The Trump administration is loosening gig worker rules. What does that mean for HR?

The latest pivot in a long back-and-forth over how employers should classify gig workers occurred late in February, when the Department of Labor (DOL) proposed a rule to loosen the test for determining independent contractors.

The Trump administration intends to rescind a rule issued by President Joe Biden’s DOL that restored a “multifactor economic reality test” for determining when an employee should be an independent contractor, rather than a full-time worker. That rule directed businesses to take into account six different factors when evaluating workers, with no one factor taking precedence over another, HR Brew recently reported.

The DOL stopped applying the Biden-era rule in enforcement matters in May of last year. Should the proposed rule take effect, the DOL will officially return to an “economic reality” test that gives two central factors more weight than others: “The nature and degree of control over the work,” and “The worker’s opportunity for profit or loss based on initiative and/or investment.”

Biden administration officials argued that a looser economic reality test, which was endorsed by the Trump administration in a 2021 rule that never took effect, would make it easier for employers to misclassify employees as gig workers. Doing so could undermine workers’ access to benefits like minimum wage, overtime, unemployment insurance, and the right to organize, former Acting Labor Secretary Julie Su told HR Brew in 2024.

The DOL’s adoption of a more employer-friendly standard is good news for gig work platforms like Uber and DoorDash, which have long lobbied against legislation that would make it harder to classify their workers as full-time employees.

The new rule could mean employers will be subject to less scrutiny from the DOL when it comes to investigations into gig worker misclassification, legal experts told us. It’s unlikely to greatly affect litigation, though, particularly because some states have more rigorous tests in place.

Consider the courts. While the DOL’s proposed rule gives a good indication of how the agency will treat investigations into worker misclassification, such cases may play out differently in private litigation, legal sources suggested.

“This rule is exactly that, an administrative rule, and courts can give it different degrees of deference, but they’re not bound by it in the sense of a statute,” said Ted Hollis, a partner with law firm Quarles & Brady, based in Indianapolis. Courts may well defer to a multifactor economic reality test akin to the 2024 rule when hearing cases regarding independent contractor classification, he added.

What’s more, employers have to comply with state laws that are in effect in the jurisdictions where their workers are based, and may well be more stringent than federal law. California, New Jersey, and Massachusetts, for example, all mandate that employers use a three-prong “ABC” test to determine if a worker is an independent contractor or an employee.

“If you’re somebody who’s been audited by the DOL, or going to be audited, this significantly helps you,” said Lisa Burton, a Boston-based managing shareholder with law firm Ogletree Deakins, of the new proposed rule. “It reduces your risk profile, but it doesn’t necessarily help you in jurisdictions that have other tests.”

How HR can prepare. Burton and Hollis both recommended that HR teams audit their agreements with workers to ensure compliance not only with the DOL standard, but also other laws concerning independent contractors, including those at the state level.

“It’s always important to just look at and check, what are our different relationships, right? What are our direct independent contractor relationships?” Burton said. When auditing these agreements, employers should pay careful attention to whether someone who’s been classified as an independent contractor is only working for one entity, or getting paid a salary or commission rate that’s consistent with what regular employees get, for example.

She added that employers should carefully vet third-party clients that supply contractors to their firms, as well, understanding how long the workers they employ stay in their roles, and how much control they have over where and how they work.