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Regulation and Compliance > Federal Regulation > DOL

DOL Withdrawal of Independent Contractor Rule Violated Law, Judge Rules

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What You Need to Know

  • The decision is a victory for FSI, which represents independent advisors.
  • Labor's delay and withdrawal of the rule violated the Administrative Procedure Act, the judge ruled.
  • The independent contractor rule is effective as of March 8, 2021, the rule’s original effective date.

In a victory for the Financial Services Institute, the U.S. District Court for the Eastern District of Texas has ruled that the Labor Department’s delay and withdrawal of its independent contractor rule violated the Administrative Procedure Act.

With the decision, the independent contractor rule is effective as of March 8, 2021, the rule’s original effective date.

“The court appropriately ruled that the DOL’s independent contractor withdrawal did not follow administrative procedure,” Dale Brown, president and CEO of FSI, said in a statement. “Restoring the DOL’s independent contractor rule provides clarity and certainty for independent financial advisors and independent financial services firms. Our members can now operate their businesses and serve their Main Street clients confidently knowing that their choice to be independent is secure under FLSA.”

The rule clarifies a long-standing “economic reality test” to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA).

Labor withdrew last May its Independent Contractor Rule in order to maintain workers’ rights to the minimum wage and overtime compensation protections of the Fair Labor Standards Act.

The rule clarified the standard for employee versus independent contractor under the Fair Labor Standards Act, and reaffirmed an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).

FSI filed a lawsuit on May 13, 2021, against Labor for withdrawing its final independent contractor rule and actively lobbied senators about a legislative remedy.

FSI joined the Associated Builders and Contractors (ABC), Inc.; the Associated Builders and Contractors of Southeast Texas (ABCSETX); and the Coalition for Workforce Innovation (CWI) as co-plaintiffs in the legal compliant challenging the Department’s delay and withdrawal of the rule.