Executive Summary
Under the leadership of Secretary of Labor Lori Chavez-DeRemer, the Department of Labor has signaled that the agency will abandon the Biden-era independent contractor rule and begin a new rulemaking process to restore a more employer-friendly regulation. The first step in rescinding the current regulatory framework to determine worker classification will most likely occur in the coming weeks. The Department of Justice is expected to issue a stay in its defense of the Biden-era rule, which has been implemented since March 2024, in a federal appeals courtroom. This would allow the Department of Labor to rescind the current rule and potentially restore a 2021 regulation finalized in the final days of the first Trump administration.
2024 DOL Independent Contractor Rule
In January 2024, the Department of Labor (DOL) released a final rule (“the 2024 Rule”) restoring Obama-era standards used to determine when a worker should be classified as an independent contractor or an employee who is guaranteed minimum wage, overtime and other protections under the Fair Labor Standards Act.
The rule established the six-factor “economic realities test” to determine whether a worker should be classified as an employee or an independent contractor:
- The opportunity for profit or loss depending on managerial skill.
- Investments made by the worker and employer.
- The degree of permanence of the work relationship.
- The nature and degree of the individual’s control over their work.
- The degree to which the individual’s work is essential to an employer’s business.
- The worker’s skill and initiative.
In addition to the six factors, the final rule explains that, in some circumstances, “additional factors” may also be considered if they are relevant to the overall question of a worker’s economic dependence on an employer.
Background
The Fair Labor Standards Act (FLSA) requires employers to provide certain benefits to employees, including a basic minimum wage and overtime wages. The FLSA only applies to employees, which it defines as “any individual employed by an employer.” The FLSA doesn’t apply to, nor defines, “independent contractors.”
To make the determination whether a worker is an employee or an independent contractor under the FLSA, courts have used the multi-factorial “economic realities” test, which focuses on whether the worker is economically dependent on the employer or in business for themselves.
In 2021, the Trump administration issued its own independent contractor rule (“the 2021 Rule”) that was deemed as more “employer friendly.” The 2021 Rule emphasized two “core” factors in determining whether a worker is an independent contractor: the nature and degree of the worker’s control over their work, and the worker’s opportunity for profit or loss. This rule was ultimately withdrawn by the Biden administration and replaced by the 2024 Rule.
National Club Association Outlook and Considerations
The DOL’s final rule is intended to reduce the risk that employees are misclassified as independent contractors. For the private club industry, an equal consideration of all six “economic realities” factors is likely to raise labor costs. However, the differing policies across private clubs toward workers historically classified as independent contractors, such as caddies, will make it difficult to determine employment status.
The full effect of the 2024 Rule on the private club industry will be impacted by litigation of the 2024 Rule by various professions with a heavy representation of independent contractors. To date, five separate groups have challenged the 2024 Rule. Three of those lawsuits have since been appealed to circuit courts.
In March 2025, a federal judge for the U.S. District Court for the Middle District of Tennessee tossed a lawsuit filed by a pair of freelancers who argued that the 2024 Rule violated the Administrative Procedure Act and would harm them financially. Specifically, the freelancers alleged that the DOL failed to provide a reasonable explanation for its shift away from the 2021 Rule’s two-factor test to the 2024 Rule’s six-factor test. The judge ultimately ruled that the plaintiffs lacked standing.
Similar judgements have been made by other federal district court judges. In January 2025, a judge in New Mexico ruled that a trucking company lacked standing because the company couldn’t prove that it had suffered any concrete injuries because of the rule. In October 2024, a judge in Georgia dismissed a lawsuit from another group of freelancers on similar grounds: “By definition, the 2024 Rule’s fact-specific approach cannot pose a realistic danger to Plaintiffs’ ability to operate as independent contractors because the ultimate classification may change from case-to-case.”
The fate of the 2024 Rule ultimately depends on whether lawyers from the Department of Justice continue their legal defense in federal court. Earlier this year, the Trump administration requested to delay oral arguments in Frisard’s Transportation v. DOL – one of the five pending lawsuits – and was due to provide the U.S. Court of Appeals for the Fifth Circuit with a status update on March 25, 2025. Last year, the Louisiana-based trucking company appealed a district judge’s denial of their request for temporary restraining order or preliminary injunction against the 2024 Rule.
It is common that a new presidential administration with different policy stances than its predecessor will review any pending litigation in which the federal government is defending such regulations. If the Trump administration seeks a stay of any further litigation, including a pending lawsuit in Texas, DOL officials could either seek to rescind the 2024 Rule and re-start the rulemaking process or allow for the courts to establish a final interpretation on classifying independent contractors.