The U.S. Department of Labor (DOL) recently issued a proposed rule intended to clarify when joint-employer liability exists 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 proposed rule is designed to resolve a circuit split and create a consistent nationwide framework for determining when two or more businesses may be considered joint employers of the same worker under these three laws. Comment period ends on June 22, 2026.
Under the FLSA, joint-employer liability can have significant consequences for employers. When two or more entities are determined to be joint employers, each entity may be held jointly and severally liable for unpaid wages, overtime compensation, damages, and other relief owed to employees. This means that an employee’s hours worked for multiple employers may need to be aggregated for purposes of overtime calculations, and each employer could be responsible for the entire amount of unpaid compensation. Similar concepts apply under the FMLA and MSPA. The FMLA adopts the FLSA’s definitions of “employ” and “employee,” and joint employers may therefore share responsibility for providing leave protections
and reinstatement rights. Likewise, MSPA regulations recognize joint employment principles in providing wage and employment protections for agricultural workers.
The proposed rule is the DOL’s first formal attempt since rescinding its 2021 joint-employer regulation to clarify liability under the FLSA. The absence of guidance has created uncertainty for businesses, workers, and courts, especially in “vertical” joint employment cases, where a worker’s services benefit multiple entities at once, such as in staffing, subcontracting, or labor-provider arrangements. Horizontal joint employment, by contrast, involves an employee working for two related employers in the same workweek, with hours combined for compliance purposes. Because these arrangements differ in structure, they require separate analyses to determine joint-employment status.
For vertical joint employment, the proposed rule adopts a four-factor test drawn from federal case law. No single factor is controlling, and the analysis depends on the totality of the circumstances. The test considers whether the potential joint employer: (1) hires or fires the employee; (2) substantially supervises or controls the employee’s work schedule or conditions of employment; (3) determines the employee’s rate or method of pay; and (4) maintains the employee’s employment records.
Although additional considerations may be relevant depending on the circumstances, where all four primary factors point in the same direction, there is a substantial likelihood that joint-employer status either does or does not exist. Importantly, the proposal acknowledges that a company’s reserved right to control workers may be relevant to the analysis, even if that authority is not exercised on a day-to-day basis. At the same time, a company’s actual exercise of control remains more important than merely possessing theoretical authority.
The proposed rule largely maintains the DOL’s existing approach to horizontal joint employment. Employers may be considered “sufficiently associated” if they share an employee’s services, one employer acts in the interest of the other, or the employers share common control over the employee. In those situations, hours worked for both employers in the same workweek are generally combined for overtime purposes, and both employers may be jointly liable for wage violations.
The proposed rule also seeks to clarify that common business practices do not automatically create joint-employer liability. For example, franchise relationships, brand-and-supply arrangements, and similar business models alone are not enough to establish joint employment. Likewise, requiring compliance with legal, safety, or quality-control standards, providing sample handbooks, or offering access to benefit or apprenticeship programs generally would not, by themselves, create joint-employer liability.
The proposed rule would not bind courts, which could still apply their own tests under the FLSA, FMLA, and MSPA, but it would guide enforcement and signal how future investigations may be handled. Clarifying the standard applied by the DOL may also reduce compliance and litigation costs by reducing uncertainty around certain partnerships. It may also lead to more consistent enforcement and provide courts with a more uniform framework that could reduce variation across jurisdictions.
As a practical matter, employers should evaluate relationships with staffing agencies, subcontractors, franchisees, farm labor contractors, and other entities to identify situations where joint-employment issues could arise. Businesses that exercise substantial control over another entity’s workers—or reserve the authority to do so—may face increased scrutiny under the proposed framework.
The proposed rule also arrives amid broader developments concerning joint-employer liability under other federal labor laws. Recently, the National Labor Relations Board (“NLRB”) issued its own joint-employer rule under the National Labor Relations Act, focusing its standard on whether multiple entities share or codetermine essential terms and conditions of employment. While the DOL’s proposal and the NLRB’s rule arise under different statutes, both developments indicate continuing federal attention on the scope of joint-employer liability.
Abby Fitts is a partner at Barran Liebman LLP where she advises and represents employers on a wide range of employment issues. For questions, contact Fitts at 503-276-2190 or afitts@barran.com.
