On May 1, 2025, the U.S. Department of Labor (DOL) published FAB No. 2025-1, providing guidance to its field staff on the analysis to apply when determining whether a worker is an independent contractor or employee for purposes of Fair Labor Standards Act (FLSA) enforcement.
The independent contractor vs. employee analysis under the FLSA has fluctuated for more than a decade. The applicable analysis has always revolved around the economic realities test, but the focus of the test has shifted.
For instance, in 2021, the DOL under the original Trump Administration issued an independent contractor rule (2021 Rule) that identified five economic reality factors to be considered, but highlighted two of the five factors—the nature and degree of control over the work and the worker’s opportunity for profit or loss resulting from his personal investment—as the “core factors” most probative of the nature of the relationship. In highlighting the significance of those two core factors, the 2021 Rule further noted that the other three factors—i.e., the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production—were “highly unlikely” to outweigh the others.
Litigation regarding the 2021 Rule was prevalent until January 2024 when the DOL under the Biden Administration ultimately replaced the 2021 Rule with its own guidance (2024 Rule). The 2024 Rule laid out six non-exclusive factors to consider as part of the analysis: (1) the worker’s opportunity for profit or loss depending on managerial skill; (2) whether and to what extent the worker makes investments in their business; (3) the degree of permanence of the work relationship; (4) the nature and degree of control that the potential employer exercises over the worker; (5) the extent to which the work performed by the worker is an integral part of the potential employer’s business; and (6) the level of skill and initiative required to perform the work. The 2024 Rule also noted that other context-specific factors may be relevant to the analysis. Departing from the 2021 Rule’s emphasis of only two factors, the 2024 Rule was viewed as a return to a totality-of-the-circumstances analysis, and as consistent with the DOL’s then-stated goal of ensuring that more workers receive the protections of employee status and—for some companies—making it more challenging to classify a worker as an independent contractor.
Like the 2021 Rule, the 2024 Rule was the subject of widespread litigation. After President Trump returned to the White House, the DOL indicated that it was reconsidering the 2024 Rule, and the lawsuits were put on hold. Employers (and workers) have been waiting since then for further guidance as to how the DOL under the current Trump Administration would view the issue. We now have a more concrete idea.
As expected, the DOL will no longer apply the 2024 Rule’s analysis when determining whether a worker is an independent contractor or an employee under the FLSA. Instead, the DOL “will enforce the FLSA in accordance with Fact Sheet #13 (July 2008), and as further informed by Opinion Letter FLSA2019-6 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.”
Under Fact Sheet #13, factors to consider in the economic realities analysis include: (1) the extent to which the services rendered are an integral part of the principals business; (2) the permanency of the relationship; (3) the amount of the alleged contractor’s investment in facilities and equipment; (4) the nature and degree of control by the principal; (5) the alleged contractor’s opportunities for profit and loss; (6) the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and (7) the degree of independent business organization and operation. Notably, “certain factors which are immaterial” to the analysis include “the place where work is performed, the absence of a formal employment agreement, or whether an alleged independent contractor is licensed by State/local government are not considered to have a bearing on determinations as to whether there is an employment relationship.”
As noted in FAB NO. 2025-1, the 2024 Rule remains in effect for purposes of private litigation until further DOL action. But it is seemingly only a matter of time until the DOL withdraws the 2024 Rule or otherwise issues new guidance replacing it. We will continue to track this and other related wage-and-hour developments as things progress.
If you have any questions about the topics discussed in this article, please contact James P. Looby at jlooby@vedderprice.com or any other Vedder Price attorney with whom you have worked.