U.S. Department of Labor Proposed Rule on Joint Employer Liability

The United States Department of Labor’s Wage and Hour Division published a proposed rule on April 23, 2026 which, if adopted, would provide updated guidance on how joint employer status is determined under the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA).

The proposed rule’s approach is similar to the approach in the rule issued in 2020 during the first Trump Administration. In recent years, the issue has become something of a political football with proposed rules and final rules changing back and forth depending on who is in control of the White House. Most recently, the first Trump administration’s rule was rescinded in 2021 by the Biden administration’s DOL. The rescindment, however, did not come with an alternative replacement rule, resulting in greater reliance on divergent court opinions. Accordingly, this latest proposed rule represents an attempt to create guidance for a nationwide standard. While the proposed rule would not be binding on courts, a final version of the rule would serve as important guidance for employers to factor into joint employment analyses.

The Proposed Rule

The proposed rule contemplates two “scenarios” of joint employment: “vertical” and “horizontal” joint employment. Taking each in turn, vertical joint employment describes an arrangement where an employee is jointly employed by two or more employers that simultaneously benefit from the employee’s work. This type of arrangement most typically arises with contractors, franchisees, or other similar arrangements, where the question may be whether the contractor’s employee is in fact also jointly employed by the entity to which the contractor is providing services. 

In contrast, horizontal joint employment describes an arrangement where an employee works hours for two or more employers in the same workweek, and the employers are associated with one another sufficiently such that they are joint employers of the employee. In these arrangements, it is indisputable that an employee is employed by two or more employers for separate hours. However, the questions that arise here typically focus on the relationship between the employers since, if found to be joint employers, they must aggregate the hours worked by the employee for each of them for FLSA purposes.

For the vertical joint employment analysis, the proposed rule cites four factors as relevant to the determination. Those factors include whether a given entity: (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/or (4) maintains the employee's employment records. The proposed rule clarifies that no single factor is dispositive to the analysis, and that determinations will depend on the facts of a particular case. Additionally, the proposed rule notes that although a potential joint employer’s reserved right to act in relation to the employee is relevant to the analysis, the potential joint employer's actual exercise of control is more relevant than any mere ability, power, or right. 

For the horizontal joint employment analysis, the proposed rule cites three factors as relevant to the determination. Those factors include assessing if the two employers: (1) have an arrangement between them to share the employee's services; (2) have one employer acting directly or indirectly in the interest of the other employer in relation to the employee; or (3) 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. Like the analysis for vertical joint employment, the proposed rule notes that determinations will depend on all of the facts and circumstances of a particular case. It also notes that relationships which have little to do with the employment of specific workers, such as sharing a vendor or being franchisees of the same franchisor, will not in and of themselves be sufficient to establish that employers are horizontal joint employers.

In either scenario, the Proposed Rule notes that certain common business practices and models would not, in and of themselves, establish joint employment. For example, contractual standards relating to health, welfare and safety, common benefit plans, and joint participation in apprentice programs, among others, would be considered as factors, but would not automatically establish joint employment status.

Considerations and Recommendations

If adopted, the rule will provide interpretative guidance for employers under the FLSA and FMLA which should be taken into account to reduce risk. That said, the proposed rule is not yet final and is subject to a 60-day comment period, to end on June 22, 2026. In the interim, employers should consider auditing their employment structures and prepare in case the rule should go into effect in its proposed form. Such audits might include evaluating relationships with contractors, staffing agencies, or relationships with other entities over work done by common employees. Also critical, employers operating with these relationships should evaluate who controls workers in reality (not merely on paper or in protocols), including who sets schedules, has hiring and firing authority, pays, and supervises employees to assess whether a joint employment risk might exist under the proposed rule.   

While employers should treat a final rule as critical guidance, it would not be binding on courts.  Accordingly, employers will need to weigh how to best balance risk and compliance when assessing how to conform business practices to the final rule and various court tests. Courts, like those in the Second Circuit, frequently look to divergent common law formulations to determine if a joint employer relationship exists, and may use different tests for different types of claims (for instance, wage and hour claims vs. discrimination claims). Similarly, even within the federal administrative law sphere there are differing analyses conducted: the National Labor Relations Board issued a final rule earlier this year with a different test focusing on entity control of a defined set of terms and conditions of employment.

Hence, employers will still need to consider a variety of standards to determine whether a relationship with another entity will constitute a joint employment relationship with respect to that entity’s employees. Employers with questions about how to best manage such relationships should contact Jack Culhane at jculhane@fglawllc.com, Tonianne Florentino at tflorentino@fglawllc.com, or any attorney at the firm.

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