DOL Ping-Pongs on Independent Contractor Test
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APPLIES TO All Employers Subject to the FLSA |
EFFECTIVE May 1, 2025 |
QUESTIONS? Contact HR On-Call |
Quick Look
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Discussion
On May 1, 2025, the U.S. Department of Labor (DOL) announced that it would not enforce its own 2024 Final Rule on independent contractors. Rather, it is reinstating Opinion Letter 2019-6, originally issued under the first Trump Administration and subsequently rescinded by the Biden Administration. It also will rely on Fact Sheet #13.
Opinion Letter 2019-6
On April 29, 2019, the DOL originally issued an Opinion Letter indicating that gig economy workers who are part of the virtual marketplace are likely independent contractors, provided they meet the six-factor economic realities test. The DOL stated that a virtual marketplace company (VMC) “is an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.” The role of VMC’s is to help consumers more readily connect with the services they are looking for.
There, although the VMC did background and identity searches, an independent contractor agreement indicated that the contractors provided services directly to customers. The contractors were not provided with training and were not interviewed prior to joining the service. The contractor agreement allowed service providers the right to accept, reject, or ignore any service opportunity on the virtual platform; determine whether to accept any service opportunities at all; select service opportunities by time and place; determine the tools, equipment, and materials needed to deliver their services; and hire assistants or personnel. The VMC did not monitor, supervise, or inspect a service provider’s work for quality, or rate the service provider’s performance.
The DOL looked to the economic realities test to determine whether an individual is an employee under the Fair Labor Standards Act (FLSA), which was stated to include: (1) the nature and degree of the potential employer’s control; (2) the permanency of the worker’s relationship with the potential employer; (3) the amount of the worker’s investment in facilities, equipment, or helpers; (4) the amount of skill, initiative, judgment, or foresight required for the worker’s services; (5) the worker’s opportunities for profit or loss; and (6) the extent of integration of the worker’s services into the potential employer’s business.
2024 Final Rule
On January 10, 2024, the DOL under the Biden Administration published a final rule, through the rule-making process, on how to determine whether a worker qualifies as an independent contractor under the FLSA. It rescinded the 2021 Rule adopted during the first Trump Administration. Although the 2021 Rule also followed a version of the economic realities test, it held two “core” factors above another three “less probative” factors. There, the actual practice of the worker and the potential employer was more relevant than what may be contractually possible.
The 2024 rule returned to a more scrutinizing version of the six-factor, economic realities test that asks whether a worker is economically dependent on the employer to determine independent contractor status. The six factors are: (1) opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) degree of permanence of the work relationship; (4) the nature and degree of control exercised by each party over the work; (5) extent to which the work performed is an integral part of the potential employer’s business; and (6) skill and initiative. No one factor in the economic reality test is intended to be determinative of the working relationship. Note that the 2024 Final Rule is currently being challenged in court.
What does this mean for employers?
Opinion Letter 2019-6 is now reinstated as Opinion Letter 2025-2. Although the DOL’s opinion letter is not binding precedent, it is an indication of how the DOL will view similar circumstances. This action is one step in the direction that will likely end in ultimately rescinding the 2024 Final Rule. However, until then, the 2024 Final Rule is still operative and can be enforced against employers in private litigation.
Keep in mind that the DOL’s guidance only applies to classifications under the FLSA, and not to other federal or state laws (e.g., those governed by the IRS, NLRB, state unemployment insurance, state wage and hour laws, etc.). If other laws impose different or stricter classifications tests, the employer should continue to abide by all applicable classification requirements.
Action Items
- Review the reinstatement here.
- Have independent contractor relationships reviewed by legal counsel.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2025 ManagEase