How Far Will The Pendulum Swing? USDOL’s 2026 Proposed Independent Contractor Rule

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On February 26, 2026, the U.S. Department of Labor (“USDOL” or the “Department’) announced a long-awaited proposed rule (the “2026 Proposed Rule”) revising the regulations guiding how to determine independent contractor status under the Fair Labor Standards Act (FLSA). The 2026 Proposed Rule would also affect the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Worker Agricultural Worker Protection Act (MSPA). All of these laws are enforced by the USDOL and govern employer/employee relationships, but do not apply to workers properly classified as independent contractors.

Public comments on the proposed rule must be received within 60 days of its publication in the Federal Register (on February 27, 2026).

While You Wait

While awaiting USDOL’s final independent contractor rule, employers should keep in mind that the USDOL is only one of many government agencies that differentiates between employees and independent contractors. The Internal Revenue Service (IRS), Equal Employment Opportunity Commission (EEOC), National Labor Relations Board (NLRB), and many state agencies administering laws governing workers’ taxes, workers’ compensation, wages, and unemployment benefits all enforce variations of tests analyzing workers’ relationships.

For example, the IRS considers three categories—behavior control, financial control, and the relationship of the parties—to determine whether a worker is an independent contractor or an employee. The EEOC uses a multi-factor common law test. Many states also use the common law test. The Texas Workforce Commission and the Alabama Department of Labor apply the common law test using versions of the 20 factor test the IRS used before it adopted its current test. Other states, like California, Illinois, Massachusetts, New Jersey, and Tennessee use versions of an “ABC” test, which requires an independent contractor to meet three requirements:

• Freedom from control and direction in connection with the performance of the work, both under the relevant contract and in fact;
• Performing work that is outside the usual course of the hiring entity’s business; and
• Engagement in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The next few months are an excellent time to make sure you understand which tests apply to your workers and ensure your relationships with your workers comply with their requirements.

Circular Definitions in the Law

The FLSA unhelpfully defines an employee as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). It also defines employer to mean “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The U.S. Supreme Court (quoting Senator Hugo Black) described the FLSA as having “the broadest definition [of employee]…ever included in any one act.” United States v. Rosenwasser, 323 U.S. 360, 363 n.3 (1945). The 2026 Proposed Rule would incorporate the change in the FLSA regulations to the applicable definitions in the FMLA and MSPA as well.

The Pendulum’s Swings

The proposed rule is the latest turn in the regulatory swing between enforcement priorities of the first and second Trump administrations on the one hand and the Obama administration that preceded them and the Biden administration that interrupted them. The 2026 Proposed Rule would essentially return back to the standard from the first Trump administration.

The 2021 Rule

The first Trump administration first revised independent contractor regulations on January 7, 2021 (the “2021 Rule”), moving away from previous versions of the economic realities test that were not formalized in regulations and used six and sometimes seven factors in analyzing whether workers were properly classified as independent contractors. The 2021 Rule listed five factors to use in determining a worker’s status:

1. The nature and degree of the worker’s control over their work
2. The worker’s opportunity for profit or loss based on initiative and/or investment
3. The amount of skill required for the work
4. The degree of permanence of the working relationship between the worker and the potential employer
5. Whether the work is part of an integrated unit of production.

The 2021 Rule identified the first two factors as “core factors” that are “the most probative as to whether or not an individual is economically dependent and therefore carry “greater weight in the analysis than any other factor.” The 2021 Rule was slated to go into effect on March 8, 2021. After President Biden took office the U.S. Department of Labor delayed implementation, then tried to withdraw the 2021 Rule before it became effective. The United States District Court for the Eastern District of Texas vacated the delay and withdrawal, holding that the 2021 Rule became effective on the original effective date. Coalition For Workforce Innovation v. Walsh, No. 1:21-cv-130 (E.D. Tex. Mar. 14, 2022). The DOL appealed that ruling, which was vacated and remanded by the Fifth Circuit. Coalition for Workforce Innovation v. Su, No. 22-40316 (5^th Cir. Feb. 19, 2024).

The 2024 Rule

During the Biden administration, the USDOL formally unwound the 2021 Rule in early 2024, issuing revised regulations that returned to a six factor test weighing all factors equally (the “2024 Rule”), which became effective on March 11, 2024. The USDOL’s Notice of Proposed Rule Making for the 2024 Rule criticized the 2021 Rule as departing “from decades of case law applying the economic reality test” and expressed concern that the departure would prompt years of litigation if courts did not adopt the 2021 Rule.

The Proposed 2026 Rule

The 2026 Proposed Rule would adopt the 2021 Rule, including returning to the five-factor test and the “core factor” analysis in § 795.105(c).

The Department proposes to add the following sentences to the end of the regulation’s discussion of “Economic dependence as the ultimate inquiry” in § 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 last sentence of this addition is one of the revisions made by the 2024 Rule.

The Proposed Rule is open for public comment for 60 days after publication in the Federal Register on February 27, 2026. USDOL specifically seeks “comment from the public on their experiences using the economic reality analyses provided in the 2021 and 2024 Rules, and why one may be preferable to the other.”

Noting that the Supreme Court has emphasized that the FLSA extends the scope of employment beyond the common law control test, but there are circumstances in which a worker may be an employee under the common law control test but not under the FLSA’s economic realities test, the Department also “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.” The Department further indicated that it “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.” If the Department adopted this approach, a potential employer who controlled the worker “based on the considerations for the control factor that the Department is proposing to readopt,” no consideration of the other factors would be necessary—the worker would be an employee. But, if the control factor indicated independent contractor status or was neutral, “then the analysis would proceed as proposed in [the proposed rule].” This possibility introduces a much more substantial change in the USDOL’s approach to independent contractor analysis than the 2021 Rule and would be less employer-friendly since it would provide an easier path to establish a worker is an employee.

The Notice of Proposed Rule Making further solicits “comments about the most effective, reliable, and consistent circuit court analyses, or other appropriate analyses for determining employee or independent contractor status.”

In addition to proposing to incorporate the revised FLSA economic realities test into the applicable FMLA regulations, the Department proposes to delete one sentence from 29 CFR 825.105(a), which advises that “[m]ere knowledge by an employer of work done for the employer by another is sufficient to create the employment relationship.” The Department indicates that this deletion would help ensure consistency in the application of the multifactor analysis.

Practical Impact

USDOL estimates that the number of independent contractors could increase by 1-3 percentage points if the 2026 Proposed Rule is finalized. The Department projects that implementation of the 2026 Proposed Rule would result in a small number of reclassification of workers from employees to independent contractors while new entry of independent contractors would be more significant.

Hedging Bets

The Department also indicates that even if its proposed changes to the FLSA are later invalidated, enjoined, or otherwise not put into effect, the proposed changes to the FMLA and MSPA would remain in effect.

Wrap-Up

Implementation of the 2026 Proposed Rule is likely to make it easier for companies to establish independent contractor relationships under the regulations for the FLSA, FMLA, and MSPA. The exact approach it will take to do so may change depending on public comments. In the meantime, employers should focus on identifying the other laws that apply to their relationships with their employees and ensure that their independent contractors are properly classified under those laws while awaiting the final rule.