DOL to Appeal Texas Court’s Decision on Trump-Era Contractor Rule

The Department of Labor will appeal a federal court’s decision that would make it easier for independent financial advisors to be classified as independent contractors.

The notice follows a March decision in Texas federal court that reinstated a Trump-era rule that cleared the way for some workers (including independent advisors) to choose to be employed as independent contractors.

In March 2021, President Joe Biden’s labor secretary, Marty Walsh, withdrew that rule, arguing it ran afoul of the Fair Labor Standards Act.

“Legitimate business owners play an important role in our economy, but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” Walsh said at the time.

The rule was intended to protect the independent status of so-called “gig workers,” thus freeing businesses from the obligation of paying payroll taxes or other employee benefits for the workers. Independent broker/dealers who affiliate with firms as independent contractors to own their business have seen that status threatened by efforts to curtail the employment status.

The Financial Services Institute joined a suit against the DOL’s withdrawal of the rule in Texas’ Eastern District, along with co-plaintiffs, including the Associated Builders and Contractors and the Coalition for Workforce Innovation.

The plaintiffs argued the DOL violated the Administrative Procedure Act and failed “to engage in adequate notice and comment” as required. They also argued the delay failed to “address the serious problems identified and corrected” by the Trump-era rule. 

U.S. District Judge Marcia Crone agreed, delivering a decision in favor of the plaintiffs on March 14. The case will now move up to the 5th U.S. Circuit Court of Appeals.

“The DOL’s independent contractor rule provides much-needed certainty to independent financial advisors who have chosen to be independent contractors so that they can operate their own business and better serve their clients within their communities,” FSI President and CEO Dale Brown said about the DOL’s notice. “We plan to continue working to defend our members’ independent contractor status through the appeal process.”

Democrats are also urging legislative action on workers’ independent contractor status. Biden continues to push Congress to pass the Protect Our Workers Act. That would enhance worker protections and make it easier for employees to unionize, Biden argued in a recent speech at the International Brotherhood of Electrical Workers’ annual conference in Chicago.

But the rule would also impact advisors by changing the independent contractor status for advisors affiliated with independent broker/dealers or insurance companies. While the U.S. House of Representatives passed the bill several times, it remains stalled in the Senate.