A clearer line — or a slipperier slope? Why the DOL’s new contractor rule matters

Imagine you run a small business and hire freelancers one week and temp workers the next. One morning you open email and see the Department of Labor has proposed a rule meant to make it “clearer” whether someone is an employee or an independent contractor. Relief — or dread — sets in, depending on whether you value flexibility or worry about legal exposure.

The DOL’s February 26, 2026, proposal rescinds the Biden-era 2024 rule and returns to a streamlined “economic reality” approach that highlights two core factors: (1) the employer’s control over the work and (2) the worker’s opportunity for profit or loss from initiative or investment. The agency says the change aligns with decades of federal court precedent and aims to reduce litigation and confusion. But the move has stirred a predictable clash: business groups and many gig‑economy firms applaud the clarity and flexibility; labor advocates warn it could strip important wage-and-hour protections from millions of workers.

What the proposal does — in plain English

• Replaces the 2024 DOL rule on classification with an analysis similar to the 2021 approach centered on the “economic reality” test.
• Emphasizes two “core factors” as most important:
  • How much control the employer has over the worker’s tasks and work conditions.
  • Whether the worker has a realistic chance to make (or lose) money through their own initiative or investment.
• Lists additional, secondary factors (skill level, permanence of the relationship, integration into the employer’s business).
• Notes that actual practice matters more than what contracts say on paper.
• Extends the same analysis to related federal statutes that use the FLSA’s definition of “employ.”
• Opens a 60‑day public comment period closing April 28, 2026. (The DOL published the NPRM on Feb 26, 2026.)

Quick takeaways for different readers

• For small-business owners:
  • The rule aims to make classification simpler and more predictable if finalized.
  • Expect a window for asking the DOL clarifying questions through the comment process and compliance programs.
• For independent workers and gig economy participants:
  • The proposal could preserve or expand contractor status for many workers who value autonomy — but it also risks reducing access to minimum wage and overtime protections for others.
• For labor advocates and employees:
  • Fewer workers classified as employees means fewer covered by wage-and-hour protections, collective bargaining leverage, and employer-provided benefits.
• For lawyers and HR teams:
  • This will be fertile ground for litigation and for careful internal policy rewrites while the proposal moves through rulemaking.

Why the DOL framed this as “clarity” — and why clarity is complicated

The DOL’s framing rests on two arguments:

1. Federal courts have long used a flexible economic‑reality inquiry rather than a rigid checklist, so regulations should reflect that precedent.
2. A simpler core-factor approach reduces litigation and administrative burden for employers and helps workers know where they stand.

That logic is sensible in theory: predictable rules reduce uncertainty and compliance costs. But the devil is in the facts. Worker misclassification has two faces:

• Some businesses genuinely misuse contractor labels to avoid overtime, payroll taxes, and benefits.
• Some workers rely on genuine independent contracting for flexibility, higher hourly rates, and entrepreneurial control.

A rule that tilts too far toward flexibility risks enabling the first problem; a rule that tilts toward strict employee classification risks undermining the second. The 2024 rule leaned toward protecting workers by enumerating multiple factors; the 2026 proposal re-centers the analysis on control and profit/loss — factors employers often find easier to point to.

Likely effects — practical and political

• Short term:
  • Companies that depend on contractor models (ride-hailing, delivery, certain professional services) will welcome a looser test and may pause internal reclassification drives.
  • Unions and worker-advocacy groups will mobilize public comments and legal challenges if the final rule substantially reduces employee coverage.
• Medium term:
  • We can expect more Section-by-Section guidance requests, DOL compliance assistance calls, and possibly increased use of the PAID self-reporting program by employers uncertain about past classifications.
• Long term:
  • The regulatory pendulum has swung several times in recent administrations. Unless Congress acts to codify a standard, future administrations or courts could reverse course again. That means businesses and workers face recurring uncertainty unless legislative clarity is achieved.

Real-world scenarios (simple illustrations)

• A freelance graphic designer who sets her rates, works for many clients, and invests in her own software: likely independent contractor under the proposal.
• A delivery driver required to follow company-set routes, schedules, and branding, whose earnings are largely determined by company assignments: closer to employee under the control core factor.
• A construction subcontractor who invests in equipment and hires helpers: the profit/loss and investment factor could weigh toward independent contractor status even if they work primarily for one general contractor.

My take

The DOL’s stated goal of aligning regulations with long-standing court precedent and promoting predictability is reasonable. Businesses and independent workers deserve clearer guidance. But regulatory clarity should not become a shortcut for stripping protections. The two-core-factor approach can be useful, but success will depend on how the DOL defines and applies “control” and “opportunity for profit or loss” in practice — and on whether the agency’s examples and enforcement priorities protect vulnerable workers who lack genuine bargaining power.

The rulemaking process — public comments and later enforcement — will be the real battleground. Employers should review classification practices now, document actual working arrangements (not just contracts), and consider submitting informed comments. Workers and advocates should press the DOL to ensure the new framework doesn’t enable broad misclassification that escapes the protections Congress intended in the FLSA.

Final thoughts

This is a consequential regulatory moment with real money and livelihoods at stake. The DOL’s proposal could simplify life for many businesses and solidify independence for some workers — but it could also leave others with fewer protections. Watch the comment period (closes April 28, 2026) and the DOL’s examples closely; those details will determine whether the rule promotes honest flexibility or invites abusive classification.

Sources

• US Department of Labor — “US Department of Labor proposes rule clarifying employee, independent contractor status under federal wage and hour laws.”
  https://www.dol.gov/newsroom/releases/whd/whd20260226

• Associated Press — “Trump's Labor Department proposes more than 60 rule changes in a push to deregulate workplaces.”
  https://apnews.com/article/223309692fecb3721ef377154e7689ed

• The Washington Post (Opinion) — “A win for 11.9 million workers.”
  https://www.washingtonpost.com/opinions/2026/02/28/independent-contractors-employees-workers-labor-rule/

A moment of truth in Ann Arbor: Grasso’s message and what comes next for Michigan athletics

The video dropped on a quiet Wednesday night, but its ripples are anything but quiet. Interim University of Michigan president Domenico Grasso spoke directly to the community about the investigation into the athletic department and the search for a new football coach after the abrupt firing of Sherrone Moore. The tone was firm, the message blunt: the university will “leave no stone unturned,” and the next coach must embody the “highest moral character.”

Below I walk through what Grasso said, why the expanded Jenner & Block probe matters, how the coaching search is being framed now, and the larger cultural questions Michigan faces.

Quick snapshot

• Who spoke: Interim President Domenico Grasso.
• What happened: Grasso posted a video update expanding an existing investigation into former coach Sherrone Moore to a broader review of the athletics department’s culture, conduct, and procedures.
• Who’s investigating: Chicago law firm Jenner & Block, already involved in related reviews.
• Coaching search stance: Michigan is prioritizing moral character and leadership in its next head coach.

Why the video mattered — the human angle

Hook: Colleges are built on reputations that take generations to earn and seconds to erode. Grasso’s message landed as an attempt to stop the erosion.

Grasso’s address was not just PR; it was an attempt to re-center the conversation on values and accountability. For students, staff, alumni and donors who felt blindsided and betrayed by the Moore episode, the video did three things simultaneously:

• Acknowledged hurt and disillusionment without downplaying it.
• Announced concrete next steps (expanded independent review, a contact line for tipsters).
• Signaled that personnel decisions — including further terminations if warranted — are possible based on the probe’s findings.

That combination matters. When an institution signals both empathy and action, it reduces the vacuum where rumor and distrust grow.

The investigation: why expanding to the whole athletics department matters

Grasso expanded an already ongoing Jenner & Block review into a broader look at the department’s culture and procedures. That’s notable for several reasons:

• It moves the response beyond a single “bad actor” narrative to a systemic inquiry.
• It shifts focus from only disciplinary outcomes to process and prevention — how the department handles reports, training, supervision, and compliance.
• Using outside counsel with prior experience at Michigan (Jenner & Block) provides legal thoroughness, but also raises questions about institutional self-reflection versus external accountability. Independent reviews can be rigorous, but their credibility hinges on transparency about methodology and follow-through on recommendations.

In short, it’s the difference between fire-fighting and re-building a safer structure.

The coaching search: character first

Grasso was emphatic that Michigan will hire someone “of the highest moral character” who will be a role model and “with dignity and integrity be a fierce competitor.” That language does two jobs:

• It narrows the public field of acceptable candidates to those without serious prior controversy.
• It signals to recruits, parents, and donors that the university intends leadership who reflect institutional values — not only on-field success.

Practically, that will complicate a search if the market of high-profile, proven coaches includes names with baggage. But in a post-scandal moment, optics and message matter almost as much as playbooks.

What to watch next

• The Jenner & Block timeline and level of disclosure. Will the university publicly release findings or only act on specific recommendations?
• Whether the athletics compliance and ethics office receives sustained structural investment (staffing, reporting lines, independence).
• How the Regents and athletic director Warde Manuel participate in the search and the response; leadership alignment will be crucial.
• The selection criteria and vetting process used for the next head coach — especially how background checks and cultural fit evaluations are handled.

Broader context

This moment at Michigan is part of a larger pattern across college athletics — from misconduct revelations to debates over governance and athlete welfare. Universities are under intense pressure to reconcile competitive ambition with ethical stewardship. Grasso’s remarks reflect that balancing act: a commitment to on-field excellence, paired with an insistence that athletics must live up to the university’s broader mission.

What doesn’t solve the problem overnight

• A single firing, even if necessary, won’t fix systemic problems.
• A PR-forward video won’t replace transparent processes that build trust over time.
• Hiring a high-profile coach without structural changes risks repeating the same vulnerabilities.

My take

Grasso’s statement felt necessary and measured — a leader trying to steady a shaken community while promising rigorous scrutiny. The test, though, is not in the words but the deeds that follow: open, credible investigations; real investments in compliance and culture; and a search for a coach that privileges character as highly as wins. If Michigan matches the force of its rhetoric with transparent action, this moment could become a turning point rather than a stain.

Sources

• Michigan president provides update on Sherrone Moore, athletics department investigations — On3.
  https://www.on3.com/news/michigan-president-provides-update-sherrone-moore-athletics-department-investigations-domenico-grasso//

• Michigan to 'leave no stone unturned' in athletics inquiry — ESPN.
  https://www.espn.com/college-football/story/_/id/47340854/michigan-interim-president-domenico-grasso-provides-update-investigation-football-program-athletic-department

• Michigan president updates athletic department investigation, football coach search — Sports Illustrated.
  https://www.si.com/college/michigan/football/michigan-president-updates-athletic-department-investigation-football-coach-search