The U.S. Department of Labor’s (DOL) Feb. 26 proposed rule on independent contractor classification signals yet another shift in federal guidance — one that may simplify analysis at the federal level but deepen compliance challenges for multistate employers. While the DOL is moving toward a more flexible, business-friendly framework, states like California continue to enforce far stricter standards.
Here’s how the two approaches diverge, and where risk is rising.
The DOL’s proposed rule would rescind the 2024 regulation on classification and replace it with a framework centered on the longstanding “economic reality” test. At its core, the analysis asks whether a worker is economically dependent on an employer (and therefore an employee) or is truly in business for themselves.
Unlike the 2024 rule’s six-factor, equal-weight approach, the proposal emphasizes two “core” factors:
If both point in the same direction, there is a strong likelihood of proper classification. Additional factors, such as skill, permanence, and integration into the business, serve as supporting considerations rather than equal determinants.
“The DOL rule considers multiple, non-exhaustive factors to determine whether the relationship is one of ‘economic dependence,’” said Melanie Ronen, an attorney with Stradley Ronon in Long Beach, Calif. “No single...
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