A trade organization representing independent broker-dealers and other business groups is making concerted legal efforts to oppose the Department of Labor's attempt to restrict the ability of independent contractors to work as 1099 workers, rather than as employees.

The Department of Labor (DOL) recently introduced a final rule on January 10th, which provided a six-part test for employers to determine if a worker should be classified as an independent contractor or an employee. This rule has the potential to significantly impact the independent broker-dealer channel in wealth management and other industries that heavily rely on contract workers.

The new rule replaces a previous standard set during the Trump administration that the current DOL argued was incongruent with judicial precedent.

Lawyers at Holland & Knight, a law firm, analyze the new rule and predict that it will result in many workers, including those who desire to be independent contractors, being classified as employees under the Fair Labor Standards Act (FLSA).

Several organizations, including the Financial Services Institute (FSI), are now rallying against the new independent-contractor rule. They were satisfied with the previous version that came into effect in March 2021, as it provided independent financial advisors with a sense of stability. However, FSI President and CEO Dale Brown expresses concern that the new rule's six-part evaluation places independent advisors and other workers in a precarious position, eroding their certainty and replacing it with unnecessary risks and ambiguity. Brown emphasizes the importance of independent advisors regaining the clarity and certainty of their independent status.

When approached for comment, a spokesperson for the Labor Department referred media inquiries to the Department of Justice, which will be defending the DOL in this matter. The Department of Justice did not respond immediately to requests for comment regarding the ongoing litigation.

Protecting Workers' Rights: New Labor Department Regulation

The Labor Department has taken a stand in support of workers' rights by implementing a new regulation aimed at preventing unscrupulous employers from circumventing minimum-wage and overtime rules. The department argues that this measure is necessary to protect workers from being misclassified as independent contractors, a practice that often deprives them of important rights and protections.

Acting Secretary of Labor Julie Su emphasizes the importance of this rule in ensuring that workers, particularly those most vulnerable to exploitation, are properly classified and receive the wages they deserve. By addressing the issue of misclassification, the regulation aims to safeguard the rights of workers and promote fair labor practices.

However, some groups have raised concerns about the potential consequences of this rule. They argue that it could disrupt established and often lucrative employment arrangements for workers who currently function as independent contractors. These groups have initiated legal action in opposition to the regulation, building upon their previous efforts during the transition from the Trump to the Biden administration.

When the Biden Labor Department attempted to delay and revoke the looser independent-contractor rule implemented under the previous administration, litigation ensued. The court ruled against the delay and withdrawal, and the Department of Labor appealed the decision. While the legal process unfolded, the department proceeded with a notice of proposed rule making, which eventually led to the development of the new independent-contractor rule.

Throughout this process, the appeals court granted several stays on the litigation, allowing the Labor Department to finalize its regulation. Now that the new rule has been completed, the litigants are requesting that the appellate court lift the stay and return the matter to the district court for further review.

The implementation of this new independent-contractor rule is scheduled for March 11, signaling a significant step forward in protecting workers' rights and ensuring fair treatment in the workforce.

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