DOL Proposes New Joint Employer Rule, Seeking To Clarify Liability Standards Under Federal Wage And Hour Laws

Key Takeaways

• On April 23, 2026, the U.S. Department of Labor (DOL) published a proposed rule clarifying the standard for determining when two or more entities are “joint employers” 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 The proposed rule aims to fill the regulatory void left since the DOL rescinded its 2020 joint employer rule in July 2021.
• The proposed rule distinguishes between “vertical” and “horizontal” joint employment, two scenarios that implicate different analytical frameworks. 
• The proposed rule provides clarity that certain common business practices—including operating as a franchisor, requiring compliance with legal obligations and health/safety standards, and establishing quality control measures—do not, standing alone, make joint employer status more or less likely.

Overview of the Proposed Rule

Since July 2021, when the DOL rescinded its 2020 joint employer rule following a successful legal challenge, there has been no federal rule addressing joint employer status under the FLSA. In its absence, the DOL has been applying different vertical joint employment standards depending on which federal circuit’s judicial precedent might apply, leading to inconsistent enforcement and compliance challenges for businesses operating across state lines.

Because joint employers are jointly and severally liable for all wages, damages, and penalties owed, the stakes of this determination are significant. The proposed rule seeks to provide a single, uniform nationwide standard across all three statutes—the FLSA, FMLA, and MSPA—by cross-referencing the new FLSA analysis in the FMLA and MSPA regulations. ¹

Two Scenarios: Vertical and Horizontal Joint Employment

The proposed rule distinguishes between two types of joint employment:

Horizontal Joint Employment occurs when an employee works separate hours for two or more employers in the same workweek, and the employers are sufficiently associated with each other with respect to the employee’s employment. The proposed rule provides that employers will generally be sufficiently associated if: (1) there is an arrangement between them to share the employee’s services; (2) one employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) they share control of the employee because one employer controls, is controlled by, or is under common control with the other.

Vertical Joint Employment occurs when an employee is jointly employed by two or more employers that simultaneously benefit from the employee’s work. This typically arises in relationships between contractors and subcontractors, staffing agencies and their clients, or franchisors and franchisees. In these scenarios, the employee works one set of hours, has at least one undisputed employer, and the question is whether another entity that also benefits from the work is a joint employer. The proposed rule articulates a four-factor test derived from the Ninth Circuit’s seminal decision in Bonnette v. California Health & Welfare Agency ² and the Supreme Court’s decision in Falk v. Brennan ³ to determine whether a potential joint employer is, in fact, a joint employer:

• Whether the potential joint employer hires or fires the employee;
• Whether the potential joint employer supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
• Whether the potential joint employer determines the employee’s rate and method of payment; and
• Whether the potential joint employer maintains the employee’s employment records.

No single factor is dispositive; the determination depends on all the facts in a particular case. If all four factors unanimously indicate joint employment or no joint employment, there is a “substantial likelihood” that outcome is correct, and additional factors are highly unlikely to outweigh those four factors.

Importantly, the proposed rule clarifies that a potential joint employer’s reserved right to act in relation to an employee is relevant—not just actual exercise of control. The DOL has stated that exercised control carries more weight than reserved control, but reserved contractual authority may still support a finding of joint employment.

The proposed rule also permits consideration of additional factors beyond the four primary factors, including indicia of economic dependence and whether the employee has a continuous or repeated relationship with the potential joint employer or works at a location owned or controlled by that entity. However, these additional factors carry less weight than the four primary factors.

Safe Harbors for Common Business Practices

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

• Operating as a franchisor, entering into a brand-and-supply agreement, or using a similar business model;
• Requiring compliance with general legal obligations, health/safety standards, or anti-harassment policies, and monitoring and enforcing such provisions;
• Requiring, monitoring, or enforcing quality control standards, including quantity and quality standards, deadlines, and requirements to use standardized products; and
• Providing a sample employee handbook, offering or participating in an association health or retirement plan, or jointly participating in an apprenticeship program.

Notably, the DOL declined to readopt the 2020 Rule’s provision that allowing another employer to operate on a business’s premises (including “store within a store” arrangements) is neutral for joint employer purposes. The DOL reasoned that several courts have found premises ownership to be a relevant factor, and categorically excluding it would conflict with that precedent.

The Regulatory Landscape: Joint Employer Rules in Flux

The DOL's proposed rule is the latest chapter in a cross-administration tug-of-war over joint employer liability that has played out at both the DOL and the NLRB. At the NLRB, the Obama-era Board’s 2015 Browning-Ferris Industries decision ⁴ held that indirect or reserved control could establish joint employer status—a significant departure from the prior “direct and immediate control” standard. The first Trump administration’s NLRB rejected Browning-Ferris’s indirect and reserved control analysis and adopted an approach requiring “substantial direct and immediate control” over essential employment terms. ⁵ The Biden NLRB’s 2023 attempt to restore and expand the Browning-Ferris framework was vacated by a federal court, and in February 2026, the second Trump administration formally reinstated the 2020 standard.

The DOL has followed a similar path: the Trump DOL's 2020 FLSA joint employer rule was partially vacated in State of New York v. Scalia ⁶ , with the court finding that its actual-control-only standard impermissibly narrowed the FLSA’s broad statutory definitions, and was then formally rescinded by the Biden DOL in July 2021, leaving no operative federal regulation for nearly five years.

Federal appellate courts have employed varying joint-employer tests under the FLSA, and there is currently no consistent standard for determining when two entities are considered joint employers of a single workforce. The First, Fifth, and Ninth Circuits apply a version of the four-factor Bonnette control test as a totality-of-the-circumstances inquiry, while the Second Circuit applies either or both of two tests — the four-factor Carter “formal control” test ⁷ and a six-factor Zheng “functional control” test ⁸ . The Third Circuit's Enterprise test ⁹ focuses on the degree of control the secondary employer exercises over the employees at issue; the Eleventh Circuit's Layton test ¹⁰ applies an eight-factor economic-realities test; and the Fourth Circuit rejected Bonnette altogether in favor of a two-step Salinas framework ¹¹ . The Sixth, Seventh, Eighth, Tenth, and D.C. Circuits have not adopted a single comprehensive test of their own. The practical consequence is that the same staffing, franchise, or contractor arrangement can yield materially different joint-employer outcomes depending on the forum, creating uncertainty for multistate employers.

This history underscores the politically volatile nature of joint employer standards, and employers should approach compliance planning with an awareness that the regulatory landscape may continue to shift.

What Employers Need to Know

The proposed rule, if finalized, will have implications that employers should be aware of:

• Reserved Control Is Relevant. The 2020 rule required actual exercise of at least one of the four factors for joint employer status. The proposed rule takes a more nuanced approach: a potential joint employer’s ability, power, or reserved right to act—meaning contractual authority that has not yet been exercised—is relevant, although actual exercise of control carries more weight than mere contractual authority.
• Economic Dependence Not Excluded. The 2020 rule categorically excluded consideration of economic dependence factors. The proposed rule does not exclude such factors, recognizing that some courts consider economic dependence, or factors indicating that a worker relies on a particular business for their livelihood, to be relevant. However, the DOL clarifies that economic dependence is not the “ultimate question” for joint employment—it is more relevant to the separate inquiry of whether a worker is an employee or independent contractor.
• Broader Statutory Basis. The 2020 rule relied solely on FLSA Section 3(d)’s definition of “employer.” The proposed rule recognizes that Section 3(e)’s definition of “employee” and Section 3(g)’s “suffer or permit to work” standard are also relevant to determining joint employment.
• Unified Standard Across Three Statutes. The 2020 rule applied only to the FLSA and did not amend the FMLA or MSPA joint employer regulations. The proposed rule would create a single, uniform standard for all three statutes by cross-referencing the new FLSA analysis in the FMLA and MSPA regulations—meaning employers subject to multiple statutes would apply one consistent test.
• Safe Harbor Provisions. Businesses that rely on staffing agencies, subcontractors, or franchise arrangements should assess whether their current practices align with the four-factor framework and whether contractual control provisions—even if rarely exercised—could support a joint employment finding. The safe harbors for common business practices provide meaningful guidance, but the removal of the premises safe harbor and the inclusion of economic dependence as a permissible factor underscore that the overall analysis is broader than the 2020 rule.

We will continue to monitor developments and provide updates as the DOL moves toward a final rule.

Footnotes

1. State laws may impose different or additional joint employer standards, so businesses should also consult applicable state-specific requirements.

2. 704 F.2d 1465 (9th Cir. 1983).

3. 414 U.S. 190 (1973).

4. No. 32-RC-109684, 2015 WL 5047768 (NLRB Aug. 27, 2015).

5. Nos. 32-CA-160759 and 32-RC-109684, 2020 WL 4366383 (NLRB July 29, 2020).

6. 490 F. Supp. 3d 748 (S.D.N.Y. 2020).

7. 735 F.2d 8 (2d Cir. 1984).

8. 355 F.3d 61 (2d Cir. 2003).

9. 683 F.3d 462 (3d Cir. 2012).

10. 686 F.3d 1172 (11th Cir. 2012).

11. 848 F.3d 125 (4th Cir. 2017).

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