On Feb. 26 the U.S. Department of Labor unveiled a proposal to repeal a 2024 regulation that made it more likely for companies to classify certain people working for them as employees rather than independent contractors. The agency said the Biden-era rule was legally flawed and had, in the department's view, taken away the flexibility many workers seek through independent contracting arrangements.
The rule, which the department had already stopped enforcing after President Donald Trump took office last year, set a test under federal wage law that treated workers as employees when they were "economically dependent" on a company for work. The new proposal would remove that economic-dependence test and substitute a standard preferred by business groups that centers on how much control firms exercise over workers.
Officials and industry supporters say eliminating the 2024 rule will provide relief to businesses across several sectors. Trucking, healthcare, retail sales and app-based transportation and delivery services such as Uber and Instacart are singled out as industries likely to gain from a rollback, because they rely heavily on contract labor and have faced numerous lawsuits accusing them of misclassifying workers to reduce labor costs.
The difference between classifying a worker as an employee versus a contractor can be substantial. Employees are eligible for minimum wage protections, overtime pay, unemployment insurance, reimbursements for job-related expenses and other statutory protections that independent contractors do not receive. Several surveys cited in discussions of the issue have estimated that employees can cost businesses as much as 30% more than contractors when those additional obligations are taken into account.
Worker classification has been a contentious employment issue for more than a decade. Trade associations and other business groups pressed hard for the repeal after congressional efforts to block the 2024 rule failed to advance. The 2024 regulation had itself replaced an earlier Trump administration rule that allowed businesses to treat workers who operated their own businesses or who could work for competing companies as contractors. The newly announced proposal would largely restore that prior, control-focused standard.
The department plans to formally publish the repeal proposal on Friday, starting a 60-day period for public comment.
The Biden-era rule had been projected to prompt a wave of litigation alleging worker misclassification. In practice, that flood of new lawsuits did not materialize, a development observers attribute to the brief period the rule was in force before the Labor Department signaled last year that it intended to reverse course.
At least five legal challenges were filed against the 2024 rule by a mix of freelance workers, employers and trade groups. Those cases have either been dismissed or placed on hold while the department pursues new rulemaking. A Trump-appointed federal judge in New Mexico ruled last year that the department had not exceeded its authority in issuing the 2024 rule, upholding the regulation against a trucking company's challenge. That company's appeal has been paused and is likely to be dismissed if the Labor Department completes the repeal.
Context for businesses and markets
The proposed rollback signals a shift toward a legal framework that could reduce labor-related expenses for companies that depend on contractor models. Proponents argue this will preserve flexibility for gig and freelance workers who prefer to set their own schedules and contracts. Opponents have argued the economic-dependence test offered stronger protections for workers who in practice function as employees despite lacking formal employment status.
The next steps include the public comment period and subsequent rulemaking, which could reshape the litigation landscape and corporate classification practices depending on the outcome of the department's rulemaking process.