On February 26, 2026, the U.S. Department of Labor (DOL) released a Notice of Proposed Rulemaking (NPRM) proposing revisions to how workers are classified as employees or independent contractors under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The proposal seeks to reinstate the DOL’s 2021 independent contractor test issued during the prior Trump administration and rescind the 2024 rule adopted under the Biden administration, which applied a broader six-factor balancing framework without any dominant factor.
The DOL is currently accepting public comments on the proposal, with the comment period open through April 28, 2026. If finalized, the reinstated standard could affect businesses across many industries as freelance and gig-economy work continues to grow in California and as the state remains highly dependent on seasonal labor.
DOL’s Proposal
- Adopts the “economic reality” test to determine whether a worker is in business for themselves (independent contractor) or economically dependent on an employer (employee).
- Highlights two core factors that federal courts primarily need to consider: (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity to profit or loss based on initiative and/or investment.
- Identifies three additional factors when the core factors do not clearly indicate classification: (1) skill level required for the work, (2) permanence of the working relationship, and (3) whether the work is part of an integrated unit of production. Additional factors may also be considered.
- Emphasizes that the actual practice of the parties is more relevant than contractual or theoretical possibilities.
- Provides eight illustrative examples showing how economic reality factors would apply in real-world scenarios.
Takeaways for California Employers
If finalized, the reinstated guidance would establish a more business-friendly federal standard for both worker classification and joint employer liability, alongside the National Labor Relations Board (NLRB)’s final rule restoring the 2020 joint employer standard. The reinstated classification framework essentially simplifies the analysis and gives greater weight to factors that make it easier to classify workers as independent contractors, which reduces labor costs, grants greater flexibility, and reduced certain legal liability.
That said, although DOL’s standard may be persuasive, courts have historically applied their own interpretations of the economic reality test and are not obligated to follow the agency’s rule. This is particularly true following U.S. Supreme Court’s 2024 decision Loper Bright Enterprises v. Raimondo (2024) 603 U.S. 369 overturning Chevron deference, where the court held that courts must exercise independent judgment when determining whether an agency has acted within its statutory authority.
As a result, employers in California—particularly those that rely on subcontractors, franchisees, or subsidiaries—should reassess their independent contractor relationships and consider adjusting their business practices to reduce the risk of worker misclassification. For additional guidance, please contact either author of this blog, Leigh Ann White or Zi Xuan “Daisy” Chen, or any CDF attorney.
