On February 26, 2026, the federal Department of Labor issued a proposed rule intended to replace a Biden administration regulation explaining the difference between employees and independent contractors under the Fair Labor Standards Act, Family and Medical Leave Act, and other federal labor statutes. The proposal essentially replaces the Biden-era rule with one put into place during the first Trump administration.

Given the growing number of gig workers in the U.S., these regulations have important implications for businesses that use independent contractors. In recent years there have been numerous lawsuits filed by such workers alleging that they were actually misclassified employees. The two administrations agree that the legal distinction between employees and contractors is based on an “economic realities” test. They differ in identifying the factors that determine that test.

The new proposed rule limits this to two factors: (1) the nature and degree of control exerted over the work and (2) the worker’s opportunity for profit and loss. The proposed rule eliminates four additional factors contained in the current regulation, including the degree of permanence of the working relationship and how integral the work is to the business’s operations.

If finalized, this rule would make it easier for businesses to defend misclassification suits. Employers can also assume that this test will continue to yo-yo back and forth depending on which party holds the White House. DOL is accepting comments on the proposed rule through April 28, 2026.

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