The U.S. Department of Labor (DOL) has announced a significant shift in how it will approach enforcement of independent contractor classifications under the Fair Labor Standards Act (FLSA). While the 2024 rule issued under the Biden administration remains on the books, the DOL’s Wage and Hour Division has directed agency investigators to revert to pre-2024 guidance when assessing whether a worker is properly classified.
This development affects employers across industries, particularly those that rely heavily on independent contractors to manage fluctuating workloads, fill temporary gaps, or provide specialized services. This shift will be especially relevant for industries that rely on independent contractors, such as logistics, healthcare, manufacturing, staffing, technology platforms, and professional services.
A Return to the “Economic Realities” Standard
In place of the stricter 2024 rule, investigators are now instructed to rely on longstanding principles outlined in Fact Sheet #13 and the reinstated Opinion Letter FLSA2019-6, which emphasize the “economic realities” of the relationship rather than rigid multi-factor tests. This standard focuses on factors such as the level of control exercised, the worker’s opportunity for profit or loss, and the degree of independence in performing the work. The key determination is whether the worker is in business for himself or is economically dependent on the employer for work.
This move offers employers more flexibility in structuring contractor relationships, particularly those that are mutually beneficial to both the employer and the worker and not intended to circumvent wage-and-hour obligations.
Federal Enforcement Is Relaxing, But Legal Risk Hasn’t Disappeared
It’s important to note that the 2024 rule still applies in private litigation, and employers may continue to face misclassification lawsuits from workers or enforcement actions under more restrictive state laws such as California’s ABC test. Companies operating in multiple jurisdictions will need to continue assessing classification decisions on a state-by-state basis.
Now Is a Strategic Time to Re-Evaluate Contractor Arrangements
With federal enforcement shifting, employers should take this opportunity to conduct an internal audit of current contractor relationships. Key areas to review include:
- The scope and duration of contractor roles
- The degree of supervision or control over their work
- How closely contractor tasks are tied to core business functions
- Contract language and documentation of independence
A well-structured, clearly documented contractor relationship can minimize exposure while enhancing the efficiency and flexibility of your workforce.
Prepare for Future Shifts in Policy
Classification standards have often changed over time as federal priorities evolve, so the DOL’s current position may be subject to future adjustments. A future reversal could bring a return to tighter restrictions. Employers should stay agile by keeping contractor arrangements compliant under both the current and prior frameworks, ensuring they can pivot quickly if needed.
KJK Can Help You Navigate Classification Risk
KJK’s Labor & Employment attorneys help employers nationwide manage workforce structuring, mitigate misclassification risk, and ensure compliance with evolving federal and state standards. If you’re unsure whether your current use of independent contractors aligns with DOL enforcement or state law, our team is available to provide a classification audit or policy review.
CONTACT
To discuss how this development may affect your business, contact KJK’s Labor & Employment attorneys Rob Gilmore (RSG@kjk.com) or Maribeth Meluch (MM@kjk.com), or reach out to another member of our team by calling 216.696.8700.
