DOL’s Proposed Independent Contractor Rule Reverts to Prioritize Two Core Factors – Likely Limiting Misclassification Claims by Contractors

The U.S. Department of Labor (DOL) has proposed another revision to independent contractor regulations, one that would provide for more leeway in classifying workers as contractors. DOL’s proposed rule, published on February 26, 2026, would rescind the Biden DOL’s March 2024 independent contractor regulation and reinstate a framework substantially tracking the prior Trump rule of January 2021. The proposed rule would also apply the narrower analysis to worker classifications under the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The comment period closes in late April 2026; until then, the 2024 rule remains in effect for purposes of private litigation.

The Bottom Line

Under the proposed rule, the classification analysis will center primarily on just two factors: whether the worker (1) meaningfully controls the work, and (2) has a genuine opportunity for profit or loss based on personal initiative or investment. As such, businesses should evaluate their existing and planned contractor arrangements against these two core factors as the primary lens. And, for reasons described in greater detail below, businesses should audit whether the day-to-day reality of their contractor relationships — including scheduling flexibility, the ability to work for multiple clients, and project-level decision-making — supports independent contractor status in practice, not just on paper. Finally, FMLA compliance teams should review the impact of this proposed rule, as should businesses with potential exposure under the MSPA, including those in food production, agriculture, and supply chains that rely on farm labor contractors.

For litigation purposes, this proposed focus on just two factors is significant. Under the proposed framework, a court conducting a classification analysis would have an express regulatory basis for ruling in favor of independent contractor status on the “control” and “profit-or-loss” factors alone.

The Shift From Open-Ended Balancing to Weighted Hierarchy

DOL’s proposed rule will likely extinguish the 2024 rule, whose defining characteristic was its explicit rejection of any hierarchy among the various factors to be reviewed in determining the proper classification of workers. Indeed, the 2024 rule applied a six-factor, totality-of-the-circumstances economic reality test in which no single factor or subset of factors was necessarily dispositive, and weight depended entirely on the specific facts of the relationship. DOL now views this open-ended approach as insufficiently predictable and as creating too high a bar to justify contractor status.

By contrast, the proposed rule would reinstate a hierarchy of factors, where two "core" factors — control and opportunity for profit or loss — would be treated as most probative and capable of resolving the classification question with substantial likelihood when both point toward the same outcome. The remaining factors would be treated as less probative and, where both “core” factors are aligned, very unlikely to change the result.

Key Doctrinal Shifts

The DOL’s proposed rule sets forth a series of changes to the necessary analysis underlying classification of workers. The principal changes are the following:

Control: Scope Narrowed; Compliance Carve-Out Restored

Under the proposed rule, the control factor would favor contractor status where the individual controls key aspects of the work — including scheduling, project selection, and the ability to work for multiple clients — and would favor employee status where the putative employer controls schedule and workload or requires exclusivity.

Critically, the proposal would readopt the "compliance is not control" principle from the 2021 rule: requirements imposed to satisfy legal obligations (e.g., health and safety regulations, insurance mandates, and standard B2B quality or deadline expectations) would not count as “control” for the purposes of the applicable test. This carve-out carries material significance for industries such as construction, health care, transportation, and financial services, where regulatory compliance requirements are pervasive features of contractor arrangements.

Profit or Loss: Investment Reintegrated; Relative Comparison Eliminated

The opportunity for profit or loss factor, under the proposed rule, expressly turns on the worker's initiative and/or management of their own capital investment, including hiring helpers and acquiring equipment or materials. The factor would favor contractor status where either initiative or investment (or both) creates meaningful opportunity for profit or loss. No longer required is a comparative analysis between the worker's and the potential employer's respective investments.

Integrality: "Integrated Unit of Production" Replaces "Integral to the Business"

The 2024 rule's "integral to the business" factor — asking whether the putative contractor’s work was critical, necessary, or central to the employer's principal business — would be replaced with a narrower concept, called the "integrated unit of production" concept, which examines whether the work is “structurally integrated” into the employer's production process. This analytical factor would no longer turn on whether the work is merely commercially important to the employer.

Expansion to FMLA and MSPA

The proposal would extend the same classification framework to the FMLA and MSPA through conforming regulatory amendments, creating a uniform standard across all three statutes for the first time. This expansion would be particularly significant for businesses that rely on supply chains involving agricultural labor and would extend potential liabilities beyond the FLSA.

Next Steps

The proposal is not yet final. The comment period runs through late April 2026, and the rule may be revised before finalization. In the interim, the 2024 rule technically remains in effect for private litigation purposes. Businesses should continue to document the factual basis for contractor classifications carefully, regardless of which framework ultimately governs.