US Department of Labor Withdraws Independent Contractor Rule

The U.S. Department of Labor (DOL) has announced the withdrawal of the “Independent Contractor Rule," effective May 6, 2021.

In withdrawing the rule, initially published by the Trump Administration Labor Department on January 7, 2021, the DOL sited the following criteria:

• The independent contractor rule was in tension with the Federal Labor Standards Act's (FLSA’s) text and purpose, as well as relevant judicial precedent.
• The rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions, requiring a review of the totality of the circumstances related to the employment relationship.
• The rule would have narrowed the facts and considerations comprising the analysis whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.

On April 12, NAIFA submitted a letter to DOL asking the Department to support the final rule published by DOL, which would have gone into effect on May 7, 2021. NAIFA explained that financial professionals choosing to operate as independent contractors help generate economic growth and financial security to the local communities they serve throughout the nation. Independent insurance contractors promote and protect Americans’ financial well-being through the insurance, savings and investment, and other financial services NAIFA members provide.

NAIFA disagrees with the DOL’s new perspective that the final rule is inconsistent with the principles established by decades of jurisprudence and that the court system would have difficulty applying it. In fact, this new perspective would be a departure from established legal precedents and DOL opinions and would more closely resemble the strict ABC test for determining employee or contractor status. Unlike the economic realities test, or any other worker classification test, the ABC test completely shifts the burden of proof by creating the presumption that a worker is an employee rather than an independent contractor.

As DOL moves forward with the drafting of a new rule defining independent contractors, NAIFA will continue working with regulators to ensure that insurance producers and financial advisors are provided the means to best serve their clients’ interests.