The agency in late February unveiled a proposed independent contractor rule that would rescind a 2024 regulation adopted under the Biden administration and replace it with a revised“ economic reality” framework under the Fair Labor Standards Act.

The proposal would require employers to determine whether a worker is operating as an independent business or is economically dependent on an employer. The department said the approach is intended to align with Supreme Court and federal appellate precedent.

Under the proposal, employers must evaluate two primary factors: the nature and degree of control over the work, and the worker’ s opportunity for profit or loss based on initiative or investment. Additional considerations would include the level of skill required, the permanence of the relationship and whether the services provided are part of an integrated production process.

The department emphasized that actual working conditions would carry more weight than contractual labels. In other words, how the relationship functions in practice would matter more than what an agreement says on paper.

“ The department’ s proposed rule seeks to protect these workers’ entrepreneurial spirit and simplify compliance for American job creators navigating a modern workplace, all while maintaining robust protections for employees under the Fair Labor Standards Act,” said Lori Chavez-DeRemer, the U. S. secretary of labor, in a statement.

The proposal would also apply the streamlined analysis to statutes that rely on the act’ s definition of employment, including the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.

Dale Brown, the president and chief executive officer of the Financial Services Institute, said in a statement that his trade group, which represents independent broker-dealers and financial advisors, is analyzing the proposal to gauge its functionality and impact.

“ While we are still carefully reviewing the rule, we are hopeful the department has meaningfully addressed the serious concerns raised about the prior rule,” Brown said in a statement about the proposal. FSI has sued the Labor Department twice over prior contractor rules. The group challenged the Biden administration’ s 2021 withdrawal of the Trump-era rule and then in 2024 fought the regulation that replaced it.

The Labor Department opened a 60-day public comment period on the most recent proposal that runs through April 28. After that, officials will review submissions before determining the next steps toward a final rule.

For the new proposal, the Labor Department opened a 60-day public comment period that runs through April 28. The 2024 rule under Biden’ s administration used a six-factor balancing test to determine a worker’ s classification. Industry groups argued that it tilted the analysis toward employee status and threatened independent advisor business models.

FSI and coalition partners filed a suit challenging that rule, seeking to block its implementation. A federal court later granted a temporary suspension to allow the department time to reconsider the regulation.

“ Our members have chosen the independent contractor model— many making the switch from an employee model— so that they can build their own businesses and better serve their clients,” Brown said.“ It is crucial that advisors’ ability to choose the business model that best meets their professional goals and their clients’ needs is preserved.”

For independent broker-dealers, the stakes are significant. The contractor model allows advisors to operate their own practices, control expenses and manage client relationships independently while affiliating with a firm for compliance and infrastructure support. A narrower definition of contractor status could alter compensation structures, supervision models and advisory firms’ liability exposure and even require advisors to become full-time employees of a broker-dealer.

The department said the new proposal would provide greater clarity and consistency with judicial precedent. It also said that the framework is designed to make it easier to differentiate between employees entitled to federal wage protections and workers legitimately operating independent businesses.

Labor officials indicated the proposed approach resembles the analysis adopted in 2021, which emphasized core factors such as control and opportunity for profit or loss. That version was later withdrawn, prompting litigation from industry groups such as FSI.

The renewed rulemaking effort suggests the department is attempting to reset the regulatory baseline after years of legal and political back-and-forth.

— Tracey Longo

10 | FINANCIAL ADVISOR MAGAZINE | MARCH / APRIL 2026 WWW. FA-MAG. COM