Independent contractor classification has long been a point of contention between employers, workers and regulators. The U.S. Department of Labor (DOL) recently announced a significant shift in its enforcement priorities regarding independent contractor misclassification. This change, particularly relevant to small and medium-sized businesses (SMBs) in Ohio, impacts how companies structure their workforce and mitigate legal risk.
The DOL’s Revised Enforcement Approach
In early 2025, the DOL signaled it would reduce aggressive enforcement of its 2024 independent contractor rule, opting for a “compliance assistance first” approach rather than immediately pursuing penalties. The 2024 rule had replaced the previous administration’s narrower “economic realities” test with a more expansive interpretation under the Fair Labor Standards Act (FLSA).
The shift back to a more flexible enforcement posture suggests that businesses may see fewer investigations focused solely on worker classification. However, it is critical to understand that the law itself has not changed—only enforcement priorities.
The DOL still retains authority under the FLSA to pursue employers who willfully misclassify workers, especially when misclassification results in unpaid overtime or minimum wage violations.
Legal Framework for Independent Contractor Classification
Federal Standards
The FLSA uses the “economic realities test,” which considers factors such as:
The degree of control the employer exercises over the work;
The worker’s opportunity for profit or loss;
The permanency of the relationship;
The skill required; and
Whether the service rendered is integral to the business.
Courts across the country have adopted similar multifactor tests. In United States v. Silk, 331 U.S. 704 (1947), and Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), the Supreme Court emphasized evaluating the totality of circumstances, rather than focusing on a single factor.
Ohio Law
Ohio generally follows federal guidance but also applies its own independent contractor tests under workers’ compensation and unemployment insurance laws. For example, in Gillum v. Indus. Comm’n, 141 Ohio St. 373 (1943), the Ohio Supreme Court adopted a “right to control” test, emphasizing whether the employer has the right to direct the manner and means of the worker’s performance.
Businesses must comply with both federal and state standards, making classification decisions complex.
Why Misclassification Still Matters
Even with a less aggressive DOL enforcement stance, misclassification risk remains significant:
Back Wages & Overtime: Companies may be liable for years of unpaid overtime and minimum wages.
Tax Liabilities: Misclassified workers often result in unpaid payroll taxes and penalties.
Workers’ Compensation & Unemployment: Misclassified workers may be deemed employees for state benefit purposes, creating retroactive liability.
Class Action Risk: Plaintiffs’ attorneys continue to file wage and hour class actions. In 2024 alone, wage and hour settlements reached $1.1 billion nationwide, according to Seyfarth Shaw’s Annual Wage & Hour Litigation Report.
What Ohio Businesses Should Do Now
Conduct an Internal Classification Audit
Review all independent contractor agreements and working relationships. Consider whether contractors meet the federal and state tests.
Update Policies and Contracts
Ensure contracts clearly define the independent contractor relationship, including the scope of work, control limitations, and payment terms.
Train Managers and HR Teams
Supervisors should understand that “control” over independent contractors—dictating schedules, requiring specific work methods, etc.—can shift classification to “employee” under the law.
Consider Strategic Workforce Planning
Some businesses may benefit from transitioning contractors to employees, particularly when work is ongoing and integral to operations.
Conclusion
The DOL’s scaled-back enforcement does not eliminate the risk of misclassification liability for Ohio businesses. Companies should proactively review their use of independent contractors and ensure compliance with both federal and Ohio law. By taking these steps now, businesses can reduce their exposure to costly litigation and regulatory action.
Is your business confident that its independent contractor relationships can withstand legal scrutiny?
Sources
- U.S. Department of Labor, Wage and Hour Division, US Department of Labor issues guidance on independent contractor misclassification enforcement
- May 1, 2025
- United States v. Silk, 331 U.S. 704 (1947)
- Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947)
- Gillum v. Indus. Comm’n, 141 Ohio St. 373 (1943)
- Seyfarth Shaw LLP, 2024 Annual Wage & Hour Litigation Report
Disclaimer
The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. It does not establish an attorney-client relationship, and any reliance on the information contained herein is done at your own risk. For specific legal guidance tailored to your business and jurisdiction, it is recommended to consult with a qualified attorney who can provide professional advice based on your unique circumstances.
