The Sophisticated Employer Blog

On April 23, the U.S. Department of Labor, Wage and Hour Division (DOL) issued a notice of proposed rulemaking titled, “Joint Employer Status Under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act” (the proposed rule).

The Proposed rule would revise DOL regulations and clarify how to determine joint employer status under the FLSA and would also amend DOL’s FMLA and MSPA regulations to provide that joint employer status under those statutes is determined using DOL’s proposed FLSA joint-employer analysis.

The proposed rule aims to increase clarity and uniformity and apply the core commonality of the tests used by federal courts, where a current circuit split exists regarding joint employer status. The public comment period will be open until June 22, 2026.

Vertical Joint Employment

Vertical joint employment arises when an employee has a primary employer (e.g., a staffing agency or subcontractor) but performs work that also simultaneously benefits another entity higher or lower in the business structure such as a client company or general contractor. The proposed rule establishes a four-factor balancing test to determine whether that other entity is a joint employer.

The test examines whether the potential joint employer:

• Hires or fires the employee 
• Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree  
• Determines the employee’s rate and method of payment 
• Maintains the employee’s employment records

No single factor is dispositive, but if all four factors unanimously point in one direction, there is a "substantial likelihood" that joint employment does or does not exist.

Horizontal Joint Employment

Horizontal joint employment occurs when an employee works separate hours for two or more employers in the same workweek, and those employers are "sufficiently associated" with each other with respect to the employee's employment.  

The proposed rule retains the long-standing, pre-2020 analysis for this scenario and identifies three situations in which employers are sufficiently associated:

• There is an arrangement between them to share the employee's services  
• One employer is acting directly or indirectly in the interest of the other employer in relation to the employee. 
• The employers share control of the employee because one employer controls, is controlled by or is under common control with the other.  

In horizontal joint employment scenarios, the employee’s total hours worked for all joint employers must be aggregated for FLSA compliance, and each employer is jointly and severally liable for wages due, including overtime premiums.

Additional Considerations & Irrelevant Business Practices

The proposed rule clarifies that certain common business models and practices, standing alone, do not make joint employer status more or less likely.  These include:

• Operating as a franchisor or under brand-and-supply arrangements  
• Requiring contractual compliance with general legal obligations or health and safety standards
• Requiring quality control standards to protect brand reputation 
• Providing sample employee handbooks, association health or retirement plans or participating in joint apprenticeship programs

Key Takeaways for Employers

•  The rule is not yet final. The 60-day public comment period closes on June 22, 2026, and the DOL may revise the proposal before issuing a final rule.  Even if finalized, the rule would provide interpretive guidance for Wage and Hour Division enforcement; courts may continue to apply their own standards in litigation. 
• Reserved control now matters. Unlike the 2020 rule, the proposed rule treats an employer's reserved right or power to act as relevant to joint employment status, even if that power has not been exercised—though actual exercise of control remains “more relevant.”  Employers should review contractual provisions that reserve rights over another entity’s employees, as these could weigh in favor of a joint employment finding. 
• FMLA coverage could expand. If a broader interpretation of joint employment causes more workers to be counted toward an employer’s headcount, businesses near the 50-employee FMLA threshold could face newly triggered leave obligations.  Employers should evaluate whether staffing agency, franchise or subcontractor relationships could result in aggregation of employees for FMLA purposes. 
• Audit your third-party labor relationships. Employers that rely on staffing agencies, subcontractors, franchisees or other labor providers should assess the degree of control they exercise—or retain the right to exercise—over those workers’ schedules, pay, hiring/firing and records.  
• Franchise and brand relationships are not automatically joint employment. The proposed rule explicitly carves out common franchisor practices (brand standards, quality control, sample policies) as insufficient on their own to establish joint employer status.  However, franchisors exercising meaningful control beyond these carve-outs may still face joint employment findings. 
• Joint and several liability is a significant risk. Where joint employment is found under the FLSA, each joint employer is jointly and severally liable for all wages, damages, and penalties owed, including overtime for aggregated hours.  Under MSPA, all joint employers bear responsibility for providing required MSPA protections, even if only one was expected to do so operationally. 
• State law may add complexity. In addition to the federal proposed rule, employers should track state joint employment laws, which may impose additional or different standards.

As you can see, the DOL’s proposed rule, if implemented, will alter the joint employer analysis. Employers would do well to follow the progress of this proposal and think now about how it will impact their own operations. Given the complexity of the joint employer analysis, proactive consultation with in-house or outside legal counsel can help your business avoid any unnecessary missteps.