One of the stickiest issues in the enforcement of federal wage and hour law concerns employers’ classification of workers as independent contractors. This distinction affects broad sectors of the American workforce, particularly in the modern gig economy. Under the Biden Administration, the Department of Labor (DOL) issued a rule that was meant to clarify and tighten the criteria for independent contractor classification. Now, in response to pressure and lawsuits from business groups, the Trump-era DOL has said it will abstain from enforcing that rule.
Under the 2021 Biden rule, the DOL examined the totality of the circumstances to ascertain whether or not a worker was economically dependent on the employer. If so, they would not be considered an independent contractor. The rule was crafted to reduce misclassification of workers — primarily in sectors like delivery, ride-sharing, construction, healthcare, and hospitality — thereby extending minimum wage protection, overtime pay, and benefits to more people.
But in a directive announced on May 1, 2025, the DOL Wage and Hour Division said that in response to pending lawsuits challenging the Biden rule, it is reviewing and developing a standard for determining FLSA employee versus independent contractor status. In the meantime, it will enforce the FLSA according to Fact Sheet #13 (July 2008) and Opinion Letter FLSA2019-6, which codified federal case law.
The DOL directive essentially restores the “economic realities” test that courts had applied prior to the Biden rule. That test involves looking at the following criteria in finding the existence of a contractual relationship that relieves the employer from compliance with the Fair Labor Standards Act (FLSA):
- The extent to which the services rendered are an integral part of the principal’s business
- The permanency of the relationship
- The amount of the alleged contractor’s investment in facilities and equipment
- The nature and degree of control by the principal
- The alleged contractor’s opportunities for profit and loss
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor
- The degree of independent business organization and operation
The rescission has met with approval from employer advocate groups, which had contended that the Biden rule invited confusion and litigation risk because of its sweeping inclusion of indirect control as a sign of employment. However, labor advocates and worker organizations say the rescission will make it easier for employers to misclassify workers, thus depriving millions of workers of overtime pay, benefits, and protections under the FLSA, especially disadvantaged low-wage workers who lack bargaining power.
The issue is by no means settled. While the DOL’s rescission aligns federal policy more closely with historical precedent, the DOL’s new rule, once announced, will likely be the subject of further litigation. Until then, employers as well as independent contractors should consult with an experienced employment law attorney to make sure their classifications are in accordance with the law.
The Reddy Law Firm, P.C., in Alpharetta, represents employers and employees throughout Georgia in conflicts concerning wage and benefits disputes. Call 678-629-3246 or contact us online to schedule a free consultation with an experienced employment attorney.
