On April 22, 2026, the U.S. Department of Labor announced a proposed rule to clarify joint employer status under three major federal employment laws: 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 aims to establish a single, clear nationwide standard for determining when two or more employers are jointly liable for wages, overtime, and other worker protections. The proposed rule fills a regulatory void that has persisted since the Biden administration rescinded the prior joint employer rule in 2021.

Why this matters 

Joint employment is a concept that applies when two or more businesses share control over an employee’s working conditions. When a joint employment relationship is found to exist, all employers involved are jointly and severally liable for wages, damages, and other relief owed to the employee, including overtime calculated across all hours worked for each joint employer. Without clear regulatory guidance on the books, businesses have faced uncertainty and inconsistent court rulings that vary widely by court and region.

If finalized, the DOL’s proposed rule would be the agency’s first joint employer regulation in force in over five years, following a period in which the first Trump administration’s 2020 rule was struck down by a New York federal judge and then formally rescinded by the DOL under the Biden administration in 2021. At its heart, the proposed rule seeks to resolve legal uncertainty by deriving a uniform standard from commonalities in federal court precedent and resolving significant differences among the circuit courts. According to Acting Secretary of Labor Keith Sonderling, the proposal would “give businesses more confidence to invest in partnerships, help employees understand their rights, and make the department’s investigations more efficient.”

What the rule proposes

The proposed rule draws a key distinction between two types of joint employment scenarios. The first is “horizontal” joint employment, which arises when separate employers are sufficiently associated with respect to the employment of the same employee (e.g., related companies that share staff). More importantly, 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, would alone be insufficient to establish horizontal joint employment.

“Vertical” joint employment, on the other hand – which is the more common flashpoint for liability — arises when an employee works for one employer but another entity higher or lower in the business chain also benefits from the work (e.g., a staffing agency’s worker placed at a client company). For vertical joint employment, the proposed rule adopts a four-factor test examining 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; and (4) maintains the employee’s employment records. If all four factors unanimously point in the same direction, either toward or against joint employment, there is a “substantial likelihood” that the indicated outcome is correct. Additional factors may be considered, but they are unlikely to outweigh a unanimous finding on the core four. 

The rule also clarifies what is not relevant to the joint employer analysis. Factors used to distinguish employees from independent contractors, such as whether the worker possesses special skills, has the opportunity for profit or loss, or invests in equipment, would be excluded from the joint employer inquiry. And while “reserved control” (i.e., contractual authority that is never actually exercised) may be considered, it carries less weight than control that is actually exercised.

Why this is more employer-friendly 

The proposed rule is widely expected to result in fewer joint employment findings under federal wage and hour law. The rule is likely to focus on whether a purported joint employer actually exercises direct and immediate control over a worker’s employment terms and conditions, while deemphasizing scenarios where an entity has only potential control that is contractually or theoretically possible but never exercised. Notably, the existence of a franchisor-franchisee relationship and other common business arrangements would be treated as “neutral” factors, and a worker’s economic dependence would be irrelevant to the joint employer analysis. 

For businesses that rely on staffing agencies, subcontractors, and franchise models, this approach offers a more predictable and workable standard. Under the proposed rule, companies would be able to structure their relationships with greater confidence that they will not be swept into joint employer liability based on contractual formalities. 

What businesses should do now

While this proposal is encouraging for employers, a few important caveats bear mentioning. First, the DOL has opened a 60-day public comment period that closes on June 22, 2026, and the rule could change before finalization.

And second, many states, including California, Connecticut, and Massachusetts, apply their own, often stricter, joint employer standards that are unaffected by this federal proposal. As such, while the potential shift to a more business-friendly joint employer standard is welcome news from a federal compliance standpoint, there may still be potential joint employer exposure in states that utilize the less business-friendly standards. Businesses should therefore use this moment to review their staffing, subcontracting, and franchising arrangements to ensure they are appropriately structured under both the anticipated federal standard and applicable state law.