DOL Reinstates 2008 Independent Contractor Rule: What Executives Should Know

In May 2025, the DOL issued new guidance that changed the definition of “independent contractor.” This shift requires a different analysis for how workers are classified and how those decisions affect employment rights, compensation, and legal exposure.

At Gardner Employment Law, we advise professionals whose careers may be shaped by the terms of their employment or contractor agreements. In this article, we explain the new interpretation of “independent contractor.”

How Did the DOL Change the Definition of Independent Contractor?

On May 1, 2025, the DOL (Department of Labor) rescinded the 2024 rule and returned to the 2008 definition of “independent contractor.”  The DOL explained in its notice that it is the total activity or situation which controls and that it was returning to the 2008 “totality of the circumstances” test.  That test is based on 7 factors:

1. The extent to which the services rendered are an integral part of the principal’s business.
2. The permanency of the relationship.
3. The amount of the alleged contractor’s investment in facilities and equipment.
4. The nature and degree of control by the principal.
5. The alleged contractor’s opportunities for profit and loss.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor. And
7. The degree of independent business organization and operation.

The 2024 rule had focused primarily on two factors: (1) the level of control a company exercises over the worker and (2) whether the worker has an opportunity for profit or loss based on personal initiative. This narrower framework no longer applies.

The test now demands a deeper examination of day-to-day realities, not just contract terms. Even when a written agreement labels a worker as an independent contractor, the DOL and courts will look beyond the document to assess the actual nature of the working relationship, applying the 7 factors listed above.

Why Does the Definition of “Independent Contractor” Matter?

The reason why you should know and apply the correct DOL rule for an independent contractor is because the classification of a worker affects many other legal aspects of the job.  The classification will affect taxes, employment benefits, scheduling, overtime pay, and the like.  There can be penalties assessed against the company or lawsuits filed because of incorrectly classifying workers.

I have seen cases where both the TWC (Texas Workforce Commission) and the IRS (Internal Revenue Service) went after the employer.  I had one client who faced a document subpoena issued by the TWC that would have tied up company records for months.  Complying with broad subpoenas requires a large outlay of time and money. Fortunately, the client brought our firm into the case early, and we were able to persuade the TWC that the workers could not possibly be employees.  The matter was dismissed.

Many executives handle engaging contractors for the company.  This is true particularly in fast-paced environments like startups or project-based industries. Misclassification can create liability not just for the employer, but there will be repercussions for managers who approved the incorrect structure.

If you are classified as an independent contractor yourself, this rule change may also affect your eligibility for certain benefits or protections. An inaccurate classification also could reduce your bargaining power in a severance negotiation or limit your recourse in the event of a dispute.  It behooves you to get the classification right.

What Should You Do About the New Definition of “Independent Contractor”?

Now is the time to review contractor relationships through the lens of the DOL’s seven-factor test. Titles alone no longer offer protection. You should evaluate how each relationship functions in practice and whether the structure truly reflects independence.

Executives who are negotiating employment agreements or who have concerns about how their classification might affect their rights should act proactively.  If you are working as a consultant, i.e., contractor, you should undertake a careful review of the working arrangements and their legal implications so that you can prevent issues before they arise.  Be proactive.

Protecting Your Legal Position

The DOL’s reversion to the 2008 rule increases both the complexity and the stakes of worker classification. If you oversee contractors or if you’re uncertain how the DOL’s change affects your employment agreement or consulting contract, we can analyze your situation and develop a strategy that protects your professional interests.

Give us a call.  We’re glad to help.