DOL Releases Proposed Rule on Joint Employment Status

The following article first appeared in the News & Analysis section of Littler Mendelson’s website. It is reposted here with permission.

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On April 22, 2026, the U.S. Department of Labor released a proposed rule regarding joint-employer status under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act.

The proposed rule is expected to be published in the Federal Register shortly, and will be open for public comment for 60 days from its date of publication, suggesting that comments will be due in late June 2026.

By way of background, under the FLSA, an employee of one company may be found to be jointly employed by a second, independent company, depending on the nature and extent of the control over the employee’s work exerted by the second business.

This may have significant consequences. For example, a joint employer may be held jointly and severally liable for FLSA wage and hour obligations to the employee (for example, payment of minimum wage, or payment of overtime to non-exempt employees).

The principles contained in the proposed rule will likewise apply to joint-employment scenarios and liabilities under the FMLA and MSPA.

The proposed rule discusses two potential types of joint employment—“vertical” joint employment and “horizontal” joint employment—and offers a different mode of analysis for each.

Vertical Joint Employment

The department explains that in a “vertical” joint employment scenario, an employee is jointly employed by two or more employers that simultaneously benefit from the employee’s work.

Typically, the employee works one set of hours and there is no dispute that the employee has at least one employer for the work; the issue is whether another company that also benefits from the work is the employee’s joint employer.

Consider, for example, a building management company that engages a janitorial services company to clean its buildings.

The workers who actually clean the buildings are clearly employees of the janitorial services company (the “prime” employer); the question is, under what circumstances might the building management company be considered a “joint employer” of these janitorial workers?

The proposed rule sets forth a four-factor analysis of vertical joint employment.

The proposed rule sets forth a four-factor analysis of vertical joint employment, examining whether a 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. 

Under the proposed rule, a potential joint employer’s ability or reserved right of control in relation to the employee is relevant to the analysis, but the actual exercise of control is more probative than a theoretical (but unexercised) ability to control.

In either case, the proposed rule provides that the mere reserved right of control does not make joint-employer status more or less likely.

Similarly, indirect control exercised by a potential joint employer via mandatory directions to a prime employer may be relevant to the analysis, but a prime employer’s voluntary decision to grant the potential joint employer’s request, recommendation, or suggestion does not constitute indirect control that can demonstrate joint-employer status. 

Additional Factors

As proposed, the rule provides that additional factors may also be relevant in the determination of vertical joint employment.

For example, if a potential joint employee exerts significant control over aspects of the terms and conditions of employment beyond those contained in the four factors above, this may be relevant, as it may evidence that the employee is economically dependent on the potential joint employer.

The rule provides that additional factors may also be relevant in the determination of vertical joint employment.

But these additional factors would be considered generally less relevant than the four “core” factors, and DOL indicates that where analysis of the four factors unanimously indicate joint-employer status (or lack thereof), these additional factors are highly unlikely to change that determination.

The proposed rule sets forth a number of factors that are not relevant to a vertical joint employer analysis, including: (1) whether the employee is in a job that requires special skill, initiative, judgment, or foresight; (2) whether the employee has the opportunity for profit or loss based on their managerial skill; and (3) whether the employee invests in equipment or materials required for work or the employment of helpers. 

Horizontal Joint Employment

In the “horizontal” joint employment scenario, an employee works separate hours for two or more employers, and the employers are sufficiently associated with each other with respect to the employment of the employee such that they are joint employers.

The proposed rule offers as an example a cook who works 30 hours per week in one restaurant and 15 hours per week in another and explains that where the two restaurants are “sufficiently associated with respect to the employment” of the cook, they may be deemed to be joint employers.

Employers are sufficiently associated with each other with respect to the employee such that they are joint employers.

In this context, the consequence of a horizontal joint employment finding would be that the hours worked by the cook for both restaurants would be aggregated for purposes of overtime.

With respect to horizontal joint employment, the analysis focuses on whether the potential joint employers are acting independently of each other and are disassociated with respect to the employment of the employee (in which case they are not joint employers) or are instead sufficiently associated with respect to the employment of the employee such that they are.

Under the proposed rule, employers will generally be “sufficiently associated” 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. 

Certain Irrelevant Business Models, Practices

With respect to both vertical and horizontal joint employment, the proposed rule provides that certain specific business models and practices do not make joint-employer status more or less likely including:

• The potential joint employer operating as a franchisor or entering into a brand and supply agreement with the prime employer.
• A potential joint employer’s contractual agreements with a prime employer requiring compliance with general legal obligations, health and safety standards of employees or the public, monitoring compliance, or requiring certain policies, background checks, practices or protocols.  
• A potential joint employer’s contractual agreements with a prime employer requiring quality control standards to ensure consistent quality of a work product or its business reputation, such as specifying the size or scope of the work project, requiring the employer to meet quantity and quality standards and deadlines, requiring morality clauses, or requiring the use of standardized products, services, or advertising to maintain brand standards.
• A potential joint employer’s practice of providing the prime employer with a sample employee handbook or other forms; offering an association health plan or association retirement plan to the prime employer or participating in such a plan with the prime employer; or jointly participating in an apprenticeship program with the prime employer.

The proposed rule will be open for comment for 60 days following its publication in the Federal Register.

Thereafter, the department will review the comments received and issue a final regulation that may or may not reflect changes suggested during the comment period.

Back to the Future?

It is important to note that this is not the first attempt by the department to adopt joint employer regulations.

In 2020, during the first Trump administration, DOL issued a final rule adopting a similar standard for joint employment.

A coalition of state attorneys general filed suit in the U.S. District Court for the Southern District of New York, claiming that the final regulations were arbitrary and capricious, and violated the Administrative Procedure Act.

The rule now proposed by the department closely tracks the 2020 final rule.

In September 2021, the court held that the portions of the rule relating to vertical joint employment were unlawful and vacated most of the final regulations on a nationwide basis.

While that decision was appealed, the rule was rescinded in its entirety in 2021 by the Biden administration and the appeal was dismissed. 

The rule now proposed by the department closely tracks the 2020 final rule’s analysis on both vertical and horizontal joint employment, although the department discusses in the proposal certain changes it has made to address the perceived legal shortcomings in the 2020 rule identified by the district court.

That notwithstanding, given the current political climate, we think it highly likely that these rules, when finalized, will be challenged.

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About the authors: James Paretti is a Littler shareholder and co-chair of the Workplace Institute. Robert Pritchard is a Littler shareholder and co-chair of the firm’s Wage and Hour Practice Group.