Misclassification Matters: How the DOL’s New Independent Contractor Rule Could Cost Your Business
In May 2025, the U.S. Department of Labor (DOL) under the Trump administration reinstated a more employer-friendly standard for determining whether a worker is an independent contractor or an employee under the Fair Labor Standards Act (FLSA). This shift from the 2024 Biden-era rule has significant implications for New Jersey employers who engage independent contractors.
What’s Changed?
On May 1, 2025, the DOL issued Field Assistance Bulletin No. 2025-1, announcing that it would no longer enforce the 2024 rule and would instead apply the traditional "economic realities" test as outlined in its 2008 Fact Sheet #13 and the reinstated Opinion Letter FLSA2025-2. This approach emphasizes a multi-factor analysis to assess whether a worker is in business for themselves or economically dependent on the employer.
The seven factors considered include:
The extent to which the services rendered are an integral part of the principal’s business;
The permanency of the relationship;
The amount of the alleged contractor’s investment in facilities and equipment;
The nature and degree of control by the principal;
The alleged contractor’s opportunities for profit and loss;
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
The degree of independent business organization and operation.
This shift aims to provide greater clarity for businesses and workers navigating modern work arrangements while legal and regulatory questions are resolved.
Why This Matters for NJ Employers
Many New Jersey businesses rely on independent contractors to maintain flexibility and manage costs. However, misclassifying workers can lead to significant legal and financial consequences, including:
Unpaid minimum wage or overtime claims;
Liability for unemployment and workers' compensation benefits;
Potential class action lawsuits; and
Scrutiny from state agencies enforcing stricter standards.
It's important to note that while the DOL has shifted its enforcement stance, the 2024 rule remains in effect for private litigation. Additionally, New Jersey applies its own stricter "ABC" test for determining independent contractor status under state law, which may lead to different outcomes than the federal standard.
What Should Employers Do Now?
To mitigate risks associated with worker misclassification, New Jersey employers should:
Conduct a comprehensive audit of all independent contractor relationships to ensure compliance with both federal and state standards.
Review and update contracts to accurately reflect the nature of the working relationship.
Implement policies that limit control over contractors' work schedules, methods, and tools to maintain their independent status.
Maintain documentation that demonstrates contractors' independence, such as advertising their services, working for multiple clients, and bearing their own expenses.
Consult with legal counsel to navigate the complexities of worker classification and to stay informed about ongoing legal developments.
How Siegler Law Firm, P.C. Can Assist
At Siegler Law Firm, P.C., we specialize in employment law defense and litigation for New Jersey businesses. Our experienced team can assist you with:
Conducting independent contractor classification audits;
Developing compliant contractor agreements;
Providing training on proper contractor management; and
Defending against DOL investigations and lawsuits.
Don't wait for a misclassification claim to disrupt your business. Contact us today to schedule a consultation and ensure your independent contractor relationships are legally sound.
📍 Located in Jersey City and serving clients throughout New Jersey
📞 (201) 298-3593| ✉️ steven@sieglerlawfirm.com | 🌐 www.sieglerlawfirm.com