Key Takeaways
- • The U.S. Department of Labor published a proposed rule on April 23, 2026, establishing the first federal joint employer standard since July 2021, creating uniform criteria across the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA).
- • The rule introduces a four-factor control test for vertical joint employment (contractor/subcontractor, staffing, and franchise arrangements) assessing hiring/firing authority, work schedule supervision, rate and method of payment determination, and employment record maintenance, with no single factor dispositive but all four factors pointing the same direction creating a "substantial likelihood" of the outcome.
- • Reserved contractual control rights—even if unexercised—are now relevant to joint employer determination, whereas the 2020 rule required actual control exercise, creating broader exposure for entities holding contractual authority over employment terms.
- • Safe harbors protect common business practices including franchisor operations, quality control standards, legal compliance requirements, and health/safety policies from automatically triggering joint employer status, but the rule notably excludes premises ownership from safe harbor protection, reversing the 2020 approach.
- • The proposed rule addresses five years of regulatory uncertainty created by inconsistent federal circuit standards, where the same staffing or franchise arrangement could yield materially different joint employer outcomes depending on jurisdiction, creating compliance complexity for multistate employers.
Summary
The Department of Labor's proposed rule, published April 23, 2026, marks a significant shift in joint employer liability standards after nearly five years without operative federal regulation. Since the DOL rescinded its 2020 joint employer rule in July 2021 following judicial challenge, employers have faced an inconsistent patchwork of standards depending on applicable federal circuit precedent. The new proposal seeks to establish a single, uniform nationwide standard across three major federal statutes—the FLSA, FMLA, and MSPA—eliminating the compliance burden of applying different frameworks based on jurisdiction. This uniformity carries substantial stakes: joint employers face joint and several liability for all wages, damages, and penalties owed to employees, making accurate classification critical to financial exposure.
The proposed rule distinguishes between two distinct joint employment scenarios requiring different analytical approaches. Horizontal joint employment occurs when an employee works separate hours for multiple employers in the same workweek with sufficient association between them—either through arrangements to share services, one employer acting in the interest of another, or common control relationships. Vertical joint employment addresses relationships where multiple entities simultaneously benefit from a single employee's work, typically in contractor-subcontractor, staffing agency, or franchisor-franchisee arrangements. For vertical scenarios, the DOL proposes a four-factor test derived from the Ninth Circuit's Bonnette decision and Supreme Court precedent in Falk v. Brennan: whether the potential joint employer hires or fires the employee, supervises work schedules or conditions of employment substantially, determines rate and method of payment, and maintains employment records. The rule emphasizes that no single factor is dispositive, and only when all four factors unanimously point toward joint employment or non-employment status does a "substantial likelihood" exist that additional factors will not alter the outcome.
A critical departure from the 2020 rule involves the treatment of reserved control. While the 2020 standard required actual exercise of at least one control factor, the proposed rule recognizes that reserved contractual authority—the contractual right to act even if rarely or never exercised—is relevant to joint employer determination, though with less weight than actively exercised control. The rule also abandons the 2020 approach of categorically excluding economic dependence factors, instead allowing consideration of whether employees rely on a particular business for their livelihood as a supplemental factor, though the DOL emphasizes this is secondary to the four primary factors and more relevant to employee versus independent contractor classification.
The proposed rule establishes safe harbors protecting common business practices from triggering joint employer status: operating as a franchisor, entering brand-and-supply agreements, requiring compliance with legal obligations and health/safety standards, establishing quality control measures, and providing sample employee handbooks or participating in association benefit programs. However, the rule notably declines to protect premises ownership as a neutral factor—a reversal from the 2020 rule—because federal courts have found premises control to be a relevant factor in joint employment analysis. This regulatory landscape reflects a volatile political history. The 2015 Browning-Ferris Industries NLRB decision expanded joint employer doctrine to include indirect and reserved control, the first Trump administration narrowed it to require "substantial direct and immediate control," the Biden administration attempted restoration in 2023 (later vacated), and the second Trump administration formally reinstated the 2020 standard in February 2026. Federal circuits currently apply varying standards—the First, Fifth, and Ninth Circuits use the Bonnette test, the Second Circuit employs two separate tests (Carter and Zheng), while the Third, Fourth, Eleventh, and other circuits apply distinct frameworks. This fragmentation creates material risk that identical business arrangements yield different joint employer outcomes across jurisdictions, underscoring the need for multistate employers to assess current contractual control provisions and staffing practices against the new framework.
The proposed rule distinguishes between two distinct joint employment scenarios requiring different analytical approaches. Horizontal joint employment occurs when an employee works separate hours for multiple employers in the same workweek with sufficient association between them—either through arrangements to share services, one employer acting in the interest of another, or common control relationships. Vertical joint employment addresses relationships where multiple entities simultaneously benefit from a single employee's work, typically in contractor-subcontractor, staffing agency, or franchisor-franchisee arrangements. For vertical scenarios, the DOL proposes a four-factor test derived from the Ninth Circuit's Bonnette decision and Supreme Court precedent in Falk v. Brennan: whether the potential joint employer hires or fires the employee, supervises work schedules or conditions of employment substantially, determines rate and method of payment, and maintains employment records. The rule emphasizes that no single factor is dispositive, and only when all four factors unanimously point toward joint employment or non-employment status does a "substantial likelihood" exist that additional factors will not alter the outcome.
A critical departure from the 2020 rule involves the treatment of reserved control. While the 2020 standard required actual exercise of at least one control factor, the proposed rule recognizes that reserved contractual authority—the contractual right to act even if rarely or never exercised—is relevant to joint employer determination, though with less weight than actively exercised control. The rule also abandons the 2020 approach of categorically excluding economic dependence factors, instead allowing consideration of whether employees rely on a particular business for their livelihood as a supplemental factor, though the DOL emphasizes this is secondary to the four primary factors and more relevant to employee versus independent contractor classification.
The proposed rule establishes safe harbors protecting common business practices from triggering joint employer status: operating as a franchisor, entering brand-and-supply agreements, requiring compliance with legal obligations and health/safety standards, establishing quality control measures, and providing sample employee handbooks or participating in association benefit programs. However, the rule notably declines to protect premises ownership as a neutral factor—a reversal from the 2020 rule—because federal courts have found premises control to be a relevant factor in joint employment analysis. This regulatory landscape reflects a volatile political history. The 2015 Browning-Ferris Industries NLRB decision expanded joint employer doctrine to include indirect and reserved control, the first Trump administration narrowed it to require "substantial direct and immediate control," the Biden administration attempted restoration in 2023 (later vacated), and the second Trump administration formally reinstated the 2020 standard in February 2026. Federal circuits currently apply varying standards—the First, Fifth, and Ninth Circuits use the Bonnette test, the Second Circuit employs two separate tests (Carter and Zheng), while the Third, Fourth, Eleventh, and other circuits apply distinct frameworks. This fragmentation creates material risk that identical business arrangements yield different joint employer outcomes across jurisdictions, underscoring the need for multistate employers to assess current contractual control provisions and staffing practices against the new framework.
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