Employers in Maryland and Washington, D.C. face complex legal challenges. This guide explains key employment law concepts and how businesses can protect themselves.
Employee or Independent Contractor: The DOL Issues a New Proposed Rule
By: Bruce M. Luchansky, Esq.
On February 26, 2026, the U.S. Department of Labor’s Wage and Hour Division issued a proposed rule to clarify the classification of workers as employees or independent contractors under the Fair Labor Standards Act (FLSA), aiming to provide greater certainty for both workers and employers. The Notice of Proposed Rulemaking (NPRM) would rescind the department’s 2024 final rule on independent contractor classification and replace it with an approach similar to the one adopted in 2021 during the first Trump administration.
The proposal seeks to make it easier to distinguish between employees—who are entitled to FLSA protections such as minimum wage and overtime—and independent contractors, who are not. It aligns with longstanding Supreme Court and federal circuit court precedent by focusing on whether a worker is economically dependent on an employer or truly in business for themselves. Under the proposed rule, the DOL would apply an “economic reality” test to evaluate worker status. This test examines whether the worker operates an independent business or relies economically on the employer for work.
The analysis highlights two core factors that carry significant weight in the determination: The nature and degree of control the potential employer has over the work; and The worker’s opportunity for profit or loss based on personal initiative and/or investment. Additional factors also would be considered, particularly if the core factors do not clearlypoint to one classification.
These include:
- The amount of skill required for the work
- The degree of permanence of the working relationship.
- Whether the work performed is part of an integrated unit of production for the employer.
The proposal emphasizes that actual practices in the relationship matter more than what is stated in contracts or what might be theoretically possible. It also includes eight fact-specific examples to illustrate how the factors apply in real-world scenarios.
The proposed rule, if finalized, would have impact beyond the FLSA alone. The proposed rule would extend this analysis to the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), both of which rely on the FLSA’s definition of “employ.”
This development is a positive one for employers. The 2024 rule, which the proposal would rescind, used a broader “totality of the circumstances” approach with six non-hierarchical factors and no designated core factors. The new proposal restores emphasis on the two core factors for greater predictability and consistency with judicial interpretations. As a result, it is more likely that courts would uphold companies’ classification of workers as independent contractors.
This proposed change could impact industries that frequently use independent contractors, such as construction, transportation, gig economy platforms, agriculture, and professional services, by potentially simplifying compliance while maintaining worker protections where appropriate. The rule is not yet final and may be adjusted based on public input.
If your company utilizes independent contractors, the risk of misclassification can be significant—and costly. Luchansky Law regularly works with companies to classify its workers properly so they comply with all applicable laws, such as the FLSA, the FMLA, and the Maryland unemployment insurance laws. If you have any questions about employee classification, feel free to contact me at 410.522.1020, or lucky@luchanskylaw.com
How Luchansky Law Can Help
Luchansky Law advises employers on compliance, risk mitigation, and litigation strategy. Contact us to protect your business and navigate employment law challenges effectively.
