Proposed Rule2026-03962
Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act
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Published
February 27, 2026
Issuing agencies
Labor DepartmentWage and Hour Division
Abstract
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.
Full Text
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<title>Federal Register, Volume 91 Issue 39 (Friday, February 27, 2026)</title>
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[Federal Register Volume 91, Number 39 (Friday, February 27, 2026)]
[Proposed Rules]
[Pages 9932-9976]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-03962]
[[Page 9931]]
Vol. 91
Friday,
No. 39
February 27, 2026
Part II
Department of Labor
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Wage and Hour Division
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29 CFR Parts 500, 795, and 825
Employee or Independent Contractor Status Under the Fair Labor
Standards Act, Family and Medical Leave Act, and Migrant and Seasonal
Agricultural Worker Protection Act; Proposed Rule
Federal Register / Vol. 91, No. 39 / Friday, February 27, 2026 /
Proposed Rules
[[Page 9932]]
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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.
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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:
<bullet> Electronic Comments: Submit comments through the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the
instructions for submitting comments.
<bullet> 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
<a href="https://www.regulations.gov">https://www.regulations.gov</a> 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>. The Department
posts comments gathered and submitted by a third-party organization as
a group under a single document ID number on <a href="https://www.regulations.gov">https://www.regulations.gov</a>. 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a> 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>. In accordance with 5 U.S.C. 553(b)(4), a summary
of this rule may also be found at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
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 <a href="https://www.dol.gov/agencies/whd/contact/local-offices">https://www.dol.gov/agencies/whd/contact/local-offices</a> 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).
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\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).
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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
[[Page 9933]]
contractors are not ``employees'' for purposes of the FLSA.\4\
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\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).
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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\
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\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)].'').
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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\
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\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).
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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.
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\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).
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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\
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\15\ NLRB v. United Ins. Co. of Am., 390 U.S. 254, 256 (1968).
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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\
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\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.'').
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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
[[Page 9934]]
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.
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\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.
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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\
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\19\ See 12 FR 7966.
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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\
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\20\ Id. The Treasury proposal was never finalized because
Congress amended the SSA to foreclose the proposal.
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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\
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\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).
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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\
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\24\ WHD Op. Ltr. (June 23, 1949).
\25\ Id.
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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.
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\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).
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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\
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\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.
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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
[[Page 9935]]
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.
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\31\ See 37 FR 12084, 12102 (introducing 29 CFR 780.330(b)).
\32\ Id.
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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).
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\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).
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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.
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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, Sec.
3(g), 29 U.S.C. 203(g),'' meaning a broader scope
[[Page 9936]]
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.''
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\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.
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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).
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\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.
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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.
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\43\ See WHD Fact Sheet #13 (1997), <a href="https://web.archive.org/web/19970112162517/http:/www.dol.gov/dol/esa/public/regs/compliance/whd/whdfs13.htm">https://web.archive.org/web/19970112162517/http:/www.dol.gov/dol/esa/public/regs/compliance/whd/whdfs13.htm</a>. 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 <a href="https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf">https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf</a>).
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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.''
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\44\ AI 2015-1 was withdrawn on June 7, 2017, and is no longer
in effect.
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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.
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\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 <a href="https://www.dol.gov/sites/dolgov/files/WHD/opinion-letters/FLSA/FLSA2019-6.pdf">https://www.dol.gov/sites/dolgov/files/WHD/opinion-letters/FLSA/FLSA2019-6.pdf</a>.
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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.
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\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
[[Page 9937]]
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\
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\47\ 86 FR 1246 (Sec. 795.105(b)).
\48\ 86 FR 1246 (Sec. 795.105(c)).
\49\ Id.
\50\ Id.
\51\ Id.
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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\
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\52\ 86 FR 1246-47 (Sec. 795.105(d)(1)(i)-(ii)).
\53\ 86 FR 1247 (Sec. 795.105(d)(2)(i)-(iii)).
\54\ 86 FR 1247 (Sec. 795.105(d)(2)(iv)).
\55\ 86 FR 1247 (Sec. 795.110).
\56\ 86 FR 1247-48 (Sec. 795.115).
\57\ 86 FR 1248 (Sec. 795.120).
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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.
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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\
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\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.
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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
[[Page 9938]]
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.
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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
[[Page 9939]]
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.''
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\80\ The FAB is available at <a href="https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf">https://www.dol.gov/sites/dolgov/files/WHD/fab/fab2025-1.pdf</a>.
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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.
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\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).
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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.
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\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).
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As Judge Frank Easterbrook noted in 1987, ```[economic] reality'
encompasses millions of facts, and unless we have a
[[Page 9940]]
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\
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\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.
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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).
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\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).
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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\
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\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
[[Page 9941]]
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), <a href="https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf">https://www.dol.gov/sites/dolgov/files/WHD/fact-sheets/whdfs13.pdf</a> (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
[[Page 9942]]
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\
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\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.
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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\
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\119\ 89 FR 1646.
\120\ See, e.g., Liya Palagashvili, Exploring How Regulations
Shape Technology Startups, Mercatus Research 23 (May 2021), <a href="https://www.mercatus.org/media/74416/">https://www.mercatus.org/media/74416/</a> (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
[[Page 9943]]
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), <a href="https://www.bls.gov/news.release/pdf/conemp.pdf">https://www.bls.gov/news.release/pdf/conemp.pdf</a>. 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),
<a href="https://www.dol.gov/newsroom/releases/whd/whd20240123">https://www.dol.gov/newsroom/releases/whd/whd20240123</a>; 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), <a href="https://www.dol.gov/newsroom/releases/whd/whd20231114-0">https://www.dol.gov/newsroom/releases/whd/whd20231114-0</a>; 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), <a href="https://www.dol.gov/newsroom/releases/whd/whd20230809">https://www.dol.gov/newsroom/releases/whd/whd20230809</a>.
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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.
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\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).
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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
[[Page 9944]]
(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.
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\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.'').
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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.
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\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.
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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.
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\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).
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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
[[Page 9945]]
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:
<bullet> An introductory provision at Sec. 795.100 explaining the
purpose of part 795;
<bullet> a provision at Sec. 795.105(a) explaining that
independent contractors are not employees under the FLSA;
<bullet> a provision at Sec. 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);
<bullet> provisions at Sec. 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 Sec. 795.105(d)(2)(iii), as explained
below);
<bullet> a provision at Sec. 795.110 advising that the parties'
actual practice is more relevant than what may be contractually or
theoretically possible;
<bullet> fact-specific examples at Sec. 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
<bullet> a severability provision at Sec. 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\
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\132\ See 89 FR 1725 (explaining changes to 29 CFR 780.330(b)
and 788.16(a)).
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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 Sec. 795.100)
The Department is proposing to readopt the regulatory text of Sec.
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 Sec. 795.100
published in the 2021 Rule,\133\ and the 2024 Rule adopted proposed
Sec. 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\
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\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 Sec.
795.100 (from the 2021 Rule) is very similar to current Sec. 795.100
(from the 2024 Rule).
B. Determining Employee and Independent Contractor Classification Under
the FLSA (Proposed Sec. 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 Sec. 795.105 of the 2021 Rule.
[[Page 9946]]
C. Independent Contractors Are Not Employees Under the Act (Proposed
Sec. 795.105(a))
The Department is proposing to readopt the regulatory text of Sec.
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\
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\135\ 86 FR 1177-78.
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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.
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D. Economic Dependence as the Ultimate Inquiry (Proposed Sec.
795.105(b))
The Department is proposing to readopt, with a few modifications,
the regulatory text of Sec. 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 Sec. 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 Sec. 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 Sec. 795.105(b).
E. Determining Economic Dependence (Proposed Sec. 795.105(c))
The Department is proposing to readopt the regulatory text of Sec.
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
[[Page 9947]]
individual and a potential employer is of the sort of economic
dependence characteristic of an employee or of an independent
contractor. 86 FR 1246 (Sec. 795.105(c)). As in the 2021 Rule, the
Department is proposing that two primary, or ``core'' economic reality
factors described in Sec. 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 Sec.
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 Sec. 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.
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\137\ 331 U.S. at 716-19.
\138\ 331 U.S. at 730-31.
\139\ 366 U.S. at 32.
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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
[[Page 9948]]
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.
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\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.
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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 Sec. 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 (Sec. 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, <a href="https://www.merriam-webster.com/dictionary/self-employed">https://www.merriam-webster.com/dictionary/self-employed</a> (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).
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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 Sec. 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
[[Page 9949]]
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 Sec. 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 Sec. 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 Sec. 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 (Sec. 795.105(b)), which
is different from the common law's inquiry into control.\142\
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\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
[[Page 9950]]
would proceed as proposed in this NPRM.\143\
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\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'').
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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 Sec.
795.105(d)(1))
The Department is proposing to readopt as core factors the two
factors that it identified in Sec. 795.105(d)(1) of the 2021 Rule. As
noted in proposed Sec. 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 Sec.
795.105(d)(1)(i))
The Department is proposing to readopt the regulatory text of Sec.
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 (Sec.
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 (Sec. 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
Sec. 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
[[Page 9951]]
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 Sec.
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 Sec. 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,
[[Page 9952]]
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\
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\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'').
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The Department welcomes comments on all aspects of this proposed
factor.
2. The Individual's Opportunity for Profit or Loss (Proposed Sec.
795.105(d)(1)(ii))
The Department is proposing to readopt the regulatory text of Sec.
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 (Sec. 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 (Sec. 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
(Sec. 795.105(d)(1)(ii)). One of the examples from the 2021 Rule that
the Department is proposing to readopt (see proposed Sec.
795.115(b)(3)) illustrates this point in the context of a construction
worker who ``is paid a fixed hourly rate'' for a company that
``determines how many and which tasks she performs.'' The example would
explain that the worker ``does not have a meaningful opportunity for
profit or loss based on her exercise of initiative or investment,
indicating employee status,'' because she ``is unable to profit, i.e.,
increase her earnings, by exercising initiative or managing investments
because she is paid a fixed hourly rate and the company determines the
assignment of work.''
The 2024 Rule describes this factor as the ``opportunity for profit
or loss depending on managerial skill'' and explains that it
``considers whether the worker has opportunities for profit or loss
based on managerial skill (including initiative or business acumen or
judgment) that affect the worker's economic success or failure in
performing the work.'' 29 CFR 795.110(b)(1). The 2024 Rule identifies
the ``following facts, among others,'' as ``relevant: whether the
worker determines or can meaningfully negotiate the charge or pay for
the work provided; whether the worker accepts or declines jobs or
chooses the order and/or time in which the jobs are performed; whether
the worker engages in marketing, advertising, or other efforts to
expand their business or secure more work; and whether the worker makes
decisions to hire others, purchase materials and equipment, and/or rent
space.'' Id. The 2024 Rule explains that ``[i]f a worker has no
opportunity for a profit or loss, then this factor suggests that the
worker is an employee,'' and added that ``[s]ome decisions by a worker
that can affect the amount of pay that a worker receives, such as the
decision to work more hours or take more jobs when paid a fixed rate
per hour or per job, generally do not reflect the exercise of
managerial skill indicating independent contractor status under this
factor.'' Id.
The primary difference between the proposed opportunity for profit
or loss factor (from the 2021 Rule) and the opportunity for profit or
loss factor from the 2024 Rule is that the proposal considers the
individual's investment as a consideration within the opportunity
factor, while the 2024 Rule describes investments as a separate factor
in the analysis. The 2021 Rule explained that, although Silk
articulated opportunity for profit and loss and investment as separate
factors, it analyzed the two together. 86 FR 1174 and 1186 (both citing
331 U.S. at 719). In particular, the Court found that the coal
unloaders were employees because they had ``no opportunity to gain or
lose except from the work of their hands and [ ] simple tools,'' while
the truck drivers who invested in their own vehicles had ``opportunity
for profit from sound management'' of that investment by, for instance,
hauling for different customers. 331 U.S. at 718-19. Thus, it framed
the analysis as whether workers are more like unloaders whose profits
were based solely on ``the work of their hands and [ ] simple tools''
or the drivers whose profits depended on their initiative and
investments. Id. Considering investment as part of opportunity for
profit or loss is thus consistent with the Supreme Court's decision in
Silk.
In addition, the Second Circuit considers opportunity for profit or
loss and investment as one factor. See Saleem, 854 F.3d at 144 n.29
(``Economic investment, by definition, creates the opportunity for
loss, but investors take such a risk with an eye to profit.''); Franze
v. Bimbo Bakeries USA, Inc., 826 F. App'x 74, 76 (2d Cir. 2020);
Superior Care, 840 F.2d at 1058-59. The D.C. Circuit has adopted the
Second Circuit's consideration of opportunity
[[Page 9953]]
for profit or loss and investment as one factor. See Morrison v. Int'l
Programs Consortium, 253 F.3d 5, 11 (D.C. Cir. 2001) (citing Superior
Care, 840 F.2d at 1058-59). Although a majority of circuit courts
articulate opportunity for profit or loss and investment as separate
factors, some have acknowledged that the two concepts are related. See
McFeeley, 825 F.3d at 243 (explaining that the two factors ``relate
logically to one other'' and considering them together); Lauritzen, 835
F.2d at 1537 (``The capital investment factor is interrelated to the
profit and loss consideration.'').
The Department believes that proposing to consider the individual's
investment as part of the opportunity for profit or loss factor is
consistent with its intent to articulate a legal framework comprised of
commonality between the Supreme Court and federal appellate courts that
may be applied by workers and businesses accurately and reliably. This
approach provides greater explanation and clarity, including in terms
of how the factors relate to each other and what considerations
comprise each factor. Understanding the relationship between
opportunity for profit or loss and investment and considering them
together would make the analysis clearer to apply and avoid
duplication. Considering investment as part of opportunity for profit
or loss would also prevent an investment by the individual that is
unrelated to, and outside of, the business from becoming the focus of
the analysis. See, e.g., Parrish, 917 F.3d at 384 (considering
consultant's investment in, and losses relating to, a goat farm that
was unrelated to his work for an oil drilling company that was the
issue in the case). As the 2021 Rule explained, the economic reality
factors are limited to the individual's ``claimed independent
operation.'' 86 FR 1178 (citing Silk, 331 U.S. at 716). The example
from the 2021 Rule discussed above that the Department is proposing to
readopt (see proposed Sec. 795.115(b)(3)) illustrates this point in
the context of an individual who ``works full time performing home
renovation and repair services for a residential construction
company.'' The individual also ``earns substantial profits'' from a
food truck that she operates on weekends. However, ``that is a separate
business from her work in the construction industry, and therefore is
not relevant to the question of whether she is an employee of the
construction company or in business for herself in the construction
industry.''
By proposing to readopt the opportunity for profit or loss factor
from the 2021 Rule, this factor would consider the individual worker's
investment only and not the relative investments of both the individual
and the potential employer. As the 2021 Rule explained, ``comparing the
relative investments does not illuminate the worker's economic
dependence or independence,'' which is the ultimate inquiry. 86 FR
1188. Indeed, ``[c]omparing their respective investments does little
more than compare their respective sizes and resources.'' Id. The
potential employer in almost all (if not all) cases is larger and has
greater resources than the individual. That relative comparison thus
sheds little, if any, light on the individual's economic dependence or
independence and is not probative. The 2024 Rule considers the relative
investments but does not take an approach that simply compares ``the
dollar values of investments or the sizes of the worker and the
potential employer,'' explaining that, instead, ``the focus should be
on comparing the investments to determine whether the worker is making
similar types of investments as the potential employer (even if on a
smaller scale) to suggest that the worker is operating independently,
which would indicate independent contractor status.'' 29 CFR
795.110(b)(2). Even with this additional guidance, however, the
Department believes upon further consideration that the 2024 Rule's
consideration of relative investments is not probative of the economic
dependence or independence of the individual worker at issue, as
explained above, and unnecessarily introduces the potential employer's
size and resources into the analysis.
The Department believes that this approach is more consistent with
the Supreme Court's articulation of the economic reality test. The
Court has never compared a worker's investment to that of the potential
employer. To the contrary, in Silk, the Court recognized that the truck
drivers' ownership of their vehicles supported independent contractor
status even though the coal companies that engaged them undoubtedly had
far greater overall capital investments. 331 U.S. at 719. The
Department understands that this approach is different from how some
(but not all) circuit courts have since considered investment, but the
Department believes application of the Supreme Court's analysis takes
precedence.
Another example from the 2021 Rule that the Department is proposing
to readopt (see proposed Sec. 795.115(b)(2)) illustrates how only the
individual worker's investment should be considered. In the example,
the individual ``is able to meaningful[ly] increase his earnings by
exercising initiative and business acumen and by investing in his own
equipment,'' and the potential employer ``has invested millions of
dollars'' in its business. The example would explain that the
opportunity for profit or loss factor indicates independent contractor
status under those facts ``despite the substantial difference in the
monetary value of the investments made by each party'' because the
value of the potential employer's ``investment is not relevant in
determining whether the individual has a meaningful opportunity for
profit or loss through his initiative, investment, or both.''
Finally, it is well-settled that an individual worker's initiative
should be considered as part of opportunity for profit or loss. The
2021 Rule explained that ``a worker's initiative, such as managerial
skill or business acumen or judgment, is an appropriate measure of a
worker's opportunity to earn profits or incur losses.'' 86 FR 1189
(collecting cases). And the 2024 Rule describes this factor as
considering ``whether the worker has opportunities for profit or loss
based on managerial skill (including initiative or business acumen or
judgment) that affect the worker's economic success or failure in
performing the work.'' 29 CFR 795.110(b)(1). Consistent with the 2021
Rule and contrary to the 2024 Rule, however, the Department is
proposing to consider the individual's initiative only as part of the
opportunity for profit or loss factor and not as part of the skill or
permanence factors. The Department is addressing this further in the
discussions of the skill and permanence factors below, but notes that
this approach would avoid duplication and overlapping considerations
among factors and ensure that the key concept of entrepreneurial
initiative is considered in a core factor.
The Department welcomes comments on all aspects of this proposed
factor.
G. Economic Reality Factors--Other Factors (Proposed Sec.
795.105(d)(2))
The Department is proposing to readopt the other factors that it
identified in Sec. 795.105(d)(2) of the 2021 Rule that also guide the
economic reality analysis. 86 FR 1176. As noted in proposed Sec.
795.105(c), the Department believes that these factors would be less
probative than the proposed core or primary factors. In some cases,
they may not be probative at all. Nevertheless, as the 2021 Rule
explained, they would be considered in every case for whatever value
they bring to analyzing the character of an individual's economic
[[Page 9954]]
dependence for work, namely whether it is more in the nature and
character of a business owner or a typical employee.\146\
---------------------------------------------------------------------------
\146\ See 86 FR 1202.
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1. The Amount of Skill Required for the Work (Proposed Sec.
795.105(d)(2)(i))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(i) from the 2021 Rule, which discussed the first other
economic reality factor--the amount of skill required for the work.
This factor would indicate independent contractor status ``to the
extent the work at issue requires specialized training or skill that
the potential employer does not provide.'' 86 FR 1247 (Sec.
795.105(d)(2)(i)). This factor would indicate employee status ``to the
extent the work at issue requires no specialized training or skill and/
or the individual is dependent upon the potential employer to equip him
or her with any skills or training necessary to perform the job.'' Id.
This factor would thus focus on training and skill because an
individual ``who is in business for him- or herself typically brings
his or her own skills to the job rather than relying on the client to
provide training.'' 86 FR 1191.
The individual worker's exercise of initiative would not be
considered under this factor. The Department explained in the 2021 Rule
that ``the Supreme Court articulated the factor as `skill required' in
Silk, 331 U.S. at 716, and multiple courts of appeals continue to
consider [it] as `the degree of skill required to perform the work.'''
86 FR 1191 (citing cases). As explained in the 2021 Rule, sharpening
this factor to consider only skill and not include initiative would
clarify the overall analysis and reduce overlapping considerations
among the factors given that the individual's exercise of initiative
would be considered under the opportunity for profit or loss factor (a
core factor). See id. This would be consistent with the proposed
analysis' focus on economic dependence because the presence or absence
of initiative is usually more probative of an individual's economic
dependence or independence than the skill required for the work. See
id.
The 2024 Rule articulates this factor as skill and initiative and
explains that it ``considers whether the worker uses specialized skills
to perform the work and whether those skills contribute to business-
like initiative.'' 29 CFR 795.110(b)(6). Similar to the 2021 Rule, the
2024 Rule explains that ``[t]his 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.'' Id. But when the individual worker has
specialized skills, the 2024 Rule advises that this is not itself
indicative of independent contractor status ``because both employees
and independent contractors may be skilled workers''; instead, ``[i]t
is the worker's use of those specialized skills in connection with
business-like initiative that indicates that the worker is an
independent contractor.'' Id.
The Department's proposal, like the 2024 Rule, would advise that
the lack of specialized skills or an individual being dependent on the
potential employer for training necessary to do the job indicates
employee status. However, the 2024 Rule incorporates an additional
consideration (compared to the 2021 Rule) when applying the skill
factor by stating that, if specialized skills are present, then this
factor does not necessarily indicate independent contractor status and
whether the individual worker uses the specialized skills in connection
with the business-like initiative is determinative for the factor.
Upon further consideration, refocusing this factor on skill and
training and excluding initiative (like the 2021 Rule) would be
consistent with the Department's overall goal in this proposal to
provide a clearer analysis whereby facts are relevant to a particular
factor rather than overlappingly considered under multiple factors. The
proposed skill factor would also eliminate the additional consideration
from the 2024 Rule of whether the individual uses those specialized
skills in connection with business-like initiative--another reason why
it would provide greater clarity. The individual's exercise of
initiative would of course still be considered in the overall analysis.
Initiative would be considered as part of the opportunity for profit or
loss factor (a core factor), reflecting the 2021 Rule's explanation
that the individual's initiative is usually more probative of the
individual's economic dependence or independence than the skill
required for the work.
The Department believes that considering initiative as part of the
opportunity for profit or loss factor is more consistent with the
Supreme Court's application of the economic reality test. In Silk, the
Court considered the truck drivers' initiative and judgment in the
context of their opportunity for profit, finding that they ``depend
upon their own initiative, judgment and energy for a large part of
their success'' in concluding that they were independent contractors.
331 U.S. at 716. Likewise, the Court in Rutherford Food found it highly
probative that ``profits to the boners'' did not actually depend ``for
success upon the initiative, judgment or foresight of the typical
independent contractor.'' 331 U.S. at 730. The Supreme Court has
treated the probative value of the worker's initiative as being tied to
the success or profitability of the worker's claimed independent
business, and the Department is proposing to adopt the same approach.
The Department understands that this approach is different from how
some (but not all) circuit courts have articulated the skill factor,
but it believes application of the Supreme Court's analysis takes
precedence.
The Department welcomes comments on all aspects of this proposed
factor.
2. The Degree of Permanence of the Working Relationship Between the
Individual and the Potential Employer (Proposed Sec.
795.105(d)(2)(ii))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(ii) from the 2021 Rule, which discussed the second other
economic reality factor--the degree of permanence of the working
relationship between the individual and the potential employer. This
factor would weigh in favor of the individual being an independent
contractor to the extent the work relationship is ``by design definite
in duration or sporadic, which may include regularly occurring fixed
periods of work, although the seasonal nature of work by itself would
not necessarily indicate independent contractor classification.'' 86 FR
1247 (Sec. 795.105(d)(2)(ii)). It would weigh in favor of the
individual being an employee ``to the extent the work relationship is
instead by design indefinite in duration or continuous.'' Id.
The 2021 Rule explained that ``this factor will not always be
probative,'' but noted that ``courts and the Department routinely
consider this factor when applying the economic reality analysis under
the FLSA to determine employee or independent contractor status.'' 86
FR 1192-93. In general, the Department noted that the regulatory text
``indicates that a long-term relationship points toward an employment
relationship,'' but that ``a long-term relationship may not always
indicate an employee relationship.'' 86 FR 1193. Further, the
Department explained that the short-term or seasonal nature of work
would not necessarily indicate independent contractor status. 86 FR
1192. For
[[Page 9955]]
example, seasonal work (which could be viewed as short-term or sporadic
and definite in duration, and therefore weighing toward independent
contractor status) ``would not indicate independent contractor status
where the worker's position is permanent for the duration of the
relevant season and where the worker has done the same work for
multiple seasons.'' Id. (citing Acosta v. Paragon Contractors Corp.,
884 F.3d 1225, 1236-37 (10th Cir. 2018)). Additionally, the Department
noted that ``in certain industries where employees are often employed
for short periods, a short term of employment would not indicate
independent contractor status.'' 86 FR 1193. These concepts are
illustrated in one of the examples from the 2021 Rule that the
Department is proposing to readopt (see proposed Sec. 795.115(b)(6)),
where a housekeeper works for a ski resort every winter and returns to
his position each new season, and therefore has a long-term and
indefinite relationship with the ski resort under the permanence
factor, which weighs in favor of classification as an employee.
The 2021 Rule also explained that, although some courts consider
the exclusivity of a work relationship as part of the permanence
factor, the Department believed that exclusivity is more directly
related to the control factor, which considers whether the individual
has the ability to work for others, rather than the permanence factor.
86 FR 1192. The Department explained that, similar to the Department's
analysis of the concept of initiative, ``the Department believes
analysis of exclusivity as part of the permanence factor dilutes the
significance of actual permanence within that factor, blurs the lines
between the economic reality factors, and creates confusion by
incorporating a concept that is distinct from permanence.'' 86 FR 1193.
The permanence factor in the 2024 Rule retains many of the same
considerations as the permanence factor in the 2021 Rule that the
Department is proposing to readopt, including that a work relationship
that is sporadic and definite in duration favors independent contractor
status, while a work relationship that is indefinite in duration and
continuous favors employee status. 29 CFR 795.110(b)(3). Additionally,
the 2024 Rule includes virtually identical language as the 2021 Rule
recognizing that ``regularly occurring fixed periods of work'' may be
considered to be definite in duration and sporadic, but that ``the
seasonal or temporary nature of work by itself would not necessarily
indicate independent contractor classification.'' Id.
The primary differences between the permanence factor in the 2021
Rule and the 2024 Rule are that the 2024 Rule incorporates the concepts
of exclusivity and initiative, whereas the 2021 Rule, as explained
earlier, sought to minimize blurring between the factors through use of
the same concepts in multiple factors. For example, the regulatory text
for the permanence factor in the 2024 Rule explains that, ``[w]here a
lack of permanence is due to operational characteristics that are
unique or intrinsic to particular businesses or industries and the
workers they employ, this factor is not necessarily indicative of
independent contractor status unless the worker is exercising their own
independent business initiative.'' 29 CFR 795.110(b)(3). And, the 2024
Rule recognized exclusivity as an aspect of permanence that courts and
the Department had viewed as relevant, making a policy choice to
include ``all facts that may be relevant to a particular factor.'' 89
FR 1688.
Upon further consideration, the Department is proposing to provide
greater clarity and efficiency by placing certain concepts--like
exclusivity and initiative--in the factor for which they are most
relevant (control and opportunity for profit or loss, respectively),
rather than using a confusing and redundant analysis that considers
facts related to these concepts in multiple factors. Moreover, the
Department has consistently noted throughout the 2021 and 2024
independent contractor rulemakings that it is important for the
Department to provide clear guidance on the fact that the ultimate
inquiry of economic dependence is a ``dependence-for-work'' analysis
rather than a ``dependence-for-income'' analysis. See 86 FR 1172-73; 89
FR 1690. Removing consideration of whether individuals have an
exclusive relationship with one employer or more than one job or source
of income from the permanence factor helps to clarify that a
``dependence-for-income'' approach is not indicative of whether an
employment relationship exists. Finally, because control and
opportunity for profit or loss are ``core'' factors, the concepts of
exclusivity and initiative will be given their appropriate probative
value, as opposed to the limited probative value of the permanence
factor overall in the proposed analysis. Thus, by proposing to readopt
the more streamlined permanence factor from the 2021 Rule, the
Department believes it will better retain key concepts relevant to the
permanence factor within the broader analysis.
The Department welcomes comments on all aspects of this proposed
factor.
3. Whether the Work Is Part of an Integrated Unit of Production
(Proposed Sec. 795.105(d)(2)(iii))
The Department is proposing to readopt the regulatory text of Sec.
795.105(d)(2)(iii) from the 2021 Rule, which discussed the third other
economic reality factor--whether the work is part of an integrated unit
of production. The Department is proposing to make one non-substantive
change to the regulatory text, to align the description of this factor
with the descriptions of the other factors, all of which begin by
explaining how the factor weighs in favor of independent contractor
status before explaining how the factor weighs in favor of employee
status. See 86 FR 1246-47 (Sec. 795.105(d)(1), (d)(2)(i)-(ii)). This
factor would weigh in favor of the individual being an independent
contractor ``to the extent his or her work is segregable from the
potential employer's production process'' and would weigh in favor of
the individual being an employee ``to the extent his or her work is a
component of the potential employer's integrated production process for
a good or service.'' 86 FR 1247 (Sec. 795.105(d)(2)(iii)). This
provision would clarify that this factor is different from the concept
of the importance or centrality of the individual's work to the
potential employer's business. Id.
In the 2021 Rule, the Department explained that the ``integrated
unit'' factor derives from Rutherford Food, in which the workers
ultimately determined to be employees were ``part of an integrated unit
of production'' who worked ``alongside admitted employees of the plant
operator at their tasks.'' 86 FR 1194 (citing 331 U.S. at 729). As the
Department acknowledged and many commenters noted, the 2021 Rule's
``integrated unit'' formulation of the factor differed from the way the
Department's prior guidance and most courts articulated this factor
using an ``integral part'' analysis. 86 FR 1193. That formulation
considers ``the extent to which services rendered are an integral part
of the potential employer's business.'' Id.
Under an ``integral part'' analysis, courts focus on the importance
or centrality of the work to the potential employer's business. In the
2021 Rule, the Department reasoned that asking whether a worker is a
part (integral or otherwise) of the potential employer's business
``simply restates the ultimate inquiry: If a worker were part of the
potential employer's business, then he
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[…truncated; see source link]Indexed from Federal Register on February 27, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.