US Federal: US Department of Labor proposes rule clarifying joint employer status under federal wage and hour laws

At a glance

• The United States Department of Labor’s Wage and Hour Division (Department) announced a notice of Proposed Rulemaking (Proposed Rule) on joint employer status under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
• The proposal would introduce a formal framework for determining joint employment, distinguishing between vertical and horizontal relationships.
• A four‑factor test would apply in vertical joint employment scenarios, with reserved control expressly considered alongside exercised control.
• The proposal reaffirms that common franchise arrangements and standard compliance or brand‑control practices do not, by themselves, create joint employer status.
• Comments on the proposed rule must be submitted by June 22, 2026.

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On April 22, 2026, the United States Department of Labor’s Wage and Hour Division (Department) announced a Proposed Rule addressing the determination of joint employer status under the FLSA, the FMLA, and the MSPA.

Comments on the Proposed Rule must be received by June 22, 2026.

Background

When a joint employment relationship exists, those employers are jointly and severally liable for any wages, damages, and other relief owed to employees, including payment for all hours the employee worked for all joint employers and all overtime premiums due for that time. Historically, the Department had provided guidance to make that determination under federal law, but it has not done so in recent years. As a result, joint employer determinations have continued to be addressed through existing judicial frameworks, particularly in 'vertical' scenarios in which multiple entities simultaneously benefit from the same work performed by one or more workers.

On October 26, 2023, the National Labor Relations Board (NLRB) announced a final rule significantly broadening the circumstances under which companies can be considered 'joint employers' under the National Labor Relations Act, which would have provided some guidance on joint employment. However, the NLRB’s rule never took effect. On March 8, 2024, the US District Court for the Eastern District of Texas vacated the regulation, finding it to be unlawfully overbroad and contrary to the common law. Therefore, no updated federal joint employer standard is currently in effect beyond the framework established during the first Trump Administration.

What the Proposed Rule would do

The Proposed Rule distinguishes between two scenarios of joint employment: 'vertical' and 'horizontal.' This is a distinction that courts and the Department have long drawn. Vertical joint employment arises when an employee is jointly employed by two or more employers that simultaneously benefit from the employee’s work, such as staffing agencies and their clients or contractors and subcontractors. 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 individual’s employment.

For vertical joint employment, the Proposed Rule adopts a four-factor analysis examining 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.

If those four factors were to unanimously point in a single direction, there would be a 'substantial likelihood' of joint employment. Additional factors may be relevant but generally carry less weight. Notably, unlike the prior rule, the Proposed Rule does not require actual exercise of control; reserved control may be considered, though it is deemed less indicative of joint employment than exercised control.

For horizontal joint employment, the Proposed Rule largely re-adopts the longstanding previous standard: If employers are sufficiently associated with respect to the employment of the employee, they are joint employers. Business relationships that have little to do with the employment of specific employees, such as sharing a vendor or being franchisees of the same franchisor, are alone insufficient to establish horizontal joint employment.

Key implications for employers

The Proposed Rule has significant implications for any business that relies on third-party labor arrangements. Companies that contract with staffing agencies for workers, an arrangement common in many industries, including healthcare, logistics, and manufacturing, would need to carefully evaluate how the four-factor vertical joint employment analysis applies to those relationships. Similarly, businesses that use subcontractors are encouraged to assess whether the degree of control they exercise, or reserve the right to exercise, over subcontractor employees could give rise to joint employer status under the Proposed Rule.

Of particular importance to the franchise community: The Proposed Rule reaffirms in §791.125(a) that merely operating as a franchisor, entering into a brand and supply agreement, or using a similar business model does not, by itself, make joint employer status more or less likely. The Department emphasizes in the Proposed Rule that its vertical joint employment analysis is not intended to make franchisors more or less likely to be joint employers than other types of businesses.

Instead, whether a franchisor is a joint employer depends on application of the proposed factors to the facts of the business’s relationship with the employees. The International Franchise Association praised the rule, with its President and CEO Matt Haller stating that “[t]his pro-franchise standard protects the independence of franchise small businesses, safeguards the equity franchisees have built in their local operations and prevents the kind of regulatory overreach that has threatened jobs and growth in previous administrations.”

The Proposed Rule also clarifies that several common business practices do not make joint employer status more or less likely. These include requiring compliance with legal obligations or health and safety standards, requiring quality control standards to ensure consistent brand quality, providing a sample employee handbook, offering association health or retirement plans, or jointly participating in apprenticeship programs. This guidance may signal to franchisors that standard franchise relationship practices, such as brand standards, operational guidelines, and compliance monitoring, do not by themselves create joint employer liability.

Action items

Businesses operating in potential joint employment arrangements should closely review the Proposed Rule. Interested parties should consider submitting comments during the 60-day comment period. Businesses are also encouraged to evaluate and consider revising, if necessary, their current operational arrangements, including the degree of control exercised over workers employed by franchisees, subcontractors, or staffing agencies, in light of the proposed four-factor analysis.

For more information, please contact the authors.