classification for the individual. The Department is also proposing that the three additional economic dependence, or economic reality, factors described in § 795.105(d)(2)—skill, permanence, and whether the work is part of an integrated unit of production—serve as additional guideposts but are less probative in the analysis (and, in some cases, may not be probative at all). As a result, these “economic reality” factors are very unlikely, either individually or collectively, to outweigh the combined probative value of the two core or primary factors when together they point toward the same classification. As in the 2021 Rule, the Department is proposing that this provision will also explain that all these economic reality factors are not exhaustive, and that no single factor is dispositive.
As the Department explained in the 2021 Rule, this provision is intended to improve the certainty and predictability of the multifactor economic reality test by focusing it, much in the way that many courts have effectively done, on two principal elements, which it labeled “core” factors. 86 FR 1179, 1196. Absent clear, generally applicable guidance about how to balance the broad and overlapping factors and facts encompassed in the multifactor economic reality test, there is an excessive amount of uncertainty as to “which aspects of `economic reality' matter, and why.”
Lauritzen,
835 F.2d at 1539 (Easterbrook, J., concurring);
see also
86 FR 1173. As the Department explained when proposing the 2021 Rule, although the Department and courts historically analyzed “the totality of the circumstances making up the economic reality of the relationship to determine a worker's classification” without “identifying which types of facts or factors are the most important,” the significance of facts may sometimes be unclear or factors may point in opposite directions under this approach, exacerbating uncertainty in the application of the law. 85 FR 60606-07, 60620. And, as noted below, even within the totality of the circumstances and multifactor tests, some courts have tended to focus on the core factors as the primary indicators of whether an individual is an employee or independent contractor. The Department, taking its cue from the courts, sought in the 2021 Rule to provide greater clarity and focus by identifying the two factors it believed were most salient in determining relevant economic dependence, explaining that the two core factors “drive at the heart of what is meant by being in business for oneself: Such a person typically controls the work performed in his or her business and enjoys a meaningful opportunity for profit or risk of loss through personal initiative or investment.” 86 FR 1196. As such, even though no one test can perfectly harmonize the variations of factors, language, and emphasis between the tests of the Supreme Court and circuit courts of appeals, the Department has attempted to distill the central commonality in these approaches to a single framework that workers and employers alike may accurately apply and on which they may confidently rely.
As explained in the 2021 Rule, highlighting the combined probative value of the two core factors in the manner set forth in the regulatory text proposed in § 795.105(c) is supported by case law. The Supreme Court has never required a factor-by-factor analysis. Although the Court has applied the economic reality test only a handful of times, it has repeatedly resolved cases by focusing primarily on facts that concern the core factors identified in the 2021 Rule: control over the work and the worker's opportunity for profit or loss based on initiative and investment. In
Silk,
for example, the Court distinguished between truck drivers and coal unloaders: the truck drivers were deemed independent contractors because they owned their trucks, could hire helpers, assumed risk, and had an opportunity for profit; by contrast, the unloaders were employees because the putative employers “were directors of their businesses,” they provided only picks and shovels, and had no meaningful opportunity for profit based on initiative or investment.
137
In
Rutherford Food,
the Court likewise found meat boners to be employees because they lacked control over their work, could not or did not shift to other plants (and thus had a continuous relationship with the slaughterhouse), and were paid piece-rate wages dictated by the company rather than earnings tied to initiative or capital investment (as the premises and equipment belonged to the plant).
138
Similarly, in
Whitaker House,
the Supreme Court focused its analysis on facts related to control and opportunity for profit, and did not discuss other economic reality factors. It found that certain homeworkers were “not self-employed . . . [or] independent, selling their products on the market for whatever price they can command,” but instead were “regimented under one organization, manufacturing what the organization desires and receiving the compensation the organization dictates,” and thus employees.
139
In each case, the Court listed multiple relevant considerations but ultimately resolved the classification question by focusing on whether the worker exercised control and had a genuine opportunity for profit or loss based on initiative or investment—factors that go to the heart of whether an individual is truly in business for themself.
137
331 U.S. at 716-19.
138
331 U.S. at 730-31.
139
366 U.S. at 32.
Moreover, the Department is not aware of any federal appellate case in which the court's ultimate conclusion as to an individual's classification under the FLSA—whether employee or independent contractor—was not in alignment with the court's analysis that the control and opportunity for profit or loss factors both favored that classification. 86 FR 1196-97.
140
The
Department has further observed that “courts of appeals have effectively been affording the control and opportunity factors greater weight, even if they did not always explicitly acknowledge doing so.” 86 FR 1198.
140
The Department noted “a remarkably consistent trend based on the Department's review of the results of appellate decisions since 1975 applying the economic reality test. Among those cases, the classification favored by the control factor aligned with the worker's ultimate classification in all except a handful where the opportunity factor pointed in the opposite direction. And the classification favored by the opportunity factor aligned with the ultimate classification in every case. These two findings imply that whenever the control and opportunity factors both pointed to the same classification—whether employee or independent contractor—that was the court's conclusion regarding the worker's ultimate classification.” 86 FR 1196-97.
See also New Jersey
v.
Bessent,
149 F.4th 127, 146 n.12 (2d Cir. 2025) (noting that where the text of a statute “in isolation, provides very little for us . . . to go on,” “[m]uch of the settled understanding of” the statute “derives not from the four corners of the statute itself, but from the meaning imputed to that statute by our precedents”). Thus, the Department believes that the core factor structure is a veracious synthesis of the case law that better captures the “settled understanding” of who is an employee or independent contractor under the FLSA than does the 2024 Rule.
The 2024 Rule did not include the guidance provided in this provision, opting instead to use a totality-of-the-circumstances analysis in which the economic reality factors were not assigned a predetermined weight. The Department explained in the 2024 Rule that it believed that this approach, which, as mentioned above, had been used by courts and the Department (prior to the 2021 Rule), would be less confusing and less prone to misapplication that could result in greater misclassification. 89 FR 1647, 1726. The 2024 Rule also identified further grounds for returning to the historical multifactor, totality-of-the-circumstances analysis, including that the 2021 Rule's analysis was not supported by judicial precedent or aligned with the FLSA's text as interpreted by courts because it elevated the control and opportunity for profit or loss factors, and in particular, elevating control was contrary to courts' determination that the common law control test should not be used to analyze independent contractor classification under the FLSA. 89 FR 1650-53.
In proposing to re-promulgate the 2021 Rule's “core factor” analysis in § 795.105(c), the Department recognizes that this presents a change with respect to the interpretation from the 2024 Rule. The Department believes that this change is warranted for significant and valid legal and policy reasons. Primarily, the Department believes that a clearer, more focused test distilled from overlapping judicial tests, that is easier for the regulated community to accurately apply will provide more certainty for employers, employees, and those who wish to engage with or as independent contractors. With greater clarity, all of these persons can gain efficiencies in their interactions, and there will likely be a reduced need for litigation in which a court must ultimately reach a conclusion years later about the proper classification of one or more individuals.
Additionally, the Department has reconsidered the concerns identified in the 2024 Rule and believes they are misplaced. First, in rescinding the 2021 Rule, the 2024 Rule relied in part on the assertion that the 2021 Rule improperly gave two “core factors”—the nature and degree of control over the work and the worker's opportunity for profit or loss—invariable weight in the analysis. 89 FR 1651, 1692. Upon further consideration, the Department now concludes that this premise was mistaken.
The 2021 Rule did not assign invariable weight to any factor or combination of factors. Rather, it recognized that control and opportunity for profit or loss are, in most cases, more probative than other factors in determining whether a worker is in business for themself. It expressly acknowledged that even when both factors align, their combined weight could still be outweighed by other considerations, though it viewed such circumstances as “highly unlikely.” 86 FR 1246 (§ 795.105(c)).
Recognizing that certain factors are typically more probative than others is not the same as assigning them invariable weight. This mischaracterization in the 2024 Rule led the Department to conclude—incorrectly—that the framework was inconsistent with the FLSA's text and purpose, as interpreted by courts, and judicial precedent. Both decades of case law and common-sense understanding confirm the opposite, namely that whether a worker controls the manner of their work and has a meaningful opportunity for profit lies at the core of the employee-independent contractor distinction. For example, at the time the FLSA was enacted, the term “self-employed” was understood to mean “earning income directly from one's own business, trade, or profession rather than as a specified salary or wages from an employer.”
141
This understanding—which remains true today—suggests that an independent contractor is an independent business owner, someone who directs the manner and means of his or her own work and whose compensation depends on profit or loss, rather than on wages. Thus, when assessing the legitimacy of an independent contracting arrangement under the FLSA, facts germane to control and profit matter more than factors such as the worker's skill, the duration of their relationship with a particular business, or whether the work performed is important or “integral” to that business. Those factors may be relevant, but they are less directly tied to the ordinary understanding of independent business status and the central inquiry of whether a worker is truly in business for themselves.
141
See Self-employed,
Merriam-Webster Dictionary,
https://www.merriam-webster.com/dictionary/self-employed
(defining “self-employed” as “earning income directly from one's own business, trade, or profession rather than as a specified salary or wages from an employer” and noting that the first known use of the term as defined was in 1916);
see also Self-employed,
Webster's New Collegiate Dictionary (1977).
The Department believes that the concerns identified in the 2024 Rule therefore should not preclude the Department from identifying those factors as the most reliable indicators of economic independence in most cases, nor do they preclude the Department from providing greater clarity in its interpretation of the economic reality analysis, including guidance on how to weigh the factors. For example, the 2024 Rule noted “tension” between elevating the control and opportunity for profit and loss factors and “the longstanding judicial precedent, expressed by the Supreme Court and in appellate cases from across the circuits, that no single factor is determinative in the analysis of whether a worker is an employee or an independent contractor, nor is any factor or set of factors necessarily more probative of whether the worker is in fact economically dependent on the employer for work as opposed to being in business for themself.” 89 FR 1650. Then as now, the Department expressly rejects the notion that any factor, core or otherwise, is determinative of the economic reality analysis. Likewise, the Department does not share the notion that the economic dependence, or economic reality, framework it proposes is in tension with the core commonality in decisions from federal appellate courts across the country. To the contrary, the Department believes that any tension between judicial precedent and the core factor analysis from the 2021 Rule was overstated in the 2024 Rule, and that the 2021 Rule's analysis does not run afoul of judicial precedent.
Specifically, the 2021 Rule and this proposal continue to affirm—consistent with judicial precedent—that no one factor is determinative. By identifying two factors that encompass the primary considerations that are relevant to determining economic dependence, the Department is certainly not implying that either one of these two core factors alone would be determinative. Instead, the Department is providing guidance (which, to the Department's knowledge, is consistent with the outcome of every single federal appellate case) that these two factors in combination and pointing to the same classification are rarely going to be outweighed by the probative value of the remaining economic reality factors. Further, the Department explained in the 2021 Rule that the core factor analysis provided in § 795.105(c) did not run afoul of the principle in FLSA case law that “mechanical application” of the economic reality test is not appropriate because the regulatory text recognizes that these two
factors “typically” (but not necessarily) carry more weight. 86 FR 1198-99. The Department explained that there may be situations in which “a core factor does not weigh very strongly toward a particular classification because considerations within that factor point in different directions,” or where a “core factor may even be at equipoise, in which case it would not weigh at all in favor of a particular classification.” 86 FR 1199. Thus, “the weight assigned to a factor in a particular case refers to how strongly specific facts within the factor, on balance, favor a particular classification.” 86 FR 1199. Identifying two factors as core factors does not mean that the analysis is or should be applied mechanically, but rather just as carefully, as there are often a variety of relevant facts and concepts to consider within each individual factor before determining whether the factor points toward a particular classification.
The 2024 Rule also noted that the Supreme Court and federal appellate courts have emphasized that employment status under the economic reality test turns upon “the circumstances of the whole activity” rather than “isolated factors,” and that the Fifth Circuit Court of Appeals has stated that it “is impossible to assign to each of these factors a specific and invariably applied weight.” 89 FR 1651 & n. 127 (citing
Parrish,
917 F.3d at 380). The Department believes that the guidance provided in § 795.105(c) does no such thing and would not be so rigid as to confine the analysis to any isolated factors, or that the core factors will necessarily always carry more weight. The guidance simply and helpfully provides a focus to the inquiry, while recognizing that the enumerated factors are “not exhaustive.” Further, the guidance does not stop at the two core factors, but rather identifies three other economic reality factors, and also provides for the possible consideration of additional factors. In other words, the Department's proposal, like the 2021 Rule, provides for the consideration of all material facts. Although the other factors are less probative, and in some cases, may not be probative at all, the proposal to readopt the analysis from the 2021 Rule would still require non-core factors to be considered as part of the circumstances of the whole activity when determining economic dependence. As the Department explained in the 2021 Rule, the “other economic reality factors—skill, permanence, and integration—are also relevant as to whether an individual is in business for him- or herself,” 86 FR 1196, and “each factor should be analyzed,” 86 FR 1201. Thus, “[a]ssigning one factor less weight than another does not restrict the circumstances being considered because the very act of determining relative weight requires considering both factors.”
Id.
Though several commenters in the rulemaking that produced the 2024 Rule mistakenly believed that the analysis in § 795.105(c) in the 2021 Rule could be reduced to a “two-factor test” or one where the non-core factors were only considered when the two core factors pointed to opposite classification outcomes, 89 FR 1656, the Department reiterates that “even when both of the core factors align, they are not `controlling' because their combined weight can still be outweighed by other considerations” and that “it is necessary to consider both [core and non-core] factors.” 86 FR 1201. In sum, the regulatory text that the Department is proposing to readopt does not state, and should not be interpreted, to apply in a mechanical way that precludes consideration of all relevant facts and factors.
Regarding the concern identified in the 2024 Rule that elevating control as one of the two core factors brings the analysis closer to the common law control test that courts have rejected when interpreting independent contractor classification under the FLSA, 89 FR 1652, the Department believes, upon reconsideration, that a multifactor analysis that recognizes the greater probative value of the control and opportunity for profit or loss factors and considers other factors is readily distinguishable from a control test. As discussed further below, the opportunity for profit or loss factor that the Department is proposing to readopt in § 795.105(d)(1)(ii) encompasses an individual's opportunity to earn profits or incur losses based on his or her initiative or management of investments, and as such, includes a number of critical considerations in evaluating economic dependence that go beyond the nature and degree of control over work. As a result, the Department believes that giving greater probative value to both the control and opportunity for profit or loss factors (especially given the considerations that comprise that factor) is not akin to adopting the common law control test, which specifically designates control as the overarching consideration. And importantly, the “ultimate inquiry” of the analysis proposed by the Department would remain the individual's economic dependence, 86 FR 1246 (§ 795.105(b)), which is different from the common law's inquiry into control.
142
142
See Cmty. for Creative Non-Violence
v.
Reid,
490 U.S. 730, 751 (1989);
see also
section V.B.1,
infra
(discussing the common law control test as a regulatory alternative for this rulemaking).
Finally, the Department explained in the 2021 Rule that courts and the Department had historically articulated the factors such that there was overlap among the factors (
i.e.,
some facts were considered under multiple factors), which could lead to inefficiency and confusion when attempting to apply the economic reality test. 86 FR 1174. Thus, the analysis the Department is proposing to readopt as set forth in this section is based on factors that have historically been used by the Department and most federal courts of appeals, while describing two factors as “core” or primary, and making certain reformulations within each factor for clarity, as discussed below with respect to each factor. Though the 2024 Rule expressed a concern that the 2021 Rule unduly narrowed the analysis and did not allow for full consideration of facts which might be relevant to determining whether a worker is economically dependent on the employer for work, 89 FR 1653, upon reconsideration, the Department believes that all relevant facts can be considered, as detailed below in the discussions of each factor.
The Department welcomes comments from the public regarding their experiences using the economic reality analyses provided in the 2021 and 2024 Rules, and why one may be preferable to the other.
Additionally, the Department seeks comment on whether further streamlining the “two core factor” analysis would provide even greater clarity and focus to the question whether an individual is an employee or independent contractor under the FLSA. Specifically, the Department could provide guidance that the control factor should be considered first, followed—if necessary—by the opportunity for profit or loss factor and the three other factors. In this further streamlined analysis, if the potential employer controls the worker based on the considerations for the control factor that the Department is proposing to readopt (see discussion of control factor below), there would be no need to consider any other factors and the worker would be an employee. If the control factor indicates independent contractor status, or if the control factor is neutral and does not indicate independent contractor status or employee status, then the analysis
would proceed as proposed in this NPRM.
143
143
In other words, if the opportunity for profit or loss factor and the control factor indicate independent contractor status, then the other three factors would be considered; however, because the two core factors would both point toward the same classification there is a substantial likelihood that is the accurate classification for the individual and it would be highly unlikely that the other factors would outweigh the combined probative value of these two core factors. And if the control and opportunity for profit or loss factors point toward different classifications or are neutral, the other factors would be considered to arrive at an overall determination as to the worker's status.
The Department offers this alternative for comment in the interest of bringing greater clarity to the analysis, but also in recognition of the fact that the “suffer or permit” language in the FLSA has been interpreted by the Supreme Court to provide a broader scope of employment than the common law control test,
see supra
sections I.A. and I.B.1. Yet, there are instances in which a worker could be an employee under the common law control test but not under the FLSA's economic reality test. For example, as discussed in the 2021 Rule, some workers subject to a potential employer's “right to control” and who would be employees under the common law test may nevertheless be independent contractors when all of the economic reality factors are applied. 86 FR 1204-05 (discussing, among other cases,
Bartels,
332 U.S. at 132, where the Court held that a dance hall's contractual right of control was insufficient to establish an employment relationship with a band leader that it hired).
An alternative analysis that focuses first on whether the potential employer controls the individual and results in employee status if there is such control, but considers opportunity for profit or loss and other factors if there is not such control, could be responsive to language from Supreme Court decisions emphasizing that the FLSA extends the scope of employment beyond the common law control test.
144
Thus, it may be possible to streamline the economic reality analysis even further in a way that is consistent with the Supreme Court's interpretation of employment under the FLSA. The Department welcomes comments on this potential alternative application of the two core factors identified in the 2021 Rule.
144
See Darden,
503 U.S. at 326 (explaining that the FLSA “stretches the meaning of `employee' to cover some parties who might not qualify as such under a strict application of traditional agency law principles”);
Rosenwasser,
323 U.S. at 362 (explaining that “[a] broader or more comprehensive coverage of employees within the stated categories would be difficult to frame”).
Finally, the Department also welcomes comments about the most effective, reliable, and consistent circuit court analyses, or other appropriate analyses for determining employee or independent contractor status.
F. Economic Reality Factors—Core Factors (Proposed § 795.105(d)(1))
The Department is proposing to readopt as core factors the two factors that it identified in § 795.105(d)(1) of the 2021 Rule. As noted in proposed § 795.105(c), these factors constitute the primary elements of the analysis into the nature of an individual's economic dependence for work. These economic reality factors would be “the most probative” and “typically carr[y] greater weight in the analysis than any other factor,” and “if they both point towards the same classification, whether employee or independent contractor, there is a substantial likelihood that is the individual's accurate classification.”
1. The Nature and Degree of Control Over the Work (Proposed § 795.105(d)(1)(i))
The Department is proposing to readopt the regulatory text of § 795(d)(1)(i) from the 2021 Rule, which discussed the first economic reality core factor—the nature and degree of control over work. This provision would explain that the control factor weighs toward the individual being an independent contractor where the individual, rather than the potential employer, exercises substantial control over key aspects of the performance of the work such as scheduling, selection of projects, and the ability to work for others (which may include the potential employer's competitors). 86 FR 1246-47 (§ 795.105(d)(1)(i)). By contrast, the control factor would weigh in favor of the individual being an employee where the potential employer, rather than the individual, exercises substantial control over key aspects of the performance of the work, such as by controlling the individual's schedule or workload, or by directly or indirectly requiring the individual to work exclusively for the potential employer.
Id.
Additionally, the Department is proposing to readopt guidance from the 2021 Rule advising that when a potential employer places certain compliance requirements on an individual, it “does not constitute control that makes the individual more or less likely to be an employee under the Act.” 86 FR 1247 (§ 795.105(d)(1)(i)). These pertain to “[r]equiring the individual to comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses (as opposed to employment relationships).”
Id.
For example, as illustrated in the example in § 795.115(b)(1) (which the Department is proposing to readopt from the 2021 Rule with an update to the scenario in the example, as explained below), where a logistics company contracts with an individual owner-operator of a tractor-trailer to provide transportation services and the logistics company requires the owner-operator to comply with federally-mandated transportation safety rules requiring drug and alcohol testing, and requires the owner-operator to meet certain contractually agreed-upon delivery deadlines, this does not constitute control that would make it more or less likely for the owner-operator to be an employee under the FLSA. Another example would be requiring all workers to complete anti-harassment training. Such training is intended to make the workplace safer, benefits everyone in the workplace, and is not control that makes an individual worker more or less likely to be an employee under the FLSA.
In the 2021 Rule, the Department explained that the control factor referenced both the individual's control and the potential employer's control, consistent with case law, which generally considers both the individual's control and the potential employer's control. 86 FR 1180 (noting that the Supreme Court referred to “degrees of control” in
Silk,
331 U.S. at 716). The Department further explained that the three identified examples of control that may indicate employee or independent contractor status (setting schedules, selecting projects, and working exclusively for the employer or working for others) were non-exhaustive, and may or may not be probative in any particular case, depending on the facts. 86 FR 1180-81.
Where commenters viewed the 2021 Rule's regulatory text as limiting, the Department explained that “the examples of types of control identified in the proposal were not an attempt to narrow or limit the control factor analysis. . . . Any type of control over the work by the individual worker or the potential employer may be considered.” 86 FR 1181. The Department further noted that considerations within these examples may be nuanced—for example, even where an employer does not enforce an explicit bar on working for others, the employer may impose working conditions that make doing so
impracticable, which is evidence of control. 86 FR 1181. Finally, recognizing that many commenters sought industry-specific guidance with respect to the control factor, the Department explained that “it is not possible—and would be counterproductive—to identify in the regulatory text every type of control (especially industry-specific types of control) that can be relevant when determining under the FLSA whether a worker is an employee or independent contractor.” 86 FR 1182. The Department reiterated that it had “purposefully articulated the control analysis in a general manner to encompass various different types of control that the individual worker and the potential employer may exercise over the working relationship, and to avoid any unintended inferences regarding omitted types of control.” 86 FR 1182.
The control factor in the 2024 Rule bears some similarities with the control factor in the 2021 Rule, as well as some differences. Overall, the Department explained that it continued to believe that issues related to scheduling, supervision over the performance of the work (including the ability to assign work), and the worker's ability to work for others were relevant considerations in evaluating the nature and degree of control. 89 FR 1690. Additionally, the 2024 Rule's regulatory text explains that “[m]ore indicia of control by the potential employer favors employee status,” whereas “more indicia of control by the worker favors independent contractor status.” 29 CFR 795.110(a)(4).
The control factor in the 2024 Rule identifies additional aspects of control in the regulatory text, including control mediated by technology and control over economic aspects of the work relationship, such as control over setting the prices or rates for services provided by the worker, as well as consideration of whether a potential employer places demands or restrictions on workers that do not allow them to work when they choose. 29 CFR 795.110(a)(4). The 2024 Rule also recognizes reserved control, including the right to supervise or discipline workers, as a consideration relevant to the potential employer's control, whereas the “primacy of actual practice” provision in the 2021 Rule (discussed below under proposed § 795.110) advised that “a business' contractual authority to supervise or discipline an individual may be of little relevance if in practice the business never exercises such authority.” Additionally, the regulatory text for the control factor in the 2024 Rule takes a modified approach to the probative value of requirements placed on individuals to comply with legal obligations, stating that “[a]ctions taken by the potential employer for the sole purpose of complying with a specific” law are not indicative of control, whereas “[a]ctions taken by the potential employer that go beyond compliance with a specific” law and “instead serve the potential employer's own compliance methods, safety, quality control, or contractual or customer service standards may be indicative of control.” 29 CFR 795.110(a)(4).
Upon reconsideration, the Department believes that the more straightforward and focused explanation of the control factor in the 2021 Rule provides clearer guidance on how to evaluate control for purposes of determining whether an individual is an employee or an independent contractor under the FLSA. It is simply not possible for the Department to describe all of the potentially-relevant considerations for the control factor, as the 2024 Rule may have attempted to do by adding other aspects of control for consideration. As the Department explained in the 2021 Rule, it “purposefully articulated the control analysis in a general manner to encompass various different types of control,” and “any type of control over the work by the individual worker or the potential employer may be considered, although some types of control are not probative of economic dependence[.]” 86 FR 1182. By proposing to readopt the regulatory text from the 2021 Rule, the Department would provide necessary additional guidance regarding the primacy of the parties' actual practices as compared to reserved control (discussed below under proposed § 795.110), as well as providing greater clarity regarding facts that are not indicative of control associated with an employment relationship.
To that end, the Department recognizes that a very large proportion of the comments received regarding the control factor during the Department's 2024 rulemaking on this topic objected to proposed guidance in the 2022 NPRM, 87 FR 62275, that “[c]ontrol implemented by the employer for purposes of complying with legal obligations, safety standards, or contractual or customer service standards may be indicative of [an employment relationship]”—a significant change from guidance provided in the 2021 Rule, 86 FR 1247, which advised that such actions “[would] not constitute control that makes the individual more or less likely to be an employee under the [FLSA].” 89 FR 1691. Commenters were particularly concerned that this change would disincentivize legal compliance and discourage safety practices that benefit all individuals in the workplace as well as the public generally. 89 FR 1691.The Department explained in the preamble to the final 2024 Rule that such “comments have persuaded the Department that the provision proposed may lead to unintended consequences due to stakeholder confusion and uncertainty.” 89 FR 1694. Although the Department modified this guidance in the final 2024 Rule to take commenters' concerns into account—clarifying that “[a]ctions taken by the potential employer for the sole purpose of complying with a specific, applicable Federal, State, Tribal, or local law or regulation are not indicative of [an employment relationship],” 29 CFR 795.110(b)(4)—the Department believes the best course of action at this time is to return to the language in the 2021 Rule, which provides greater clarity and certainty regarding these considerations, and therefore supports the Department's policy objectives in proposing to readopt the 2021 Rule.
By proposing to readopt the language from the 2021 Rule, the Department would also be restoring the guidance addressing aspects of control taken for reasons other than legal compliance (including health and safety standards and requirements to carry insurance), which explain that requiring an individual to “meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses (as opposed to employment relationships) does not constitute control that makes the individual more or less likely to be an employee under the Act.” Though the final regulatory text in the 2024 Rule adopted a modified approach that takes into account “[a]ctions taken by the potential employer that go beyond compliance with a specific” law and “instead serve the potential employer's own compliance methods, safety, quality control, or contractual or customer service standards,” which may be indicative of control associated with an employment relationship, 29 CFR 795.110(b)(4), in the Department's experience, determining what “goes beyond” a law can be a hurdle when interpreting this guidance. Thus, the Department believes the guidance in the 2021 Rule is clearer, less burdensome, and consistent with the FLSA.
Finally, as this issue has generated a high number of comments in the past,
the Department further notes (as it did in both the 2021 and 2024 rulemakings) that although the case law is not uniform on this aspect of the control factor, the Department's proposed guidance is supported by case law, as discussed in both the 2021 and 2024 Rules. 86 FR 1183; 87 FR 62247-48; 89 FR 1693-94.
145
145
For example, some courts have viewed employer requirements on workers in order to comply with applicable legal obligations or meet quality control standards as not indicative of control.
See Parrish,
917 F.3d at 382;
Iontchev,
685 F. App'x at 550;
Chao
v.
Mid-Atl. Installation Servs., Inc.,
16 F. App'x 104, 106 (4th Cir. 2001). Other courts have rejected employers' arguments that, because they were exerting control over workers only to comply with legal obligations imposed by the government or quality control standards, their actions could not be viewed as evidence of control.
See Scantland,
721 F.3d at 1316;
Hopkins,
545 F.3d at 343;
Schultz
v.
Mistletoe Express Serv., Inc.,
434 F.2d 1267, 1271 (10th Cir. 1970). Still other courts have recognized that where the employer goes beyond compliance with specific legal requirements and exerts control to serve its own purposes, this may indicate control.
See Hart
v.
Rick's Cabaret Int'l, Inc.,
967 F. Supp. 2d 901, 916 (S.D.N.Y. 2013) (“[W]here a club implements regulations to assure compliance with law, those regulations are not evidence of the club's control over its dancers,” but where the majority of the rules are aimed at “achiev[ing] [the employer's] business ends” rather than “providing a safe and law-abiding venue,” the rules “compellingly indicate” control.);
Ferguson
v.
Tex. Farm Bureau,
No. 6:17-CV-00111-ADA-JCM, 2021 WL 2349340, at *4 (W.D. Tex. May 19, 2021) (ruling that “the exercise of requisite control should not be indicative one way or another if regulations demand it” but where the employer took actions beyond what the regulations required, the employer was “in control of Plaintiffs”).
The Department welcomes comments on all aspects of this proposed factor.
2. The Individual's Opportunity for Profit or Loss (Proposed § 795.105(d)(1)(ii))
The Department is proposing to readopt the regulatory text of § 795.105(d)(1)(ii) from the 2021 Rule, which discussed the second economic reality core factor—the individual's opportunity for profit or loss. This factor would weigh toward the individual being an independent contractor “to the extent the individual has an opportunity to earn profits or incur losses based on his or her exercise of initiative (such as managerial skill or business acumen or judgment) or management of his or her investment in or capital expenditure on, for example, helpers or equipment or material to further his or her work.” 86 FR 1247 (§ 795.105(d)(1)(ii)). The 2021 Rule elaborated on the “capital” nature of the investment, explaining that, “[c]onsistent with the economic dependence inquiry, an investment must indicate an independent business by the worker, as opposed to merely being required by the potential employer, for it to indicate an opportunity for profit or loss.” 86 FR 1187.
This section would further explain that, “[w]hile the effects of the individual's exercise of initiative and management of investment are both considered under this factor, the individual does not need to have an opportunity for profit or loss based on both for this factor to weigh towards the individual being an independent contractor.” 86 FR 1247 (§ 795.105(d)(1)(ii)). Thus, both the individual worker's exercise of initiative and management of investment would be considered under this factor even if the opportunity for profit or loss factor may indicate independent contractor classification based on only one. Providing that the worker must have an opportunity for profit or loss based on both initiative and investment for this factor to indicate independent contractor status would overemphasize initiative and investment and detract from this factor's ultimate focus on the worker's opportunity, as it is that opportunity which is a core or primary indicator of a worker's status as explained above.
This factor would weigh toward the individual being an employee “to the extent the individual is unable to affect his or her earnings or is only able to do so by working more hours or faster.” 86 FR 1247 (§ 795.105(d)(1)(ii)). One of the examples from the 2021 Rule that the Department is proposing to readopt (
see
proposed § 795.115(b)(3)) illustrates this point in the context of a construction worker who “is paid a fixed hourly rate” for a com
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