Committee Paves Way for House to Consider Repealing DOL Independent Contractor Rule

Members of the House Education and the Workforce Committee advanced their version of a bill that seeks to invalidate the independent contractor classification and reporting rules recently adopted by the U.S. Department of Labor.

The DOL Independent Contractor Rule set stricter criteria for businesses classifying workers as independent contractors rather than employees and has received much criticism from a variety of industry groups representing trade groups in the financial services industry – where advisers commonly work as independent contractors – as well as retailers, chambers of commerce and other interested parties.

The Republican-controlled committee voted 21-13 to advance House Joint Resolution 116, paving the way for consideration by the full House. A similar bill remains in committee in the Senate.

According to the House and Senate bills’ backers, the legislation is intended to entirely invalidate the rulemaking under chapter 8 of title 5 of the United States Code, which grants Congress the authority to review and potentially block agency rulemaking.

Supporting lawmakers argue that the rule is arbitrary and capricious under the Administrative Procedure Act and also violates the Regulatory Flexibility Act. They request that the court declare the 2024 rule invalid, prohibit its implementation, and allow the 2021 Independent Contractor Rule to remain in effect.

The calls for court intervention are based on worries that certain workers’ longstanding use of independent contractor status could be made significantly more costly for employers under the new ruleset and, thus, jeopardized. The opposition says many workers value their independent contractor status and do not want to be considered normal employees.

“Independent financial advisers choose to be independent so that they can operate their own businesses and better serve their clients. We remain committed to ensuring our members maintain that choice and have security in their classification status. 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 chief executive officer of Financial Services Institute, and previously quoted by The DI Wire.

The DOL rule requires a comprehensive six-factor test for determining worker status, focusing on elements such as the degree of company control over the worker and the job’s permanence. DOL leadership has said this stricter approach is necessary to avoid abuse of workers and the improper avoidance of payroll taxes and aims to replace a prior regulation under the Trump administration, which emphasized control and the worker’s profit or loss potential as the primary criteria for classification.

The six factors that guide the analysis of a worker’s relationship with an employer include: 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 or 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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