On April 22, 2026, the U.S. Department of Labor (DOL) issued a proposed rule aimed at clarifying when multiple businesses may be considered “joint employers” under federal wage and hour laws, including the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). If finalized, the DOL says the rule will establish a more uniform, nationwide standard for determining joint employer liability.
Why This Matters
When a joint employment relationship exists, each employer can be held liable for wage and hour obligations, including minimum wage, overtime, and other statutory damages.
In practice, this means that businesses may face liability not only for their own employees, but also for workers employed by affiliated entities, contractors, or staffing agencies. The proposed rule is intended to provide clearer guidance for both employers and employees, while also reducing litigation and compliance uncertainty.
Key Features of the Proposed Rule
1. A Unified, Nationwide Standard
The DOL’s proposal seeks to align joint employer analysis across the FLSA, FMLA, and MSPA, creating a more consistent framework for enforcement. That said, because the rule would be interpretive, courts would not be bound to apply it and may continue using their own standards in litigation.
2. Distinction Between “Vertical” and “Horizontal” Employment
The rule maintains the long-standing distinction between:
- Vertical joint employment, where an employee is jointly employed by two or more entities that simultaneously benefit from the employee’s work (e.g., staffing agency/client or contractor/subcontractor relationships); and
- Horizontal joint employment, where an employee works for two or more employers in the same week, and those employers are “sufficiently associated with each other.”
3. Four-Factor Test for Vertical Joint Employment
For vertical relationships, the proposed rule adopts a four-factor test focused on whether the potential joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
No single factor is dispositive, and the analysis remains fact-specific. However, a consistent finding across these factors may strongly indicate whether a joint employment relationship exists.
4. Clarification of What Does Not Create Joint Employer Status
The proposed rule also provides helpful guidance by identifying common business practices that, standing alone, do not establish joint employer status. These include:
- Franchisor or brand-based business models;
- Requiring compliance with legal or safety standards;
- Providing sample policies or handbooks; and
- Implementing quality control measures.
This clarification is particularly relevant for businesses that rely on franchising, subcontracting, or standardized operational practices.
Practical Takeaways for Employers
Although the rule is not yet final, it signals the DOL’s current enforcement priorities and approach to joint employment. Businesses, particularly those that use staffing agencies, contractors, or multi-entity structures, should consider:
- Evaluating the degree of control exercised over non-direct employees;
- Reviewing contracts and operational practices with third-party entities; and
- Assessing potential exposure to joint liability under wage and hour laws.
The proposed rule is subject to a 60-day comment period, with comments due by June 22, 2026.
For more information on the new rule or other employment-related issues, please contact Clarke Perkins at cperkins@gordonarata.com or 504.679.9813.
Clarke Perkins is an associate attorney who supports clients on employment, commercial litigation, banking, and transactional matters.