DOL Retracts Biden Era Independent Contractor Classification Rules

On 1 May 2025, the United States Department of Labor (DOL) Wage and Hour Division announced that it would not enforce nor apply the Biden era 2024 Final rule regarding independent contractor classification (“2024 Rules”). The DOL specifically instructed its investigators to “not apply the 2024 rule’s analysis” when enforcing enforcement matters. The DOL announcement will make it easier for workers to be classified as independent contractors on the federal level. It also continues a regulatory backlash against Biden’s directives. While the 2024 Rule does remain in effect for private litigation and certain state-specific tests still impose higher worker classification standards than the current federal guidelines, the DOL’s announcement is a win for employers seeking to classify workers as contractors.

The 2024 Rule

Under the 2024 Rule, classifying workers as independent contractors was somewhat akin to threading a needle. The 2024 Rule, which was implemented on March 15, 20,24, required a complex and employee-friendly analysis to determine whether a worker is “economically dependent” upon an employer, and therefore not an independent contractor. These six factors included:

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

Under the 2024 Rule, no factor was assigned more weight than another. The 2024 Rule is also known as the “totality-of-circumstances” test. The net result was a high degree of both difficulty and uncertainty for employers seeking to classify workers as independent contractors.

Legal Challenges to the 2024 Rule

Business groups quickly challenged the 2024 Rule in courts across the country. Five lawsuits are currently pending. In each case, the main argument is the 2024 Rule being arbitrary, capricious and imposing an undue burden to businesses. The 2024 Rule has not been halted or blocked by any court. The current DOL has backed away from the 2024 rule, which is why the outcome of these cases is unclear. In one case pending in the Fifth Circuit (Frisard’s Transp., LLC v. United States), for example, the Court of Appeals stayed proceedings after the government provided a status report indicating that the DOL is in the process of re-evaluating the 2024 rule-at-issue in this litigation. Ultimately, the DOL’s pivot to the more lenient standard could have massive implications for these proceedings.

The DOL Retracts the 2024 Rule

In its May 1 announcement, the DOL directed investigators to analyze a worker’s status under the longstanding “economic reality” test, described in the Department’s 2008 Fact Sheet 13 and 2019 Opinion Letter. The traditional economic reality test examines various factors to determine if a worker is in business for themselves and therefore a contractor or dependent on the hiring entity. These factors include:

1. Whether the work is integral to the hiring entity’s business;
2. The permanency of the parties’ relationship;
3. The contractor’s investments in facilities or equipment;
4. The degree of control by the hiring entity over the contractor;
5. The contractor’s opportunity for profit or loss;
6. The amount of independent judgment or initiative required in marketplace competition for the contractor to succeed; and
7. The degree of independence with which the contractor organizes and operates their business.

This traditional economic reality test is widely considered more employer-friendly. It is highly-likely that the DOL under President Trump will issue new, formal rulemaking on the subject in the near future.

Employer Takeaways

Regardless of the DOL’s announcement, employers should remain vigilant and ensure they are compliant with applicable classification rules; which greatly vary by jurisdiction.

For example, certain states’ classification standards far outpace federal guidelines and are more employee friendly. California, New Jersey, Massachusetts, and other states use the stricter “ABC” test to determine if a worker is an independently contracted worker. Employers must prove that (1) the worker is not under the control or direction of the hiring entity, (2) the work is done outside the hiring entity’s normal course of business and (3) the worker has a customary occupation, trade, or business. Employers must prove all three elements to properly classify a worker as an independent contractor.

Employers should also closely monitor regulatory developments. As mentioned above, it’s highly likely that DOL will implement new final rules in the near future. Employers should be ready for any changes that may occur and review their worker classifications. It is important that employers remain flexible to maximize the opportunities offered by favorable changes, and be prepared for a new shift in the regulatory environment.

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