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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On May 1, 2025, the DOL (Department of Labor) rescinded the 2024 rule and returned to the 2008 definition of “independent contractor.”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 “totality of the circumstances” test established in 2008. That test is based on 6 factors:
- The nature and degree of the potential employer’s control;
- The permanency of the worker’s relationship with the potential employer;
- The amount of the worker’s investment in facilities, equipment, or helpers;
- The amount of skill, initiative, judgment, or foresight required for the worker’s services;
- The worker’s opportunities for profit or loss; and
- The extent of integration of the worker’s services into the potential employer’s business.
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. The DOL and courts will assess the actual nature of the working relationship, applying the 6 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 much more. There can be penalties assessed against the company or lawsuits filed because of incorrectly classifying workers.
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.
I represented a client, a sole proprietor, over the definition of “independent contractor.” The TWC (Texas Workforce Commission) delivered a subpoena to the client 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.
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 six-factor test. Titles alone no longer offer protection. Even if a contract labels a worker as an independent contractor, that does not control. You must evaluate how each relationship functions in practice and whether the structure truly reflects independence.
If you are negotiating and employment agreement, for example, or have concerns about how your classification might affect your rights, take action. Do a thorough review of the working arrangements and the legal implications so that you can prevent issues before they arise. Be proactive.
Protecting Your Legal Position
The DOL’s reversion to the previous 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.