A U.S. Senate committee has advanced Joe Biden’s nominee for permanent secretary of labor to the full chamber for a vote, even though the candidate’s nomination has already stalled once on the Senate floor. The candidate, Julie Su, has been criticized by some business leaders, including those in the securities industry, because of her critical stance on those claiming independent contractor status, a business model important to many securities reps.
Su is currently the acting labor secretary. On Tuesday her bid to win the job permanently was advanced by a narrow majority of the Committee on Health, Education, Labor and Pensions. The committee approved a floor vote on her renomination, which passed 11 to 10 in a closed-door session. No Republicans voted for her nomination.
Su has been acting secretary since March 2023, after being nominated by President Biden to win the position permanently the month before. She failed to receive a floor vote in 2023 for the job and the matter went back to the White House.
Biden renominated Su last month, but her confirmation remains controversial in the securities brokerage, insurance and trucking industries, which often rely on independent contractors for distribution.
When Su was California’s labor secretary, she was pivotal in passing the state’s strict independent contractor legislation. That’s been a sticking point for a number of trade groups and their GOP lawmakers.
The DOL And The Fiduciary Rule
The Insured Retirement Institute, which represents insurers and annuities companies, hasn’t taken a stance on Su’s nomination, but it has taken a hard line against the Labor Department’s activity when it comes to advisors, including its implementation of a fiduciary rule that would force more reps and insurance agents to act under much stricter standards.
“Whether Acting Secretary Su is confirmed as DOL secretary or she remains in her current status does not affect our efforts on the proposed DOL fiduciary rule,” said the institute’s spokesperson, Dan Zielinski, in an email. “We have not taken a position on her confirmation process.”
Brad Campbell, the former assistant secretary of labor for employee benefits, who was appointed by George W. Bush, said the new rule was likely to be struck down in federal court, just like a similar rule put in place during the Obama administration in 2016. That rule was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The court, said Campbell, spelled out that there are distinctions in what advisors do, specifically those involved in brokerage sales, that are different from the more rigorous standards that fiduciary advisors are held to.
“Personally, I don’t believe the Fifth Circuit, if it gets the chance to review this, is going to find that this is actually any different than what they found in the last case—which is that Congress had specifically ordered there to be a distinction between sales and advice," said Campbell in a webcast hosted by law firm Faegre Drinker, where he is a partner.
The Financial Services Institute, which represents the independent broker-dealer and advisor industries, is also opposing the DOL rule and was a plaintiff in the successful lawsuit which vacated the Obama-era rule on the grounds that the department does not have the authority to regulate brokerage sales.
Peter Morgan, general counsel at Charles Schwab, has also asked the DOL to withdraw the proposed fiduciary rule, calling the project an “ill-fated sequel … destined to meet the same fate as its 2016 predecessor.”
Like a number of securities attorneys and former DOL regulators, Morgan said the rule exceeds the DOL’s regulatory authority and is fatally flawed. The term fiduciary “is not ambiguous, and may not be construed to capture broker-dealers and other financial professionals giving onetime advice,” he said in a January 2 comment letter.
FSI is also currently suing the DOL to overturn its new independent contractor regulation, which the advocacy group said will hamper independent reps who run their own businesses and require them to either become brokerage employees or registered investment advisors.