The Financial Services Institute has won its lawsuit to require the Department of Labor to reinstate its independent contractor rule, effective immediately.
In its decision, the U.S. District Court for the Eastern District of Texas ruled that the DOL’s delay and withdrawal of its independent contractor rule violated the Administrative Procedures Act.
The rule modifies and clarifies a long-standing ‘economic reality test’ to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA).
“Restoring the DOL’s independent contractor rule provides clarity and certainty for independent financial advisors and independent financial services firms,” FSI President and CEO Dale Brown said. “Our members can now operate their businesses and serve their Main Street clients confidently knowing that their choice to be independent is secure under FLSA,” he said.
In its summary judgement, the court ruled that the rule must be reinstated back to March 8, 2021—its original effective date.
FSI was joined by co-plaintiffs including the Coalition for Workforce Innovation (CWI) and several building groups in the legal challenge.
The groups argued that DOL’s withdrawal of the rule violated the Administrative Procedures Act, compounding a violation that began when the Department improperly delayed the effective date of the Rule in 2021 without proper notice and comment and without any substantial justification, they said in the suit.
The independent contractor rule was announced on January 6, 2021, just two weeks before the end of former President Trump’s term.
Under the Biden Administration, the DOL first delayed the effective date and then on May 5, 2021, the agency withdrew the independent contractor rule entirely, without seeking industry comment or following legal rulemaking protocol.
Now reinstated, the rule modifies the FSLA’s economic realities test by requiring employers to determine whether a worker is an independent contractor using two core factors:
- The nature and degree of control over the work; and
- The worker’s opportunity for profit or loss based on initiative and/or investment.
When performing worker classification analysis, the rule also mandates that employers consider the skill required to do work, the permanence of the working relationship, and whether the work is part of an integrated unit of production.