The Financial Services Institute and three other trade groups are asking a federal appeals court to allow an earlier lawsuit to proceed in an attempt to vacate a Department of Labor rule that makes it harder to classify workers as independent contractors.

While Acting DOL Secretary Julie Su says the new rule is needed to protect workers from exploitation, FSI, a trade group that represents the independent broker-dealer industry, and others argue that it sets standards that make it nearly impossible to classify any business owner as an independent contractor.

“The independent contractor status is vital to our members, and FSI is ready to leverage all our advocacy tools to ensure it remains protected,” FSI President and CEO Dale Brown said in a statement.

FSI has joined the Associated Builders and Contractors, the Associated Builders and Contractors of Southeast Texas and the Coalition for Workforce Innovation to ask the Fifth Circuit Court of Appeals to decide whether or not to remand the lawsuit to U.S. District Court, where additional filings and arguments will take place to determine the legality of the 2024 rule, the FSI said in a statement.

The FSI successfully sued the DOL in 2021 to force the agency to implement its Trump-era independent contractor rule. The latest rule, it said, unnecessarily threatens the livelihood of independent registered representatives.

“We fear the DOL’s final rule will undermine our financial advisor members’ independent contractor status, despite thousands of comment letters, multiple hearings and many meetings in which stakeholders, including our members, expressed their desire to remain independent,” Brown said.

The new rule replaces a worker’s control of their profit and losses and other factors with a new test called the “totality of the circumstances,” FSI said. This requires employers to give equal weight to worker’s control over their own profit and loss factors with several other factors, including the degree of permanence in a work relationship.

Employers must also consider whether work performed is an “integral” part of the employer’s business and factor in the skill and initiative a worker brings to the table, according to the DOL.

If independent advisors “are forced to be employees, this could adversely harm Main Street Americans’ access to their local trusted financial advisor,” Brown said.

In effect, many would need to become employees of their broker-dealers or become registered investment advisors, he said.

The 2021 Trump-era DOL rule “gave independent financial advisors a sense of certainty that their choice to operate as independent contractors would be preserved,” Brown continued.

“Now, in light of the DOL”s new independent contractor rule, that certainty has been erased and replaced by unnecessary risk and ambiguity,” he said.

Back in the late 1990s, a predecessor organization that spawned FSI, the broker-dealer division of the International Association For Financial Planning, engaged in a lobbying effort that convinced the IRS that reps of independent B-Ds paid for the majority of their business costs and enjoyed wide discretion in selecting the investments they recommended and sold.