Financial Services Institute, Peers Challenge DOL’s Independent Contractor Rule

A coalition of trade groups that includes the Financial Services Institute has challenged the Department of Labor’s new independent contractor rule, set to take effect on March 11, by filing an amended complaint to a 2021 lawsuit. The case is being heard in U.S. District Court for the Eastern District of Texas and includes FSI and other plaintiffs, including groups such as the Coalition for Workforce Innovation and the business advocate U.S. Chamber of Commerce.

The rule, as proposed, would make it easier for workers to be classified as employees rather than independent contractors, which would entitle them to protections under the Fair Labor Standards Act, such as a minimum wage and overtime pay, as well as many protections under the Occupational Safety and Health Act.

The amended complaint alleges that the rule violates the Administrative Procedures Act and is arbitrary and capricious. It also alleges that the new rule did not adequately consider the costs of implementing it, both to businesses and workers.

The amended complaint reads: “The 2024 Rule abandons [a] workable framework and replaces it with a totality-of-the-circumstances test that is unlawful, unclear, and inappropriately biased toward classifying workers as employees, in conflict with binding Supreme Court precedent.”

In February 2021, the DOL postponed the implementation of a similar rule that was finalized during the administration of former President Donald Trump to May 2021; that rule would have made it easier to classify workers as contractors. In 2021, under then-Secretary of Labor Marty Walsh, withdrew that rule. That withdrawal was vacated by the U.S. District Court for the Eastern District of Texas in 2021 as being arbitrary and capricious because of the ambiguity of revoking one rule without a clear replacement, as well as for not accounting for compliance costs. Therefore, the Trump-era rule went into effect.

In response, the DOL proposed in October 2022 another rule, which was finalized this January. The amended complaint seeks to challenge that new rule and asked the court for a stay on the new rule’s implementation.