The Financial Services Institute (FSI) is continuing a full-court press to persuade the Department of Labor (DOL) to withdraw its proposed independent contractor rule, which could result in as many as a few hundred thousand dually registered advisors being reclassified to employees.

The DOL announced its proposal in October, seeking to reverse the President Trump-era approved 2021 independent contractor rule, which is more favorable to independent advisors because it reduces the criteria for classifying a worker as an independent contractor to two metrics—control over work and opportunity for profit. 

The new DOL proposal largely returns to the earlier “economic realities” test and uses six factors to determine a worker’s “economic dependence,” including the opportunity for profit and loss and the degree of permanence of the work relationship. 

“We would certainly prefer for the DOL to withdraw its most recent rule proposal on independent contract status,” the FSI’s David Bellaire said when asked if the association would consider suing the agency.

“What’s most important here is our members don’t want to be employees of a broker-dealer. Most of them left the broker-dealer model because they wanted to be independent and control their own destiny,” Bellaire said.

“Having said all that, when it comes to preserving our members' independent contractor status, we’re going to keep all of the tools of advocacy at our disposal,” he added.

Two years ago, the institute successfully sued the Department of Labor, forcing the agency to reinstate its Trump-era independent contractor rule, which it withdrew one day before its effective date, May 6, 2021.

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 Procedure Act.

“The rule 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,” Dale Brown, FSI’s president and CEO, said at the time.

The trade group's lawsuit argued that the DOL’s withdrawal of the rule violated the Administrative Procedure 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, the FSI and co-plaintiffs said in the suit.

If the FSI pursues a new legal challenge, the trade group could again charge the agency with violations of the administrative act again and with being “arbitrary and capricious” in proposing a completely different rule to the one that was just adopted in 2021, without showing that industry practices have changed “to merit the flip-flop,” one industry attorney who works on DOL issues said.

The DOL did not immediately reply to a request for comment on the agency’s time line for completing deliberation of the rule.

There was so much interest in the proposal that the DOL extended the comment period to November. The agency has received 54,000 letters it is supposed to consider before modifying, withdrawing or finalizing the rule. 

The agency said in the proposal it wants to decrease the chance that employees will be wrongly considered independent contractors.