DOL Walks Back Biden-Era Independent Contractor Rule: What Employers Need to Know

By: Robert Brody and Matthew Chiota

In a significant development for employers nationwide, the U.S. Department of Labor (DOL) announced it will not enforce the Biden-era 2024 Independent Contractor (IC) Rule. While the rule remains in effect for private litigation, this shift in federal enforcement policy signals a more employer-friendly approach to worker classification at the federal level.

The 2024 Rule: A High Bar for Independent Contractor Classification

The 2024 Rule, implemented during the Biden administration, established a stringent framework for determining whether a worker should be classified as an employee or independent contractor under the Fair Labor Standards Act (FLSA). The rule introduced a six-factor “totality of the circumstances” test focused on whether a worker was economically dependent on the employer:

1. The nature and degree of the company’s control;
2. The worker’s opportunity for profit or loss;
3. The relative investments by worker and company;
4. The permanence of the working relationship;
5. The extent to which the work is integral to the business; and
6. The amount of skill and business initiative required.

Each factor was weighed equally, and none held dispositive weight. This structure made it significantly more difficult for employers to lawfully classify workers as independent contractors, prompting numerous legal challenges by employers claiming the rule was “arbitrary, capricious, and overly burdensome on businesses.”

DOL’s Policy Shift: A Return to the Economic Realities Test

The DOL has now directed investigators to apply the traditional “economic realities” test, initially outlined in 2008, when analyzing worker classification. Though similar in scope to the Biden rule, the economic realities test has long been viewed as more favorable to employers.

This test assesses whether a worker is truly in business for themselves (and thus an independent contractor) or economically dependent on a company (and therefore an employee). The test includes several key factors:

• Whether the services are integral to the business;
• The permanency of the relationship;
• The worker’s investment in tools and equipment;
• The nature and degree of control by the company;
• The worker’s opportunity for profit and loss;
• The worker’s level of initiative and independent judgment required;
• The presence of an independent business organization.

These factors need not be weighted equally and allow a more flexible analysis. The result typically produces more favorable outcomes for employers seeking to classify workers as independent contractors.

What Does This Change Mean for Employers?

This DOL announcement is a clear win for businesses. It reduces the immediate risk of federal enforcement actions tied to worker misclassification. However, important caveats remain:

• The 2024 Rule is still technically in effect and can be cited in private litigation (in court).
• State-specific laws, such as California’s ABC Test, may impose stricter classification standards than federal guidance. Therefore, an employer could win under the federal test and still lose under the state test.
• Misclassification still carries potential liability under state wage laws, tax codes, and unemployment insurance systems.

While the DOL’s shift back to the economic realities test may ease federal scrutiny, employers must remain vigilant. Worker classification continues to be a fact-intensive inquiry, and legal exposure can vary greatly depending on the jurisdiction. Businesses should regularly review their independent contractor agreements and practices in consultation with counsel to ensure compliance with both federal and state laws.

Brody and Associates regularly advises management on compliance with the latest local, state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.