The US Department of Labor has recently rolled back two critical Biden-era wage and hour practices. First, the DOL has stated that it will no longer enforce the 2024 Final Rule’s framework for determining employee or independent contractor status under the Fair Labor Standards Act. The DOL’s Wage and Hour Division has also issued guidance stating that the agency is prohibited from seeking liquidated damages in pre-litigation proceedings, investigations, and settlements.
The Biden-era Final Rule governing the standard for determining whether individuals had been misclassified as independent contractors under the FLSA included a renewed focus on whether, as a matter of “economic reality,” a worker is dependent on a company/putative employer for work, not income (and thus an employee), or is in business for themself (and thus an independent contractor).
The Final Rule had accordingly imposed what was perceived as a more employee-friendly standard for independent contractor classification than guidance issued during the first Trump administration. The Final Rule faced several legal challenges by business groups that argued the rule unnecessarily increased costs, reduced flexibility, and created legal uncertainty.
On May 1, 2025, the DOL issued Field Assistance Bulletin 2025-1 expressly instructing its field staff to stop applying the 2024 Final Rule’s analysis when determining whether an individual is an employee as opposed to an independent contractor under the FLSA. Instead, for any matters for which an employer has not paid back wages or civil money penalties as of May 1, 2025, DOL field staff will analyze employment status under the framework set forth in Fact Sheet #13, which was initially implemented in 2008, as interpreted by Opinion Letter FLSA 2019-6.
Fact Sheet #13 identifies numerous factors that courts have considered when determining whether an individual “is engaged in a business of his or her own” as a matter of economic reality or is dependent on the entity for which they are performing work:
While the standard set forth in Fact Sheet #13 is more employer-friendly than that set forth in the Final Rule, the immediate impact of the DOL’s recent guidance is somewhat limited for several reasons.
First, the Final Rule remains in effect for purposes of private litigation. Second, many states’ independent contractor tests, with which employers must continue to comply, impose a higher burden on employers to prove independent contractor status than that set forth in Fact Sheet #13. Third, the DOL’s recent guidance is a temporary measure imposed while the DOL develops the “appropriate” independent contractor standard. Fourth, the DOL has “reserve[d] its right to exercise its enforcement authority in specific matters explicitly deemed appropriate by the Administrator, or designee, as an appropriate allocation of resources.”
Finally, the DOL guidance did not implement the first Trump administration’s final rule governing independent contractor classification, which had focused on two “core” factors: (1) the nature and degree of control over the individual’s work and (2) the individual’s opportunity for profit or loss based on initiative or investment. Accordingly, it remains to be seen how the standard will evolve under the current administration and employers should closely monitor developments.
On June 27, 2025, the DOL’s Wage and Hour Division (WHD) issued Field Assistance Bulletin 2025-3, stating that WHD offices cannot demand, accept, or leverage liquidated damages in any way in pre-litigation administrative resolutions of investigations.
The guidance notes that, historically, the Secretary of Labor and its regional solicitors sought liquidated damages only when FLSA violations were resolved through litigation or litigation-related settlements. In 2010, however, the WHD under the Obama administration began requiring payment of liquidated damages in an amount equal to its back pay assessment in the pre-litigation administrative investigation stage.
While the DOL under the first Trump administration had issued a field assistance bulletin (FAB 2020-2) in 2020 that put guardrails on the imposition of liquidated damages in pre-litigation matters by pausing the practice in certain categories of cases, broad categories of cases remained eligible for pre-litigation liquidated damages.
The DOL under the Biden administration then rescinded the first Trump administration’s guidance altogether in 2021 (with FAB 2021-2), renewing the practice of seeking liquidated damages in connection with all types of administrative investigations and settlements.
In drafting Field Assistance Bulletin 2025-3, the WHD conducted a close textual analysis of the FLSA to determine whether there was any statutory authority for the DOL to demand the payment of liquidated damages in administrative matters. It concluded that the statute only makes liquidated damages available as a judicial remedy in lawsuits brought by employees or the Secretary of Labor.
WHD recognizes that the DOL’s Solicitor’s Office can seek liquidated damages when it files a lawsuit under the FLSA, but the guidance warns that neither the DOL nor its Solicitor’s Office can attempt to obtain the payment of liquidated damages in any matter that it does not actually intend to litigate.
While employers will remain subject to back pay damages and potential civil monetary penalties in WHD investigations, and while employees and the Secretary of Labor may continue to seek liquidated damages through litigation, employers subject to WHD investigations will no longer face demands for payment of liquidated damages, which the WHD contends will lead to faster, fairer, and less costly resolutions of WHD investigations.
Morgan Lewis has a dedicated team of lawyers who specialize in analyzing employee versus independent contractor status, protecting existing independent contractor models, and implementing changes where needed.
We are happy to work with you on assessing your workforce to locate potential workers whose classification status may be affected by the pause in enforcement of the 2024 Final Rule as well as offer strategic advice regarding how to ensure that workers remain properly classified under the FLSA and other federal and state laws. We are also available to assist you in navigating pre-litigation DOL wage and hour investigations and settlements.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: