The Department of Labor will no longer enforce a rule it established in 2024 to determine whether a worker is an independent contractor or an employee.
That’s according to an internal memo from Donald M. Harrison III, acting administrator of the DOL’s Wage and Hour Division, to regional administrators and district directors. The 2024 rule is being challenged by several lawsuits in federal courts, according to the memo.
The Financial Services Institute, which represents many independent broker-dealers, criticized the rule when the Biden administration proposed it.
The 2024 rule set the standard for determining whether a worker is an employee covered by the Fair Labor Standards Act (FLSA), vs. an independent contractor. Employees classified under FLSA are covered by minimum wage, overtime pay, recordkeeping and youth employment standards.
The Wage and Hour Division will no longer apply the 2024 rule’s analysis when determining employee vs. independent contractor status in FLSA investigations. The 2024 rule required a “totality-of-the-circumstances analysis” of the economic reality of the worker’s employment situation, according to a DOL statement issued at the time.
The division will enforce the FLSA based on a standard set in July 2008 in cases when no payment was made for back wages and/or civil money penalties as of May 1, 2025, Harrison wrote.
Guidance for the 2008 rule cites U.S. Supreme Court rulings stating that it is the total activity or situation that determines a worker’s status. Among the factors the court lists as significant are:
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 worker’s investment in facilities and equipment.
The nature and degree of control by the principal.
The worker’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 worker.
The degree of independent business organization and operation.
However, the 2024 rule will remain in effect in matters of private litigation, Harrison wrote.
