DOL Drops Biden-Era Gig Worker Independent Contractor Rules

by Prof. Robert Bloink and Prof. William H. Byrnes

Typically, employers who get it wrong when it comes to worker classification risk steep penalties—although the financial benefits of using independent contractors, rather than common law employees, are clear. It’s historically been a challenge to determine whether any given worker can rightfully be characterized as a contractor—and the standard has shifted again and again in recent years. Now, the winds are changing again under the second Trump administration. The U.S. Department of Labor’s Wage and Hour Division (WHD) issued Field Assistance Bulletin 2025-1, announcing that it will no longer be enforcing the 2024 Biden-era standard for evaluating independent contractor status. Instead, WHD will revert to older standards that are widely viewed as being more flexible—thus potentially resulting in more workers being classified as independent contractors.

Evolving Standard for Classifying Workers

WHD’s announcement isn’t merely a reversion to the original Trump-administration standards. WHD announced that it will return to the “economic realities” test that was developed back in 2008. That test involves evaluation of seven different factors when classifying workers as independent contractors or employees.

Those factors include (1) the degree of control the employer exercises over the worker’s work, (2) the permanence of the working relationship, (3) investment in tools or equipment, (4) the amount of the worker’s judgement and initiative required for their success, (5) the worker’s opportunity for profit or loss, (6) whether the work being performed is integral to the business and (7) the level of independent business organization and operation.

Action Steps for Employers

First and foremost, employers should understand that the WHD announcement was clear that no retroactive penalties will apply (unless the WHD had already taken action with respect to the employer’s classifications).

The DOL was also clear that gig economy workers can still qualify as independent contractors based on the 2019 Opinion Letter FLSA2019-6, particularly if they retain their autonomy, maintain business risk and are not economically dependent on the platform at issue.

Employers who restructured positions based on the recent 2024 standard should evaluate those positions to determine whether they continue to make sense in light of the change in standard.

Employers should also be aware of state-specific standards for evaluating worker classification—and should understand that they must comply with both state and federal laws.

In California, for example, workers can only be classified as independent contractors if the work done by the individual is outside of the usual type of business conducted by the company. Additionally, the burden in California is on the employer to show that the worker is free from the direction and control of the employer and that the worker is customarily engaged as an independent contractor in the same type of work being performed for the company—a test known as the “ABC test”.

Implications of Worker Status

It’s widely expected that the return to the older standards make it easier for employers to classify workers as independent contractors.

Classifying workers as employees instead of independent contractors has a number of ramifications that substantially increase the cost of doing business for companies operating in the gig economy—but common law employee status also tends to result in workers receiving valuable employment benefits.

Independent contractors are excluded for purposes of determining whether the employer is required to provide health coverage to employees—and even if the company is large enough so that it must provide minimum essential health coverage, it need not provide similar coverage to the independent contractors.

Similarly, employers with employees may have obligations with respect to workers’ compensation and are also required to pay their share of employment taxes with respect to every employee. Conversely, employers do not even have withholding obligations with respect to independent contractors who work for their companies, and are generally only obligated to report compensation paid to those workers on a Form 1099.

Conclusion

While this DOL shift was a clear move toward more flexibility when it comes to worker classification, employers should understand that this independent contractor standard has shifted time and again—and continuing evolution seems almost inevitable.