Reprinted with permission from the April 10th edition of The Legal Intelligencer (c) 2026 ALM Media Properties. Further duplication without permission is prohibited.
On February 27, 2026, the United States Department of Labor proposed yet another rule regarding independent contractor status to be applied under the Family and Medical Leave Act (“FMLA”); Fair Labor Standards Act (“FLSA”); and Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). The 2026 Proposed Rule is the next in a line of dueling independent contractor regulations enacted over the last five years, complicating the analysis of when a worker is properly classified as an independent contractor. Further complicating the inquiry is the patchwork of Federal rules, caselaw and statutes and separate requirements under Pennsylvania law regarding the proper classification of workers. While the new rule purports to clarify the test, it may further complicate compliance.
The 2026 Proposed Rule proposes the “economic realities” tests, requiring that where the individual is economically dependent on the employer, they are properly classified as an employee and not an independent contractor The Rule then outlines factors that apply. The “core factors” are: the nature and degree of control over the work; and the individual’s opportunity for profit or loss. These two core factors have “greater probative value” than the other, “less probative” factors, which include: the amount of skill required for the work; the degree of permanence of the working relationship; whether the work is part of an integrated unit of production. The rule then cites certain “additional factors,” which are unspecified, that “in some way indicate whether the individual is in business for him- or herself.”
In 2024, the Department of Labor adopted an independent contractor rule that included a six-factor test, requiring a review of the “totality of the circumstances.” The 2024 “economic reality test” rule identified six factors and stated that no one factor had greater weight than another. The six factors were generally the same as in the 2026 proposed rule: opportunity for profit and loss; investments by the worker and the potential employer; degree of permanence; nature and degree of control; extent to which the work performed is an integral part of the potential employer’s business; skill and initiative, and as with the 2026 Proposed Rule, “additional factors.”
The 2024 Rule rescinded a rule adopted in 2021 regarding the independent contractor test. The 2021 Rule was nearly identical to the 2026 Proposed Rule. This is not surprising: the 2021 Rule was issued during the first Trump administration, the 2024 Rule was issued during the Biden Administration, and the current Trump Administration announced it would not follow the 2024 Rule on May 1, 2025.
Importantly, these rules only provide the analysis for claims under the FLSA, the FMLA and the MSPA. The Internal Revenue Service (“IRS”) does not use this rule. Instead, the IRS relies on a “common law control” test based on a review of 20 factors that fall under the categories of financial control, behavioral control and relationship factors. See, e.g., IRS Form SS-8.
The Employee Retirement Income Security Act (“ERISA”) has its own test as set forth in Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992): control; skills required; whether the individual provides tools and a workspace; the duration of the relationship; payment method and whether the work is part of the regular business of the company. Indeed, the Darden Court specifically held that where a statute containing the word “employee” does not “helpfully “ define it, the Court should look to common law agency principles.
Under Pennsylvania law, there exist different tests. Pennsylvania’s Unemployment Compensation law looks to two factors in determining whether a worker is an employee and not an independent contractor: is the individual free from control or direction; and whether the work is customarily engaged in an independently established trade or business. This test looks at the nature of the worker, whether the worker can perform similar services for others, and whether the work is outside the usual business of the employer. There are separate rules under the Construction Workplace Misclassification Act, which adds additional requirements such as the existence of a written contract, and that the individual has liability insurance.
This patchwork of changing laws leaves employees in a situation where they could be in compliance with the 2026 Proposed Rule for purposes of the FMLA or the FLSA, but be in violation of ERISA and state workers compensation or unemployment laws, and subject to liability under federal and state antidiscrimination laws. This liability impacts a wide variety of employer operations: taxes, payroll practices, human resources practices, and benefits eligibility. Misclassification raises the prospect of litigation, tax penalties and audits from various state and federal agencies.
Although the stated goal of the 2026 Proposed Rule is to provide clarity, it does little to provide such clarity when viewed in the context of the entire employee / employer relationship. Instead, employers and practitioners are compelled to comply with the most stringent tests in order to ensure compliance for all purposes, and to err on the side of classifying workers as employees where the inquiry is close.
Patricia C. Collins is a Partner and Employment Law Chair with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation and health care law. Patricia Collins can be contacted at 215.230.7500 ext. 126.