California has clearly established a very liberal test to resolve the classification of an employee or independent contractor by its passage of AB-5 which codified the A-B-C test. For workers’ compensation claims under California jurisdiction, the A-B-C test is appropriate. However employers with out-of-state employees need to be aware that there are other standards.
The saga of the Department of Labor’s (DOL) standards for determining independent contractor status under the Fair Labor Standards Act (FLSA) is a classic case of policy ping-pong, with each administration lobbing its preferred test across the net. Let’s break down the three key changes across the Trump and Biden administrations, culminating in the DOL’s Field Assistance Bulletin No. 2025-1 on May 1, 2025, with a clear narrative of how this unfolded.
In January 2021, during the final days of President Donald Trump’s first term, the DOL published the “Independent Contractor Status Under the Fair Labor Standards Act” rule, known as the 2021 IC Rule, effective March 8, 2021 (though its implementation was later delayed). This rule marked a significant shift from decades of precedent by introducing a streamlined, business-friendly framework for classifying workers as independent contractors rather than employees under the FLSA. The 2021 IC Rule established a five-factor “economic reality” test, with two “core” factors given greater weight.
– – Nature and degree of control over the work: If workers had significant control over their schedules, methods, or ability to work for others, they were more likely to be independent contractors.
– – Opportunity for profit or loss: Workers who could increase earnings through initiative, investment, or managerial skill leaned toward contractor status.
Three additional “non-core” factors – skill required, permanence of the working relationship, and whether the work was part of an integrated unit of production – were considered less probative and rarely outweighed the core factors. The rule emphasized actual practices over contractual labels, but its focus on control and profit opportunity made it easier for businesses to classify workers as independent contractors, exempting them from FLSA protections like minimum wage, overtime pay, and benefits. Business groups, particularly in industries like gig work (e.g., Uber, Lyft), praised the clarity and flexibility, while labor advocates argued it risked worker misclassification and eroded protections.
However, the rule barely saw the light of day. With Trump’s term ending on January 20, 2021, the incoming Biden administration quickly moved to halt its implementation.
Upon taking office in January 2021, the Biden administration targeted the 2021 IC Rule for reversal, viewing it as inconsistent with the FLSA’s purpose and judicial precedent. The DOL, under Acting Secretary Julie Su, took a two-step approach. First, in May 2021, it delayed and then formally withdrew the 2021 IC Rule, arguing that its elevation of two core factors (control and profit/loss) deviated from the traditional “totality of the circumstances” economic reality test used by courts for decades. A Texas federal court briefly reinstated the 2021 rule in March 2022, ruling the withdrawal unlawful, but the DOL’s appeal was stayed as it worked on a new rule.
On January 10, 2024, the Biden DOL published its final rule, effective March 11, 2024, known as the 2024 Independent Contractor Rule. This rule rescinded the 2021 IC Rule and reinstated a six-factor economic reality test, applied holistically with no single factor carrying predetermined weight.
With Donald Trump’s return to the presidency in January 2025, the DOL, now led by Secretary Lori Chavez-DeRemer, signaled a retreat from the Biden-era 2024 rule. On May 1, 2025, the DOL’s Wage and Hour Division issued Field Assistance Bulletin (FAB) No. 2025-1, a pivotal move that effectively paused enforcement of the 2024 rule.
The bulletin instructed DOL field staff not to apply the 2024 rule’s six-factor test in FLSA enforcement actions where no back wages or civil penalties had been paid as of May 1, 2025. Instead, staff were directed to use a 2008 DOL Fact Sheet (#13) and a 2019 Opinion Letter (FLSA2019-6) for guidance, both of which align more closely with the Trump-era 2021 IC Rule’s emphasis on economic reality factors like control and profit opportunity.
The FAB clarified that the 2024 rule remains in effect for private litigation, meaning employers could still face lawsuits under its standards until it is formally rescinded. However, the DOL’s non-enforcement stance reflects a return to the Trump administration’s preference for a more employer-friendly framework, likely foreshadowing a formal rulemaking to restore the 2021 IC Rule or a similar standard.