The Financial Services Institute, a brokerage industry advocacy group, has joined a lawsuit against the U.S. Department of Labor, claiming the DOL’s recent withdrawal of its independent contractor rule violated federal law. FSI CEO and President Dale Brown called the move “hasty and arbitrary.”
FSI, which advocates and lobbies for independent broker/dealers, joined the suit in federal court in the Eastern District of Texas; the other plaintiffs include the Associated Builders and Contractors, the Associated Builders and Contractors of Southeast Texas and the Coalition for Workforce Innovation.
The rule, which would have solidified the independent contractor status for IBD advisors under the Fair Labor Standards Act, was originally announced during the final weeks of the Trump administration, but its effective date was delayed by the Biden administration. On March 12, the DOL proposed to withdraw the rule, arguing it was inconsistent with the Fair Labor Standards Act and would have a “confusing and disruptive effect” on workers and businesses. DOL Secretary Marty Walsh said that employees often lose “important wage and related protections” if an employer tries to misclassify them as independent contractors.
But in a statement detailing FSI’s role in the new complaint, Brown argued the new rule would have provided “consistent and uniformity in worker classification” for independent financial advisors.
“Our members relied upon it for assurance that their choice to be independent contractors would be preserved,” Brown said. “The rule’s withdrawal will result in the return to the confusing and conflict 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.”
FSI had previously submitted a comment letter in support of the rule, arguing that the “economic reality” test would help better classify employees versus independent contractors under the FLSA. The rule would judge a worker’s classification by their “nature and degree of control over the work” as well as the “opportunity for profit or loss based on initiative and/or investment,” according to an explainer on the DOL’s site.
In his statement, Brown noted that independent advisors build businesses within their communities, pay their own taxes, hire staff and depend on the success of their business.
“Independent financial advisors choose to be independent contractors—many of them voluntarily switching from an employee advisor model—so that they can operate their own business and better serve their clients,” he said.
There is also potential legislation in the form of the PRO Act, which passed in the House of Representatives in March. President Joe Biden recently urged the Senate to consider passing it. That bill could impact the independent contractor status of advisors' affiliated IBDs as well as in insurance companies.