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Enter the IRS

The IRS has its own regulations regarding cafeteria plans in relation to FMLA leave that provide some clarity. Under those regulations, employers must allow employees on unpaid FMLA leave to either:

• Revoke coverage; or
• Continue coverage but allow the employees to discontinue payment of their share of the premium.

If employees choose to continue payments, they have several options:

• Pre-pay: Before leave begins, the plan may allow an employee to pay the amount due for the FMLA leave period. Employers may not, however, require that employees prepay the amounts. Contributions under this option may be made on a pre-tax salary reduction basis.
• Pay-as-you-go: Employees may pay their share of premiums on the same schedule as they would have been made if they weren’t on leave. Employees may also use the methods allowed under the FMLA, such as making payments on the same schedule as COBRA payments. Payments made under this option are generally made on an after-tax basis. Contributions may, however, be made on a pre-tax basis to the extent that the contributions are made from taxable compensation due to the employee during leave. If an employee fails to make the required payments, coverage may cease.
• Catch-up: Employers and employees may agree in advance that coverage will continue during leave, and that employees won’t pay premiums until they return from leave. Employers would be responsible for advancing premium payments on behalf of employees during leave. If an employee fails to make required premium payments while on leave, employers may use the catch-up option to recoup the employee’s share of the payments when the employee returns from leave. In such a situation, a prior agreement isn’t required. Contributions under this option may be made on a pre-tax salary reduction basis from any available taxable compensation, or on an after-tax basis. The plan may allow for the catch-up option to apply on a pre-tax basis if premiums haven’t been paid on any other basis.

Employers may require employees to use the catch-up option if it is the only option offered to employees on unpaid non-FMLA leave. If the pay-as-you-go option is offered to employees on unpaid non-FMLA leave, the option must also be offered to employees on FMLA leave.

If employees are using paid leave during otherwise unpaid FMLA leave, employers may require employees to pay their share of the premiums by the method they normally use during any paid leave.

Key to remember: Employers must be aware of how to handle employee FSA contributions during FMLA leave.

Conflicting accounts of employee behavior

In this case, a long-time employee who suffered from a spinal condition causing severe lower back pain had been granted several accommodations over the years, including leaves of absence and a modified work schedule. His condition was worsening, and he needed to miss full days of work to attend physical therapy.

A staff meeting led by the employee started a chain of events that resulted in his termination. The employer said the employee appeared lethargic and overmedicated at the meeting, and that he mentioned eating a gummy and said it made him high.

According to the employer, the employee said he needed to take smaller doses in the future and drew a picture of the gummy to show how much he should eat.

The employee denied being lethargic or overmedicated at the meeting, however, and said he told a story about taking a CBD gummy that had made him sick. The over-the-counter CBD product had been recommended by his doctor to relieve pain, and the employer was aware of his CBD use. The employee denied being high or drawing a picture of the gummy.

A drug test and firing

A few days later, a supervisor and human resources representative met with the employee to discuss the staff meeting. The employee denied using marijuana, admitted to using CBD, and agreed to be drug tested.

The company had a policy requiring drug and alcohol testing if there was a reasonable suspicion that an employee was not fit for duty. The company also had a last chance agreement policy that allowed an employee to return to work after being found not fit for duty due to drug or alcohol use.

The employee’s test was positive for marijuana, and there was a dispute over whether CBD use could have led to the result. The employer fired the employee a few weeks later because of:

• Conduct at the staff meeting,
• A positive test for marijuana, and
• Dishonesty about marijuana use.

Lawsuit claims retaliation for accommodation requests

The employee filed a lawsuit claiming that the employer violated the ADA by retaliating against him after he requested accommodations for his condition.

Evidence presented in court raised questions about the employer’s real reason for firing the employee:

• The employee showed that other workers were not fired after drug and alcohol offenses but were allowed to return to work under a last chance agreement.
• A witness from human resources could not recall other non-probationary employees being terminated for a first-time marijuana offense.
• Case managers from a firm that administered the company’s fitness for duty program expressed disbelief and outrage that the employee had been let go without being offered a last chance agreement.
• There were inconsistencies in the staff meeting account, with employees testifying that the employee had not been lethargic or overmedicated.
• The employee was fired a month after requiring an accommodation to attend full-day physical therapy sessions.

The court’s decision

The court found enough evidence showing that the employee’s worsening disability could have been a factor in his termination to send the case to a jury.

Although the employer did provide nondiscriminatory reasons for firing the employee, the employee provided evidence showing that they might not have been the true motive for his termination.

The timing of the firing, uneven discipline, and contradictory accounts of the staff meeting allowed the employee’s retaliation claim to move forward. The court did not decide whether the employee was right, but determined that enough questions had been raised to let a jury hear the case.

Key to remember: A positive drug test can be a reason to take action against an employee, but treating an employee with a disability more harshly than other employees can lead to a lawsuit.

Why the proposed change?

The DOL states that the proposed rule is “consistent with Supreme Court and federal circuit court precedent.”

“The rule we are proposing today is not only based on long-standing legal principles used in federal courts across the country but also is aimed at ensuring that workers and employers know how to apply those principles predictably,” said WHD Administrator Andrew Rogers in a press release. “The department believes that streamlined regulations in line with Congress’s intent when it passed the Fair Labor Standards Act would improve compliance, reduce misclassification, and reduce costly litigation in an economic environment that needs flexibility and innovation.”

The proposed rule would also apply the DOL’s streamlined analysis to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act, both of which use the Fair Labor Standard’s Act’s (FLSA) statutory definition of “employ.”

How do the new standards differ from the Biden-era standards?

If passed into law, the 2026 proposed rule would:

• Apply an “economic reality” test to determine whether a worker is in business for himself or herself as an independent contractor or is an employee economically dependent on an employer for work.
• Identify and explain two “core factors” to help determine if a worker is economically dependent on an employer for work or in business for him- or herself:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identify other factors to help determine a worker’s status as an employee or independent contractor, including the amount of skill required for the work, degree of permanence of the working relationship, and whether the work is part of an integrated unit of production.
• Advise that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
• Provide eight fact-specific examples applying the factors to real-life circumstances.

The 2026 proposed rule is similar to the 2021 version which was finalized (but never took effect) at the end of President Trump’s first term, in that it leans heavily into the concept of an “economic reality” test, which analyzes if a person is financially dependent on an employer. If they are, then they’re an employee. The 2021 version also zeroed in on “core factors,” and a person’s opportunity for profit or loss, and the degree of control they have over their work.

The 2024 version under President Biden (which is currently still in effect today) focuses more on the “totality of the circumstances” when classifying workers. It looks at the whole picture and allows all factors to be weighed equally, with no predetermined weight assigned to a particular factor or set of factors. Instead, it uses a 6-part multifactor approach to classifying workers. These six factors include:

1. Opportunity for profit or loss depending on managerial skill.
2. Investments by the worker and the potential employer.
3. Degree of permanence of the work relationship.
4. Nature and degree of control.
5. Extent to which the work performed is an integral part of the potential employer’s business.
6. Worker’s skill and initiative.

Don’t these rules seem similar?

While the details of these rules might seem similar on the surface, the current 2024 rule makes it harder for employers to classify workers as independent contractors, which means companies must hire workers as employees, making them eligible for minimum wage, overtime pay, and other benefits that come with regular employment.

The crux of the 2021 and 2026 rules is that they allow a little more wiggle room for companies to classify workers as independent contractors, and, therefore, avoid having to comply with certain employment laws, like paying minimum wage.

Didn’t the DOL already rescind this rule?

Not officially, but in May 2025, the DOL issued a Field Assistance Bulletin to provide guidance to WHD field staff, and indirectly employers, about how to determine if someone should be classified as an employee or an independent contractor for purposes of FLSA compliance.

In a press release from May, the DOL said they were reviewing the 2024 independent contractor rule that went into effect during President Biden’s term.

Field staff were instructed not to apply the 2024 rule when investigating and enforcing FLSA employment matters. Instead, staff was to look back to the 2008 independent contractor rule, focusing on “economic realities” similar to the 2021 and 2026 versions.

What should businesses be doing in light of this new guidance?

For now, businesses should still follow the guidance from the 2024 Biden-era independent contractor rule, because that’s still in effect.

Employers should ensure they’re complying with all federal, state, and local employment laws, especially when it comes to properly classifying workers as either employees or independent contractors. Also, workers may not voluntarily waive their employee status and choose to be classified as independent contractors.

Even if the WHD field staff isn’t using the 2024 version, it’s still technically the law of the land. Nothing’s changed with the existing regulations relating to employee classification (or misclassification) but has more to do with how the WHD is allocating enforcement resources during the review of the 2024 rule. The 2024 rule will still be the basis of any private litigation.

No posting change expected

This rule isn’t expected to bring a mandatory change to the Employee Rights Under the Fair Labor Standards Act posting. The posting does mention independent contractors, but doesn’t include a detailed definition. Previous changes to the independent contractor rule haven’t brought about a mandatory FLSA posting change.

In addition, the proposed rule doesn’t mention a posting change and doesn’t include the cost of a posting change in the rule’s cost analysis.

Key to remember: The U.S. DOL announced plans to rescind the Biden-era federal independent contractor rule from 2024 through a formal rulemaking process.