Classifying the Independent Contractor, again.

On February 27, 2026, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) that seeks to formally rescind the 2024 final rule regarding worker classification under the Fair Labor Standards Act (FLSA). The proposed rule would be an attempt to streamline the classification analysis by prioritizing two "core factors."

The public comment period is open until April 28, 2026, and stakeholders should ensure their voices are heard by submitting data demonstrating whether the independent contractor model is an operational necessity for their business.

Current Rule

The current rule, finalized in 2024, utilizes a multi-factor "totality-of-the-circumstances" framework to analyze the relationship between employer and employee or independent contractor. The current six factors in the classification test are:

1) Opportunity for profit or loss depending on managerial skill. Can the workers make decisions that affect their profit/loss (e.g., negotiating pay, hiring helpers, managing costs)?

2) Investments by the worker and the potential employer. Are the workers’ investments capital/entrepreneurial in nature, rather than just tools needed for a specific job?

3) Degree of permanence of the work relationship. Is the work continuous and exclusive or sporadic/project-based?

4) Nature and degree of control. Does the employer control the worker’s schedule, provide employee supervision, and does the worker have the ability to work for others?

5) Extent to which the work performed is an integral part of the employer’s business. Is the service core or essential to the business, rather than peripheral?

6) Skill and initiative. Does the work require specialized skills and business-like initiative?

The 2024 rule was viewed by employee advocates as a step towards protecting employees from those companies that attempted to take advantage of improperly classifying their employees as independent contractors. However, the 2024 rule was criticized by industry groups for being "unworkably vague," as it weighed six factors equally without providing a hierarchy. The uncertainty of the rule led some employers to mistakenly classify employees despite good faith efforts to follow the rule. The repercussions for a mistake in this area were severe, placing many employers in a dire position.

The Shift: From "Totality" to "Core Factors"

The shift away from the “totality-of-the-circumstances” analysis is widely viewed as a return to an employer-friendly environment, particularly for the trucking, delivery, and ride-share industries. By clarifying that regulatory compliance, such as safety protocols or FMCSA Rules, does not constitute "control," the proposed rule offers protection for the independent contractor model which has become foundational to these sectors.

The 2026 proposal restores the structured "Economic Reality" test, designating two factors as most probative to determine the classification: 1) the nature and degree of control, and 2) the opportunity for profit or loss. The “nature and degree of control” element asks whether the worker sets their own schedule, selects projects, and can work for competitors. The “opportunity for profit or loss” element focuses on whether the worker can affect their earnings through business initiative, managerial skill, or investment in equipment.

Under this proposed framework, if both core factors align toward a specific classification, there is a "substantial likelihood" that the classification is correct. The various secondary factors are only considered if the core factors are non-dispositive. Examples of these secondary factors include the degree of permanence, specialized skill, and whether the work is part of an integrated unit of production.

Specific Concerns we have seen with our clients

The trucking industry has seen significant growth in the number of drivers who are owner-operator independent contractors, to the degree that the owner-operator driver has become a default business model for many. Fortunately, the proposed rule does address several issues we have found to be problematic. For example, the driver safety area has repeatedly led to false claims of misclassification because driver safety regulations are used to argue that employers are exercising employee control. Therefore, a critical component of the 2026 proposal is the clarification that requiring a contractor to comply with specific legal obligations, such as drug and alcohol testing or DOT safety regulations, will not count as "control" by the carrier. The 2026 proposal cautions, that while carriers can mandate safety compliance, they cannot use these mandates to micromanage a driver’s operational methods without risking a reclassification of an independent contractor to an employee.

Another area that led to misunderstanding in the 2024 rule was the ill-conceived investment comparison that compared the driver’s investment to the employer’s total investment, which almost by default acted to weigh in favor of finding an employee relationship. The 2026 proposal drops the unfair comparison and instead looks at whether the driver’s investment supports an independent business.

Our carrier clients and those utilizing gig-economy platforms will also see clarification, with the new rule emphasizing that a driver’s ability to choose which jobs to accept and the management of their own vehicle strongly supports independent contractor status under the "Profit or Loss" factor.

Reality of the new rule

Will the proposed rule dramatically change how the independent contractor relationship is defined for most employers? No, for a few reasons. First, the Administrative Procedures Act was before the Supreme Court in a case Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024), 144 S. Ct. 2244 (2024), and the Court concluded that courts may not defer to agency interpretations of ambiguous statutes (known as the “Chevron deference”). Instead, the Court found that courts require independent judicial judgment under the Administrative Procedure Act. This means that DOL’s interpretation no longer receives deference, so while the rule provides an enforcement roadmap for the DOL, federal courts will have more latitude to apply their own interpretations of the FLSA.

Second, and perhaps more importantly, this federal rule does not override stricter state tests, and carriers must ensure they remain compliant with local standards. For example, currently Virginia presumes all workers are employees, and places the burden on businesses to prove a worker is an independent contractor. The Virginia Tax section also adopts a separate federal rule, the IRS 20-factor test, which focuses on behavioral control, financial control, and the relationship of the parties to determine status. So, while the DOL may have attempted to streamline its 6-factor test by prioritizing 2 factors, it may ultimately do little to untangle the complexities of State employee classification.

Our Recommendation for Employers

Most employers have already worked to properly classify their workers using the six-factor test and stricter state-specific standards. As a result, dramatic changes to existing independent contractor agreements are unlikely.

That said, it is prudent to review your current independent contractor agreements and templates to ensure they clearly emphasize the core factors of behavioral and financial control, as well as the opportunity for profit or loss. These should be supplemented by any additional requirements imposed by applicabNewle state law.

We strongly recommend that employers consult with an attorney experienced in this area to review their policies and address any specific questions. If you have questions about this article, or about employee classification in general, please contact Michael Jacquez (mjacquez@setlifflaw.com) at (804) 377-1262 or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.