DOL Proposes New Rule on Joint Employer Liability

The US Department of Labor has issued a proposed rule aiming to clarify and standardize the test for joint employer liability under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. The proposal introduces a structured approach for determining when multiple entities may be held jointly and severally liable for wage and hour and leave violations, with significant implications for employers using staffing agencies, contractors, franchise models, and related business structures.

KEY TAKEAWAYS

• The US Department of Labor (DOL) has proposed a nationwide rule to clarify when multiple employers are jointly liable under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
• The proposed rule sets out distinct standards for vertical and horizontal joint employment, providing a four-factor test for vertical joint employment and association-focused criteria for horizontal joint employment.
• If finalized, the rule will align joint employer standards across federal wage, leave, and agricultural worker protections, aiming to resolve divergent judicial precedent and provide greater clarity for businesses.

BACKGROUND

The DOL’s joint employer standard has evolved significantly over the last several years. In January 2020, under the Trump administration, the DOL issued a rule that established a four-factor test for vertical joint employment, focusing on a potential joint employer’s actual exercise of control over a worker’s employment conditions. However, a federal district court in New York largely vacated this rule, finding it too narrow and inconsistent with the broad definitions of “employer,” “employee,” and “employ” in the FLSA.

The Biden administration rescinded the 2020 rule in July 2021 but did not replace it, resulting in a period of regulatory uncertainty and divergent judicial interpretations. The proposed rule represents the DOL’s first comprehensive attempt since 2021 to establish a uniform, nationwide standard for joint employer liability under the FLSA, FMLA, and MSPA.

OVERVIEW OF THE PROPOSED RULE

The proposed rule articulates two distinct forms of joint employment: vertical and horizontal.

Vertical Joint Employment

Vertical joint employment typically arises when an employee has a primary employer (such as a staffing agency or subcontractor) but performs work that also benefits a higher entity in the business structure (such as a staffing agency client or general contractor). To determine whether a vertical joint employment relationship exists, the DOL proposes a four-factor balancing test, which examines whether the putative 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; and
• Maintains the employee’s employment records.

The proposed rule clarifies that while the reserved right to control is relevant, the actual exercise of control is more probative in the analysis. Indirect control may also be considered. No single factor is dispositive; the totality of the circumstances governs the determination. In the DOL’s example of vertical joint employment, a packaging company closely supervises and controls the schedules of workers supplied by a staffing agency.

Horizontal Joint Employment

Horizontal joint employment occurs when an employee works separate hours for two or more employers within the same workweek with those employers being sufficiently associated regarding the individual’s employment. The proposed rule lists three criteria that may demonstrate sufficient association:

• There is an arrangement between the employers to share the employee’s services;
• One employer is acting directly or indirectly in the interests of the other with respect to the employee; or
• The employers share control of the employee, directly or indirectly, through ownership or common control.

Routine business relationships that do not relate to the employment of a specific worker—such as sharing vendors or being franchisees of the same franchisor—do not alone establish horizontal joint employment. But, for example, a restaurant and a members’ club for whom the same employee worked separate hours are associated with each other such that they are horizontal joint employers.

Scope and Coverage Across Statutes

The proposed rule applies not only to the FLSA but also to the FMLA and MSPA, thereby aligning the joint employer standard across these statutes. Under the FLSA, joint employers are “jointly and severally liable” for compliance with minimum wage and overtime requirements for all hours worked by employees in the workweek, including any overtime premiums due based on aggregated hours.

Similarly, the FMLA regulations require joint employers to count all jointly employed workers in determining employer coverage and employee eligibility, though certain administrative responsibilities are allocated to the primary employer. The proposed rule also incorporates similar concepts for farmworker protections under the MSPA.

Exclusions and Clarifications

The proposed rule clarifies that certain business models and practices alone do not make joint employer status more or less likely. These include franchisor arrangements, brand-and-supply models, contractual requirements for compliance with general legal or health and safety obligations, the provision of sample employee handbooks, and participation in apprenticeship programs.

The DOL has also clarified that several factors relevant to determining independent contractor status—such as whether the worker exercises managerial skill, the opportunity for profit or loss, or investment in equipment—are not relevant to the joint employer analysis under the proposed rule.

IMPLICATIONS OF THE PROPOSED RULE

If finalized, the rule will provide clarity and uniformity for employers operating under the FLSA, FMLA, and MSPA, helping to resolve existing circuit splits and reduce litigation risk. As “joint and several liability” will attach to all joint employers, entities should carefully review their business relationships—particularly those involving staffing agencies, subcontractors, franchisees, and related entities—to assess potential exposure under the proposed standards.

The rule’s emphasis on actual as well as reserved control, and the inclusion of indirect forms of control in the analysis, means that businesses with even limited involvement in employment decisions may be found jointly liable in some circumstances.

Employers should also note that horizontal joint employment may result in the aggregation of hours worked for overtime purposes, and both or all employers could be liable for wage and hour violations based on the total hours worked by an employee in a given workweek. The proposed rule does not categorically assign joint employer status based on common business models, such as franchising, but businesses in those sectors should still review their operational practices in light of the clarified criteria.

Importantly, the proposed rule is not yet final and will be subject to a 60-day comment period, ending June 22, 2026, after which the DOL will consider feedback and may revise the rule before issuing a final version. During this period, businesses may want to participate in the rulemaking process by submitting comments or consulting with counsel regarding the potential impact on their compliance obligations and risk management strategies.

RECOMMENDATIONS FOR EMPLOYERS

Employers should consider potential joint employer structures and prepare for the rule should it go into effect:

• Take inventory of staffing arrangements and shared employees across affiliates.
• Determine who “controls” staff in practice (not only on paper): who sets schedules; approves time off; sets pay rates; and maintains personnel records.
• Ensure shared employees are adequately tracking combined hours and operating under coordinated payroll practices.

CONCLUSION

The DOL’s proposed rule marks a significant development in federal wage and hour law, aiming to harmonize standards across key statutes and provide greater predictability for employers and employees alike.

If adopted, the rule will have important implications for business relationships involving shared or coordinated employment arrangements, particularly in industries reliant on staffing, subcontracting, or franchising models. Employers should closely monitor developments and evaluate their existing practices in anticipation of possible changes to the federal joint employer standard.