Labor & Employment Developments Blog

On April 22, 2026, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking aimed at clarifying when multiple entities may be considered “joint employers” under federal wage and hour laws. If finalized, the rule would create a single, more uniform standard under the Fair Labor Standards Act (FLSA) and align that analysis with the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA), marking a significant step toward consistency across these statutes.

The proposal formalizes the distinction between “horizontal” and “vertical” joint employment. Horizontal joint employment exists where two employers are sufficiently associated with respect to the same employee, while vertical joint employment applies where a worker is formally employed by one entity but economically dependent on another. The DOL emphasizes that ordinary business relationships, such as franchising arrangements or shared vendors, are not enough, standing alone, to establish joint employment. This is an important clarification for employers operating within common business models.

For vertical joint employment, the DOL proposes a four-factor analysis focused on whether the potential joint employer hires or fires the employee, exercises substantial control over the employee’s schedule or working conditions, determines the rate or method of pay, and maintains employment records. The proposal further clarifies that actual, exercised control carries more weight than theoretical or reserved control, reinforcing the “economic reality” framework applied by courts. While additional considerations may be relevant, the DOL signals that these four factors will carry significant weight in the analysis.

The Notice also narrows the scope of relevant considerations by excluding factors tied to independent contractor analysis and by clarifying that common, compliance-driven business practices, such as providing policies, participating in benefit plans, or maintaining quality control standards, do not create joint employer status by themselves. This aspect of the proposal is intended to provide employers with greater certainty when implementing standard operational and compliance measures.

If adopted, the rule would have significant implications for employers that rely on staffing agencies, contractors, franchise models, or affiliated business structures. A joint employment finding carries joint and several liability, meaning each employer may be responsible for the full amount of wages, overtime, and other damages owed, regardless of which entity directly employed the worker.

The proposal is open for public comment through June 22, 2026. The KMK Labor & Employment Team will continue to monitor developments and will keep employers informed as this rulemaking process unfolds and if a final rule is issued.