The Financial Services Institute (FSI) is looking to the courts to stop the Department of Labor’s new independent contractor rule.
The advocacy organization for independent b/d advisors filed a motion in Texas federal appeals court to revive a previously-paused lawsuit against the DOL. In addition to the FSI, the other plaintiffs in the suit include the Coalition for Workforce Innovation, Associated Builders and Contractors and Associated Builders and Contractors of Southeast Texas.
The motion, filed in the Fifth Circuit Court of Appeals, is asking to lift a stay on a lawsuit originally filed in May 2021, shortly after the Biden administration withdrew an independent contractor rule passed in the waning weeks of the Trump administration.
That rule was originally finalized on Jan. 6, 2021, and was set to take effect in March, but the DOL argued the rule was inconsistent with the Fair Labor Standards Act (FLSA) and would have a “confusing and disruptive effect” on workers and businesses.
The DOL decided to withdraw the rule in early May of that year, shortly before the FSI and its co-plaintiffs filed suit in Texas federal court. At the time, the group argued the Trump-era version of the rule would have assured brokers that a choice to remain independent contractors would not be endangered.
Initially, the FSI were successful; federal judges in Texas’ Eastern District blocked the DOL’s withdrawal, and ruled the Trump-era version of the rule went into effect as scheduled in March 2021. The DOL appealed the decision to the Fifth Circuit in May 2022.
Meanwhile, in October 2022, the DOL proposed a new iteration of the rule, which DOL officials argued would cut down on employers misclassifying employees to keep them from enjoying federal labor protections and higher wages, allegedly aligning the DOL’s standards with the FLSA.
But in passing this rule, the DOL would be doing away with the Trump-era rule, while intending to avoid the legal pitfalls they hit in Texas court in 2021. The Fifth Circuit agreed to stay the proceedings as the DOL continued to hone its final version of the rule, which was released earlier this month (and would rescind the 2021 rule when adopted).
But in its order requesting the courts lift the stay, the FSI argued that the new rule “adopts a standard that is so vague, amorphous and context-dependent” it removes any certainty that a worker is being classified correctly as a contractor or salaried employee.
“This blurring of the test defeats the Department’s own stated purpose for adopting the 2024 Rule, which was ostensibly to avoid the ‘confusing and disruptive effect on workers and businesses alike,’ which it claims the 2021 Independent Contractor Rule engendered and which would have complicated rather than simplified the analysis,” the order read.
The plaintiffs want the Fifth Circuit to remand the case back to Texas’ Eastern District (the same district that ruled the DOL erred in withdrawing the 2021 rule). They’re asking the court to determine whether the Labor Department complied with federal law.
FSI wasn’t any more a fan of the new rule than its proposed version in 2022, with CEO Dale Brown arguing that the new regulations “could adversely harm Main Street Americans’ access” to financial advisors.
“The independent contractor status is vital to our members, and FSI is ready to leverage all our advocacy tools to ensure it remains protected,” Brown said.
