FSI Asks Court to Strike Down DOL Independent Contractor Rule

The Financial Services Institute and its coalition partners filed an amended complaint Tuesday against the Labor Department’s new independent contrator rule, which asks the court to declare the 2024 rule invalid, prohibit its implementation and allows the 2021 independent contractor rule to remain in effect.

FSI filed the amended complaint in the U.S. District Court for the Eastern District of Texas along with the Associated Builders and Contractors, the American Trucking Association, the Coalition for Workforce Innovation, the National Retail Federation, the National Federation of Independent Business and the U.S. Chamber of Commerce.

The complaint states that the 2024 rule, which Labor finalized on Jan. 9, is arbitrary and capricious under the Administrative Procedure Act and also violates the Regulatory Flexibility Act.

An FSI spokesperson told ThinkAdvisor Tuesday in an email that the amended complaint replaces the earlier complaint filed on Jan. 16, which challenged DOL’s withdrawal of the 2021 independent contractor rule.

The new amended complaint, the spokesperson said, reflects “our concerns with the final DOL rule” and adds new plaintiffs.

The department, according to the amended suit, ”has issued a new rule that largely repeats the Department’s previous errors and fails to remedy the confusion addressed by the 2021 Independent Contractor Rule.”

The 2024 rule “repeals the 2021 Independent Contractor Rule currently in effect and substitutes an amorphous, vague, and unworkable standard for determining employee or independent contractor status” under the Fair Labor Standards Act, or FLSA, the suit states.

Dale Brown, FSI’s president and CEO, said Tuesday in a statement that “our members should not have to risk losing their independent contractor status because, for example, they are complying with federal and state securities rules.”

The 2021 Independent Contractor Rule “helped provide much-needed certainty and clarity regarding our financial advisor members’ classification as independent contractors,” Brown said.

The final rule defines whether a worker is an employee or independent contractor under the Fair Labor Standards Act. FSI has warned that the rule could threaten advisors’ status as independent contractors.

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 maintains.

On Jan. 16, FSI and the coalition filed a motion for remand in the Fifth Circuit Court of Appeals, resuming the court battle, which was halted in June 2022 as the Labor Department requested a stay of appeal to work on the rule.

In 2021, under the Trump administration, the Labor Department streamlined the independent contractor rule.

The Biden Labor Department in 2022 proposed a new version of the rule. DOL officials say this version strengthens worker protections and is truer to the intent of the FLSA. Trade groups including FSI have been fighting the rule in court, arguing the department did not follow the law in rescinding the 2021 rule.