Agents, Advisors Are Independent Workers, For Now

Insurance agents and financial advisors are more assuredly independent contractors in the wake of a court’s decision to reinstate the Department of Labor’s independent contractor rule.

The Eastern District of Texas determined in a lawsuit brought by the Financial Services Institute that the department’s Trump-era rule was not correctly removed by the Biden administration in a violation of Administrative Procedures Act. The rule is effective as of its original effective date of March 8, 2021.

The reinstated rule clarifies a long-standing “economic reality test” to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act.

The rule also:

• Identifies two core factors that determine whether a worker is economically dependent on someone else’s business or is in business for him or herself: The nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative or investment.

• Cites three other factors that may also serve in the analysis, particularly when the two core factors do not point to the same classification. The factors are: the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer and whether the work is part of an integrated unit of production.

• Clarifies that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.

• Provides six fact-specific examples applying the factors.

Dale Brown, FSI president and CEO, said the ruling restored important clarity to the financial services industry.

“The court appropriately ruled that the DOL’s independent contractor withdrawal did not follow administrative procedure,” Brown said. “Restoring the DOL’s independent contractor rule provides clarity and certainty for independent financial advisors and independent financial services firms. Our members can now operate their businesses and serve their Main Street clients confidently knowing that their choice to be independent is secure under FLSA.”

Financial and insurance industry advocates said that without the rule, individual agents and brokers were subject to a patchwork of state and federal regulations. When the DOL pulled the rule last year, the National Association of Insurance and Financial Advisors said the department was incorrect in saying that the rule was inconsistent with established principles.

“In fact, this new [DOL] 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,” NAIFA said in a statement last year. “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.”

NAIFA indicated that the DOL was working on a new version of the rule, but there are no indications of its status. The Biden administration apparently would want more workers to fall under the employee definition. Employers would be responsible for complying with laws relating to FICA, health care, retirement plans and federal regulations that protect employees.
In defending the rule last year, NAIFA said that federal and state legislatures nationwide were considering proposals that could classify all workers under the “ABC test.”

Under the ABC test, NAIFA said, workers would qualify as independent contractors only if they affirmatively satisfy three conditions: that they are free from the control and direction of the hirer under the contract, they perform work outside the usual course of the hiring entity’s business and the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed. NAIFA said the test is too restrictive and could result in a large-scale reclassification of many independent contractors as employees under the FLSA.

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].