FSI sues to stop withdrawal of DOL independent contractor rule

The Financial Services Institute is suing the Department of Labor to prevent the agency from withdrawing a Trump administration regulation that the trade association says would benefit independent brokers and financial advisers.

On Thursday, FSI joined three other groups in filing a complaint against the DOL in a federal court in Beaumont, Texas. The plaintiffs charged that the agency acted arbitrarily and violated federal regulatory rules by killing the regulation, which would have clarified the tests used under the Fair Labor Standards Act to determine whether a worker is an independent contractor or an employee.

The Trump administration promulgated the original rule in early January, with an effective date of March 8. The Biden administration delayed the effective date until early May and then withdrew the rule last Thursday.

FSI Chief Executive Dale Brown said the Trump administration rule provided consistency and uniformity in worker classification. That gave FSI’s members — who run their own brokerages and advisory firms — certainty about their status as independent contractors rather than employees of a financial firm.

“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 in a statement.

The Biden DOL withdrew the Trump rule because it said the regulation would have harmed workers by allowing employees to be wrongly designated as independent contractors.  

“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,” DOL Secretary Marty Walsh said in a statement last Wednesday. “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.”

The DOL acted within its authority in withdrawing the rule, said Adam Pulver, an attorney with Public Citizen, an advocacy organization for consumers and workers.

“All agencies are allowed to change their mind as long as they acknowledge they are doing so,” Pulver said. “Here, there is no question DOL was announcing they’re undoing the last rule and taking a new position. There was no long-standing reliance on a rule that was not in effect.”

The suit was filed in a federal court district that is thought to be generally friendly to industry lawsuits. A ruling in the Texas district court would be appealed to the U.S. Court of Appeals for the 5^th Circuit, where the Obama administration’s DOL fiduciary rule was vacated in a lawsuit brought by the brokerage industry in which FSI was a plaintiff.

While FSI fights the DOL withdrawal in court, the organization and other financial industry trade groups also are opposing legislation that would make it easier for workers to form unions, the Protecting the Right to Organize Act. The measure includes a provision that would restrict the ability of companies to classify workers as independent contractors.

The PRO Act passed the Democratic-majority House in March, but it’s prospects are uncertain in the Senate, where Republicans and Democrats split the chamber 50-50, and Republicans can mount a filibuster.

President Joe Biden included the PRO Act in his American Jobs Plan, a $2.3 trillion infrastructure package. The legislation received a boost when Sen. Joe Manchin, D-W.Va., announced his support. Manchin and other moderate Democrats may help determine its fate in the Senate.