Attorney Jane Pyatt

The legal framework governing worker classification in the United States has undergone significant turbulence over the past five years, leaving businesses to navigate a seemingly everchanging regulatory environment. Most recently, on February 27, 2026, the U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (2026 Proposed Rule) that would alter the analysis for determining whether a worker should be classified as an independent contractor or an employee under the federal Fair Labor Standards Act (FLSA).

How the Test Has Changed Over Time

To understand the significance of the 2026 Proposed Rule, and the potential impact it may have on businesses and workers alike, it is helpful to understand the developments in the analysis over the years. This is by no means a new issue. In the 1947 Rutherford Food Corp. v. McComb case, the U.S. Supreme Court grappled with whether to classify slaughterhouse workers as independent contractors or employees under the FLSA. The Court adopted a “totality of the circumstances” analysis aimed at determining whether the economic realities suggested that the workers were employees, and as such, were covered by the FLSA’s minimum wage and overtime protections.

While courts have continued to apply a multi-factor economic realities analysis to determine workers’ classifications, the specific application of that test has varied in recent years. In 2021, the DOL implemented a streamlined classification analysis by elevating two core factors above all others: 1) control and 2) opportunity for profit or loss. Under the Biden administration, however, the DOL rescinded the 2021 framework and replaced it with a six-factor, holistic test, which was considered to be worker-friendly.

The 2026 Proposed Rule: A Return to the 2021 Test?

If finalized, the 2026 Proposed Rule will largely reinstate the 2021 standard. Going forward, the economic realities analysis will focus on:

The Nature and Degree of Control Over the Work: This factor evaluates whether the potential employer exercises substantial control over key aspects of the work, such as scheduling, project selection, and the ability to work for competitors. Critically, the 2026 Proposed Rule clarifies that measures taken to ensure compliance with legal obligations, health and safety standards, or contractual deadlines do not constitute the type of control that suggests employee status.
The Worker’s Opportunity for Profit or Loss: This factor weighs in favor of independent contractor status if the worker can earn profits or incur financial losses based on their own business acumen, managerial initiative, or capital investment in equipment and materials.

Other factors, including the amount of skill required for the work, the permanence of the work relationship, and whether the work is part of an integrated unit of the business, may be considered. The goal of this analysis is to determine whether the worker in question is economically dependent on the potential employer for work, focusing on the actual practices of the parties involved rather than what may be theoretically or contractually possible.

While the 2026 Proposed Rule would reinstate much of the 2021 standard, one key distinction is that the reach of the 2026 Proposed Rule would extend beyond the FLSA. The 2026 Proposed Rule would apply the proposed economic realities analysis to both the Family and Medical Leave Act (FMLA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

Impact on Massachusetts Businesses

While the adoption of the 2026 Proposed Rule would alter the DOL’s framework for worker classification, in the absence of Chevron deference, it is unclear how impactful the change may be. Many circuit courts, including the First Circuit, already have a rich body of case law offering standards for determining whether a worker is an employee or independent contractor under the FLSA. Consequently, even if the proposed rule is finalized and survives judicial scrutiny in a post-Chevron landscape, its impact may be limited.

In addition, because the FLSA serves as a floor rather than a ceiling for employee protections, it does not preempt state laws that impose more stringent obligations on employers. As such, the analysis for distinguishing between employees and independent contractors under Massachusetts law will remain unaffected. A worker is presumed to be an employee for the purposes of the Massachusetts Wage Act and state unemployment laws, unless the employer can affirmatively prove the three prongs of the statutory ABC test. Outlined in M.G.L. c. 149, § 148B, the ABC test provides that a worker may only be classified as an independent contractor if:

(a) the individual is free from control and direction in connection with the performance of the service,

(b) the service is performed outside the usual course of the business of the employer, and

(c) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as the service performed.

This test, which is considered more rigorous than the federal standard, will remain in place even if the 2026 Proposed Rule is finalized.

Looking Ahead

Ultimately, while the 2026 Proposed Rule signals a federal shift toward a more business-friendly economic realities test, its practical impact on Massachusetts businesses is likely to be muted. It may be just another chapter in the saga of regulatory back and forth on worker classification, but nonetheless, Massachusetts businesses should remain aware of its developments. As the 60-day public comment period draws to a close in April 2026, businesses should audit their independent contractor engagements to navigate potential changes at the federal level while adhering to Massachusetts’ more stringent standards.

Attorney Jane Pyatt is an Associate in the Labor & Employment Group at Sheehan Phinney.