On April 22, 2026, the U.S. Department of Labor released a proposed rule that could reshape how joint employment is determined under federal wage and hour law – and beyond. The proposed rule, titled “Joint Employer Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act” is a significant development for employers. The rule represents the DOL’s first attempt to provide regulatory guidance on joint employment in five years – following the Biden administration’s decision to rescind the prior Trump-era rule without putting a replacement in place. For businesses that rely on staffing agencies, franchisees, subcontractors, or other third-party workforce arrangements, this proposal deserves close attention.
What Does the Proposed Rule Do?
The proposed rule aims to provide a clear, unified framework for determining when two or more entities are jointly liable for wage and hour obligations (and, notably, obligations under the FMLA and MSPA as well – a broader scope than the first Trump-era rule, which covered only the FLSA). Acting Labor Secretary Keith Sonderling framed the proposal – his first following the departure of the former Labor Secretary – as part of the administration’s effort to simplify compliance and provide greater certainty for employers.
The rule distinguishes between two types of joint employment: “vertical” and “horizontal.” Vertical joint employment arises when a worker has a direct employment relationship with one employer but is economically dependent on or controlled by another – such as a staffing agency employee whose day-to-day tasks are directed by the client company. Horizontal joint employment exists when an individual works for two or more related employers that share control over the work.
The Four-Factor Test for Vertical Joint Employment
For vertical joint employment, the proposed rule sets forth a four-factor analysis. The factors consider whether the potential joint employer: (1) hires or fires the employee; (2) substantially supervises and controls the employee’s schedule or conditions of employment; (3) determines the employee’s rate and method of pay; and (4) maintains the worker’s employment records. If all four factors point in the same direction, the DOL says there would be a “substantial likelihood” that joint employment either does or does not exist. Other factors may be relevant, but these four form the primary framework.
Importantly, the proposal also identifies several factors that should be excluded from the analysis. These include three factors typically used to assess whether a worker is an employee or independent contractor, as well as a half dozen common business models and practices, such as the joint operation of an apprenticeship program. This exclusion list is designed to prevent routine business relationships from inadvertently triggering joint employer liability.
On the horizontal side, the proposed rule states that joint employment exists when separate employers are sufficiently related with respect to the employment of a specific employee. However, it makes clear that business relationships with little connection to the employment of a specific worker – such as sharing a vendor or being franchisees of the same franchisor – do not, on their own, create horizontal joint employment. Along the same lines, the DOL has confirmed that quality control and brand standards, without more, do not create joint employer status, and that nonbinding recommendations are less likely to establish control.
Why This Matters
The DOL has acknowledged that federal appellate courts currently “diverge widely” on key elements of their joint employer tests. The Wage and Hour Division described the proposal as a “workable distillation” that draws on commonalities among the circuit courts and the agency’s best reading of the law. The goal, according to DOL officials, is to fill the “dearth of regulatory guidance,” provide a consolidating framework for courts to consider, and give both the department’s investigators and employers greater clarity.
The proposal was informed by a 2020 New York federal court decision that largely invalidated the first Trump-era joint employer rule. DOL officials stated that there are differences between the old regulation and the new one and that the prior court decision shaped the current proposal. This suggests the agency is trying to craft a rule that can withstand judicial scrutiny.
What Should Employers Do Now?
The comment period on the proposed rule runs through June 22, 2026. This is an opportunity for employers and other stakeholders to weigh in on the proposal before it is finalized. Here are a few practical steps to consider:
First, review your existing workforce arrangements – particularly those involving staffing agencies, subcontractors, franchisees, and other third parties – through the lens of the four-factor test outlined in the proposal. Understanding where your current practices fall on that spectrum will help you assess your exposure and plan accordingly.
Second, keep in mind the expanded scope of this rule. Unlike its predecessor, the proposed rule covers not only the FLSA but also the FMLA and the Migrant and Seasonal Agricultural Worker Protection Act. That means the joint employment analysis could affect obligations well beyond minimum wage and overtime.
Third, consider submitting comments during the public comment period if the rule would significantly affect your business operations. Industry voices that rely on collaborative or outsourced employment models will be influential in shaping the final rule.
Finally, stay tuned. This is a proposed rule, not a final one. It could change substantially before it takes effect, or face legal challenges once finalized. We will continue monitoring developments and will provide updates as the rulemaking process unfolds.