An organization representing independent advisors across the country is challenging the Department of Labor over a rule that it says creates uncertainties for its members.
As part of a coalition of associations representing independent contractors across several industries, the Financial Services Institute has filed an amended complaint in US District Court for the Eastern District of Texas against the DOL.
The complaint concerns the 2024 Independent Contractor Rule, which the federal agency published on January 10 and which is set to take effect on Monday.
“Independent financial advisors choose to be independent so that they can operate their own businesses and better serve their clients,” Dale Brown, president and CEO of FSI, said in a statement.
According to Brown, the DOL’s update is a step back from its previous 2021 Independent Contractor Rule, which he said offered “much-needed certainty and clarity” for financial advisors.
The key difference between the 2021 and 2024 independent contractor rules involves an “economic reality” test that uses several factors to determine whether someone is a contractor or an employee.
While the 2021 rule puts more emphasis on a company’s level of control over a worker, the new rule assigns more weight to “economic aspects of the working relationship,” which FSI and other groups argue is vague and not clearly defined.
“Our members should not have to risk losing their independent contractor status because, for example, they are complying with federal and state securities rules,” Brown said.
According to the legal complaint filed by FSI along with other groups, the 2024 update is “arbitrary and capricious” based on criteria set out under the Administrative Procedure Act, as the DOL didn’t offer a detailed justification for why it is changing course.
The coalition also argued that the DOL’s 2024 rule update violates the Regulatory Flexibility Act as it fails to consider the costs and benefits of the change.
“The 2024 Rule renews uncertainty, creating burdens for advisors and firms which ultimately increases costs and limits Main Street Americans’ access to professional financial advice, products and services,” Brown said.
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