DOL Proposes New Rule to Standardize Joint Employer Liability for Businesses: What It Means For Your Business

05.20.2026

By Kyle Malone, Daniel Sparacino, Dewey Warner & Sara Welch

Employers that rely on contractors, franchisees, or staffing agencies may soon get some additional guidance about when those arrangements could make them "joint employers" under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). On April 23, 2026, the U.S. Department of Labor (DOL) published a Proposed Rule which outlines two tests for determining joint employer status under the trio of laws.

What does the Proposed Rule seek to accomplish?

Over the years, the DOL has attempted to provide employers clarity concerning joint employer liability. Most recently, the DOL issued a Final Rule in 2020 during the first Trump administration. The 2020 rule was largely blocked by the Southern District of New York. Shortly thereafter, the Biden administration rescinded the final rule in 2021. Since then, employers have been left without DOL guidance while attempting to comply with conflicting and inconsistent joint employer standards applied by courts. According to the DOL, the new Proposed Rule "is broadly consistent with the commonality among varying approaches to joint employment in the federal circuit courts." Please note that the Proposed Rule will only apply to the FLSA, FMLA, and MSPA – not to other federal statutes, such as the National Labor Relations Act (NLRA). The National Labor Relations Board issued its own final rule concerning joint employer status under the NLRA in February 2026.

While closely modeled after the 2020 Rule, the DOL through the revised Proposed Rule attempts to address concerns the courts raised in 2020. The DOL issued a "Questions and Answers" guidance to accompany the Proposed Rule.

Why the Proposed Rule Matters for Your Business

Joint employers are jointly and severally liable for each entity's FLSA, FMLA, and MSPA violations as it relates to joint employees. If your business is found to be a joint employer, your business could be liable for the other entity's failure to adhere to the FMLA, to follow the MSPA, or pay overtime wages or minimum wages to a large group of employees under the FLSA. Therefore, it is crucial that your business understands the types of business arrangements which may create a joint employer relationship.

The New Joint Employer Tests

In keeping with the current analytical framework which is applied across the federal circuit courts, the Proposed Rule outlines two types of joint employment.

Vertical Joint Employment

"Vertical joint employment" occurs when an individual "is jointly employed by two or more employers that simultaneously benefit from the employee's work." The Proposed Rule provides the following graphic with examples to explain common vertical joint employment relationships:

The Proposed Rule provides a four-factor test for determining when a business relationship constitutes vertical joint employment. The test focuses on the potential employer's control over the employee. The Proposed Rule asks whether the potential joint employer:

1. Hires or fires the employee.
2. Supervises and controls the employee's work schedule or conditions of employment to a substantial degree.
3. Determines the employee's rate and method of payment.
4. Maintains the employee's employment records.

The standard is flexible and is a balancing test, so no one factor is determinative. However, the Proposed Rule indicates that if all four primary factors point in favor of joint employment, then there is a "substantial likelihood" that the business is a joint employer. While these are the same factors that were used as part of the rescinded 2020 rule, there are three substantive distinctions.

• The Proposed Rule considers "reserved control," that is control which the potential joint employer has the right to exercise but does not exercise it. The 2020 rule only considered whether the potential joint employer exercises actual control. This is the most consequential change from the 2020 rule because it makes relevant a business's "on paper" rights to control a worker.
• The four factors above are not the only factors that may be considered in a joint employer analysis, although the Proposed Rule states they will carry more weight than additional factors. The 2020 rule only considered additional factors in specific circumstances.
• Unlike the 2020 rule, the worker's economic dependence on the joint employer may be considered.

Horizontal Joint Employer

A "horizontal joint employment" relationship exists where an employee works for two different employers during the same workweek, and the two employers are "sufficiently associated with respect to the employment of the employee." For example, imagine a landscaping company and a timber clearing company who separately employ the same individual. The timber clearing company uses the worker on Monday and Tuesday to clear trees from a property, the landscaping company uses the worker on Wednesday and Thursday to install a flower bed. If the two employers are sufficiently associated, all of the worker's hours would need to be aggregated for FLSA and FMLA purposes.

The Proposed Rule provides the following graphic to illustrate the structure of a horizontal joint employment relationship:

Under the Proposed Rule, horizontal joint employment turns on the totality of the circumstances but focuses heavily on the relationship between the two employing entities because it is generally undisputed that each entity individually employs the worker. To this point, the Proposed Rule identifies three situations where the employers are generally sufficiently associated:

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.
3. They share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.

In addition to specifically identifying the types of situations which qualify for horizontal joint employment, the Proposed Rule provides a number of common business arrangements and practices that are irrelevant to the analysis:

• Entering contractual agreements related to health, safety, or legal compliance, including employee training, background checks, and safety protocols.
• Providing the same handbooks or forms to another employer.
• Sharing a health or retirement plan with another employer.
• Participating in an apprenticeship or similar training program with another employer.
• Entering into a brand and supply agreement, franchise agreement or other similar business model.
• Setting quality control standards to ensure consistency of brand quality or business reputation.

Key Takeaways and Next Steps

There are four big takeaways for employers from the Proposed Rule.

1. When using contractors or staffing agencies, carefully consider what rights of control the business intends to exercise. If your business does not anticipate altering the temporary employee/subcontractor's rate of pay, then do not reserve the right to do so. Each element of control your business retains is a relevant factor in whether a joint employment relationship is created – regardless of the exercise of such right of control.
2. Think creatively to fully assess the type of relationship that will be created before entering a business arrangement with another entity. One stated purpose of the Proposed Rule is to provide "a reliable and uniform analysis" for assessing joint employer relationships. It remains to be seen whether the Proposed Rule will be adopted or whether it will accomplish this goal. Employers concerned about potential joint employer liability should conduct a thorough analysis of any new or existing business relationships, especially if the relationship involves reserved rights with respect to employees.
3. Franchisors and businesses with brand quality agreements can breathe a sigh of relief while also protecting their brands and reputations. Courts have dealt with franchisors and brand assurance agreements inconsistently in the joint employment analysis, so the Proposed Rule provides significant clarity by providing that the mere existence of a franchise arrangement or brand quality agreement does not factor into whether a joint employment relationship exists.
4. Understand that the Proposed Rule, even if adopted, is not binding on courts. The Proposed Rule, even if adopted, is only interpretive guidance and courts are not bound by it. The Proposed Rule will be instructive as to the DOL's enforcement actions. Courts may find the guidance persuasive and adopt the Proposed Rule in full, but it is not a guarantee.

While we wait to see if the Proposed Rule is formally adopted, here are a few steps you can take to prepare for the potential changes:

1. Review contracts, franchise agreements, and staffing agreements to assess potential joint employer liability.
2. Confirm accurate record keeping for joint employees to reduce risk associated with a joint employer relationship. After reviewing the relevant contracts that may create a joint employer relationship, you should review the time keeping records for each joint employee to ensure compliance with the FLSA, FMLA, and MSPA.
3. Understand relevant state and jurisdictional rules. As mentioned above, the Proposed Rule will not immediately change the varying joint employer tests different courts apply. Additionally, certain states, like California and New York, have entirely different and broader joint employer tests.

For more information or counseling regarding the Proposed Rule or what it means for future enforcement actions, please contact Amy Conway, Alisa Ehrlich, Stephanie Scheck, Sara Welch, Kyle Malone, Daniel Sparacino, Dewey Warner, or the Stinson LLP contact with whom you regularly work.