The Financial Services Institute (FSI) has joined a lawsuit attempting to block a new Department of Labor rule regarding the classification of independent contractors, reports InvestmentNews.
The DOL’s rule, published on Jan. 10, is designed to help employers and workers better understand when a worker qualifies as an employee and when they may be considered an independent contractor under the Fair Labor Standards Act.
The department said it is seeking to combat employee misclassification, saying it impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition and hurts the economy.
The financial services industry has challenged the rule on grounds it would force many advisors to become employees of their companies and thus affect their business models. FSI joined a coalition of trade groups who filed a lawsuit in the U.S. District Court for the Eastern District of Texas. They asked the court to declare the department’s 2024 rule invalid, prohibit its implementation and order the 2021 rule to remain in effect.
Others who are part of the lawsuit are 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.
“Our members should not have to risk losing their independent contractor status because, for example, they are complying with federal and state securities rules,” said Dale Brown, president and CEO of FSI. The organization, an advocacy group for independent financial advisors, called the new rule “arbitrary and capricious.”.
Brown added that while the 2021 rule provided clarity on the classification of financial advisors as independent contractors, the updated rule puts their status into doubt, “creating burdens for advisors and firms which ultimately increases costs and limits Main Street Americans’ access to professional financial advice, products and services.”
The Department of Labor said that workers are deprived of their rights and protections when they are misclassified as independent contractors. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned,” said Acting Secretary of Labor Julie Su.
The rule addresses six factors that determine whether a worker is an employee or an independent contractor, including any opportunity for profit or loss a worker might have; the financial stake and nature of any resources a worker has invested in the work; the degree of permanence of the work relationship; the degree of control an employer has over the person’s work; whether the work the person does is essential to the employer’s business; and a factor regarding the worker’s skill and initiative.
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