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Regulation and Compliance > Legislation

New Bill Seeks to Clarify Independent Contractor Status

By Melanie Waddell

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Sens. Bill Cassidy, R-La., ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, along with Tim Scott, R-S.C., and John Thune, R-S.D., introduced the Employee Rights Act of 2023, which they say would protect independent contractors and clarify the definition of “employee.”

The Employee Rights Act amends the Fair Labor Standards Act, FLSA, to define “employee” using the same test the IRS uses. This would replace the Labor Department’s interpretation of employee in its new independent contractor rule, which Labor plans to finalize in May. Several trade groups in the financial services industry oppose Labor’s new interpretation.

David Bellaire, executive vice president and general counsel for the Financial Services Institute, a group representing independent financial advisors, told ThinkAdvisor Monday in an email that these advisors “choose to be independent contractors so they can build their business within their community. While ideally the 2021 DOL independent contractor rule would remain in place, we applaud the Senators’ efforts to ensure independent financial advisors maintain the flexibility and independence they have chosen.”

Labor’s 2021 independent contractor rule used a test based on two core factors. The 20-factor common law test in Cassidy’s bill, used by the Internal Revenue Service, analyzes the extent an employer exercises control over a worker to determine worker classification.

Added Bellaire: “It’s vital that our members have clarity and certainty regarding their classification as independent contractors so that they can confidently operate their businesses and best serve Main Street American investors.”

FSI has been a staunch opponent of Labor’s proposed new independent contractor rule, which uses an economic realities test.

The test utilized in Labor’s proposed independent contractor rule, according to Bellaire, “would result in a lack of clarity regarding independent financial advisors’ worker classification” under the FLSA.

Under the proposed rule, “measures put in place to comply with legal obligations — such as regulatory supervision requirements — would be indicative of a worker being an employee of the company. The 2021 rule, which FSI supports, simplifies the worker classification inquiry by highlighting two core factors for consideration and stating clearly that efforts to comply with specific legal obligations or meet certain quality control standards are not to be considered,” Bellaire explained.

Labor’s regulatory flexibility agenda states that the department plans to issue a final independent contractor rule in May. Bellaire told ThinkAdvisor previously that Labor’s deadline is unrealistic.

Other Provisions

The Employee Rights Act would also tighten rules on union elections and require union members to opt into the use of their dues for political contributions.

Thune said in a statement that he was “proud to join my colleagues in introducing this common-sense bill that upholds individuals’ ability to choose to work as an independent contractor and ensures workers’ rights are protected against coercion from union bosses and the Biden administration’s heavy-handed labor agenda.”

Rep. Rick Allen, R-Ga., has introduced companion legislation in the House.

“The Employee Rights Act fights back against this overreach and instead protects workers’ rights and privacy, as well as empowers entrepreneurs and independent contractors,” Allen said in the statement.

Melanie Waddell

@Think_MelanieW

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