The Financial Services Institute (FSI) yesterday joined a lawsuit against the Department of Labor challenging the delay and withdrawal of the agency's independent contractor rule.
The DOL repealed the Trump-era rule that allows businesses and independent contractors to use an economic test to determine their employees' status on May 6, one day before it was scheduled to go into effect. It had previously delayed the implementation of the rule.
The rule, which was finalized by the DOL on January 7, “provided our independent financial advisor members with much-needed certainty regarding their classification status, only for it to be arbitrarily revoked shortly before going into effect," FSI President and CEO Dale Brown said in a statement. The trade group represents firms and advisors in the independent broker-dealer industry.
The FSI’s amended complaint, filed in U.S. District Court in the Eastern District of Texas, asks the court to vacate the DOL’s withdrawal of its independent contractor rule on the grounds that the agency violated the Administrative Procedure Act by failing to provide an adequate comment period, which makes the withdrawal of the new rule “arbitrary, capricious and therefore invalid."
“The rule must be restored so that independent financial advisors and other independent workers can operate confidently knowing their independent contractor status is secure,” Brown said.
The DOL said it repealed the rule to ensure employees get fair wage protection. “By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” Labor Secretary Marty Walsh said in a statement.
“Legitimate business owners play an important role in our economy, but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors. We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides,” Marty said.
The DOL also failed to offer substantive justification for the delay, the lawsuit states. “The minimal justification DOL provided for enacting the delay rule mischaracterized the independent contractor rule as adopting a ‘new legal standard,’ when in reality the [rule] only sought to provide clearer guidance to the regulated community as to the relative importance of the various factors comprising the long-standing economic reality test for determining employee or contractor status,” FSI said in its complaint.
FSI joined Associated Builders and Contractors Inc. (ABC); the Associated Builders and Contractors of Southeast Texas (ABCSETX); and the Coalition for Workforce Innovation (CWI) in the lawsuit, which was originally filed in March.
“The rule’s withdrawal will result in the return to the confusing and conflicting interpretations previously applied by differing courts, causing our members and other properly classified independent contractors to divert time and resources to defending their independent contractor classification from unnecessary challenges,” Brown said.