Key Takeaways:

• The DOL is moving toward a more predictable and control-focused framework. In determining joint-employer status, the proposed rule emphasizes actual control over employees and work conditions rather than broader or more expansive theories.

• Franchise and business-to-business relationships receive meaningful protection. The proposal expressly recognizes the DOL’s longstanding position that certain business models, such as the franchise model, do not themselves indicate joint-employer status.

• The DOL is attempting to harmonize inconsistent standards across federal law. The DOL repeatedly notes that federal appellate courts currently apply differing joint-employer standards and that the absence of regulatory guidance has created uncertainty for businesses, workers, and courts.

The U.S. Department of Labor (DOL) has issued a proposed rule (Joint-Employer Status Under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA)), representing the DOL’s first comprehensive joint-employer guidance since 2021. According to the DOL, the proposal is intended to “restore clarity and consistency regarding joint-employer status” under the FLSA, FMLA, and MSPA.

The proposal is significant for employers operating in franchise, staffing, subcontracting, construction, and other multi-entity business arrangements. If passed, the rule would provide employers with clearer guidance regarding when multiple entities may be held as joint employers of an employee.

The proposal distinguishes between two categories of joint employment: vertical joint employment and horizontal joint employment.

Vertical Joint Employment

Vertical joint employment involves situations where an employee is employed by an employer for work, and another person or entity simultaneously benefits from the employee’s work. This framework commonly arises in staffing and subcontracting relationships.

To assess vertical joint employment, the proposed rule adopts a four-factor framework examining whether the potential joint employer:

• hires or fires the employee;
• substantially supervises or controls the employee’s schedule or work conditions;
• determines the employee’s rate or method of pay; and
• maintains employment records.

Importantly, the DOL states that “[n]o single factor is dispositive,” and the determination instead depends on “all of the facts in a particular case.” The proposal also allows consideration of additional factors where relevant to the “economic reality” of the relationship. The proposal draws heavily from longstanding Supreme Court precedent, including Falk v. Brennan, 414 U.S. 190 (1973), which focused on whether a putative joint employer exercised “substantial control” over employees for purposes of the FLSA.

The proposal also addresses the issue of reserved control. Reserved control refers to a putative employer’s contractual right to control terms or conditions of employment, even if that authority is not actually exercised. In particular, the DOL noted that reserved control may be considered but is less indicative of vertical joint employment than exercised control. This distinction may prove particularly important for businesses that maintain contractual quality-control provisions, operational standards, safety requirements, or compliance rights in commercial agreements. Pursuant to the proposal, ordinary contractual protections alone should not automatically create joint-employer exposure, absent meaningful involvement in day-to-day employment decisions. In doing so, the DOL is seeking to reduce the “chill on organizations which may be hesitant to enter into certain relationships or engage in certain kinds of business practices because of uncertainty whether they would be joint employers.”

Horizontal Joint Employment

Horizontal joint employment involves situations where an employee works for two or more related employers that are “sufficiently associated” with respect to the employee’s employment. Examples may include affiliated entities that share employees or coordinate employment decisions through common ownership, shared management, or overlapping operational control.

The proposal clarifies that horizontal joint employment generally does not arise from ordinary commercial relationships unrelated to the employment of a specific employee. The DOL emphasized that merely sharing a vendor or being franchisees of the same franchisor is insufficient, standing alone, to establish horizontal joint employment.

As such, this aspect of the proposal would be especially significant for franchise systems. The DOL expressly acknowledged that federal courts “almost always reject[] arguments that franchisors are joint employers unless there is sufficient supporting evidence above and beyond the franchise relationship that the franchisor is involved in the day-to-day management of the franchisee and its employees.”

As a result, the proposal may provide meaningful guidance to franchise businesses by recognizing that routine brand-protection measures, such as operational standards, training protocols, and quality-control requirements, do not, by themselves, necessarily give rise to joint-employer liability.

Another notable aspect of the proposal is the DOL’s effort to distinguish the joint-employer inquiry from the independent-contractor analysis. In particular, the proposal excludes several “economic dependence” factors commonly associated with independent-contractor tests, instead focusing the joint-employer analysis on the degree of control exercised over the employee and the employment relationship.

Given the long history of litigation surrounding federal joint-employer standards, further judicial challenges may be expected if the proposed rule is enacted. However, even through this proposal, the DOL is providing important insight into its current enforcement priorities and its effort to “promote greater uniformity in the joint-employer analysis applied by courts.”

The public comment period remains open through June 22, 2026.

If you have questions about how the DOL’s proposed Joint-Employer Status Under the FLSA, FMLA and MSPA rule could impact your business if it is enacted, please contact:

• Charles A. Lazo
• Cali L. Chandiramani
• Scott R. Green
• Christopher P. Maugans
• Caroline J. Berdzik
• Stephen C. Mazzara
• Or another member of the Employment and Labor team