The distinction between employees and independent contractors has long been a critical legal issue for employers, lawyers, and policymakers alike. Thanks to a recent hearing before the U.S. House Subcommittee on Workforce Protections, this issue is again in the spotlight, and the stakes are significant.
The hearing focused on the Modern Worker Empowerment Act, a Republican-backed bill introduced in February 2025. If passed, it would overhaul the current federal test used to determine whether a worker is an independent contractor, amending both the Fair Labor Standards Act (“FLSA”) and the National Labor Relations Act (“NLRA”).
The proposed legislation would focus on just two factors to determine whether a worker is properly classified as an independent contractor: whether the engaging entity exercises significant control over the individual’s work, and whether the worker has the ability to use their own discretion and judgment in performing the work.
This represents a marked departure from the current “economic realities” test used by the Department of Labor and many courts under the FLSA. That six-factor test, reinstated by the Biden administration in 2024, asks whether, under the totality of the circumstances, a worker is truly in business for herself or economically dependent on an employer.
Supporters of the new bill characterize the current test—which has decades of precedent behind it—as outdated and overly restrictive of flexible work arrangements. They cite companies like Uber and DoorDash, which offer gig workers the ability to set their own schedules and operate with significant autonomy, albeit without the protections traditionally afforded to employees.
Opponents, however, aren’t buying it. Democratic lawmakers warn of the dangers associated with reclassifying employees as independent contractors, thereby stripping them of eligibility for overtime, minimum wage, paid leave, and other employment protections. They criticize the legislation as part of a broader effort to protect corporate interests rather than workers.
The timing of this debate is notable. Earlier this month, the U.S. Department of Labor announced that it would stop enforcing the Biden-era classification rule and revert to guidance issued in 2008, creating even more uncertainty about how the federal government will interpret and apply the FLSA in the near term.
For employers, the debate is more than academic. Worker classification affects wage and hour compliance, unemployment insurance, workers’ compensation benefits, tax withholding, benefits eligibility, and more. A shift in the federal standard—especially one that narrows or expands the criteria that can be considered—could reshape entire business models. This is particularly true in industries like transportation, technology, logistics, marketing, and construction, which rely heavily on contract workers.
Misclassifying an employee as a contractor can lead to costly litigation, back-pay obligations, penalties, and audits. But overclassifying workers as employees can increase labor costs, reduce operational flexibility, and make it difficult to hire workers who seek the autonomy that comes with true contract work. For in-house counsel and HR teams, staying current on these developments is essential to managing risk and maintaining compliance.
Looking Ahead
This bill is unlikely to move quickly through Congress, but it signals a renewed interest in narrowing the scope of employment protections for a significant segment of the American workforce. As lawyers advising clients, and employers ourselves, we understand the importance of clarity and predictability in employment classifications.
We will be closely monitoring the Modern Worker Empowerment Act and related developments in Congress and the courts. If you have questions about how these changes could impact your business or your clients, reach out to our employment law team.
