The U.S. Department of Labor (DOL) announced on April 22, 2026, a new proposed rule clarifying when multiple employers are jointly liable for wage and hour violations. The proposed rule is titled “Joint Employer Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protect Act.” The DOL believes its new standard will help to resolve conflicting court rulings and streamline compliance.
Employment situations can arise under both “vertical” and “horizontal” joint employment situations. The former is when a worker has a direct employment relationship with one employer but is controlled by another, while the latter is when an individual works for two or more regulated employers that jointly control the work. For the proposed rule, “horizontal” joint employment exists when separate employers are related enough when it comes to the employment of a specific employee. However, “horizontal” joint employment does not exist when there are 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. In the proposed rule, employers would generally be related enough 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, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
Most of the changes in the new proposed rule address “vertical” joint employment situations. Under the proposed rule, four factors would be considered when evaluating whether two unrelated entities are joint employers, including whether the potential joint employer: “hires or fires the employee;” “supervises and controls the employee’s work schedule or conditions or employment to a substantial degree;” “determines the employee’s rate and method of payment;” and “maintains the employee’s employment records.”
The proposed test is a balancing test, and no single factor would be determinative.
The proposed rule also would clarify that the following factors are not relevant to determining whether there is joint employment under the pertinent laws, even though they remain relevant in determining whether someone is an employee or an independent contractor under those laws: “Whether the employee is in a job that requires special skill, initiative, judgment or foresight;” “whether the employee has the opportunity for profit or loss based on his or her managerial skill;” and “whether the employee invests in equipment or materials required for work or the employment of helpers.”
The new proposal is the DOL’s first attempt at addressing joint employment since the Biden Administration rescinded a rule adopted during the first Trump Administration that required one business to exert “actual” control over another company’s workers to be jointly employed. The new rule addresses the consideration of power by a company over another employer’s workers, often called “reserved” control. The DOL’s new proposal says it should be considered, but it is not as significant as the control that is actually exercised.
The proposed rule would clarify that certain common business arrangements are not indicative of joint employer status, including franchisor/franchisee relationships or brand and supply agreements; contractual requirements to protect the health and safety of employees or to comply with applicable employment laws; contractual obligations setting quality control standards or product specifications; providing a sample employee handbook or other form; and jointly participating in an association health or retirement plan or apprenticeship program.
The proposed rule is open for a sixty (60) day comment period in which comments must be filed by June 22, 2026.
Editor’s Note: It should be noted that the federal courts are not obligated to defer to the DOL interpretation of the statute, but the joint employment rule as finalized may nevertheless have some influence on the court resolutions. Further, employers are reminded that state laws apply their own tests for joint employment.
This article is part of our July 2026 Newsletter.
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