On April 22, 2026, the U.S. Department of Labor (DOL) issued a long-anticipated Notice of Proposed Rulemaking addressing joint employer status under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The proposed rule seeks to impose a single analytical framework across all three statutes and to bring coherence to an area of law that has become increasingly fragmented.

For employers, particularly those operating with layered workforce structures, including staffing agencies, subcontracting relationships, and franchise systems, the consequences of joint employer status can be significant. Where joint employment exists, each employer is jointly and severally liable for legal compliance obligations, including wage and hour and wage payment requirements, leave obligations, and statutory disclosures.

The proposed rule is best understood as an effort to restore clarity and predictability, while re-centering the analysis on traditional economic reality principles. At the same time, it introduces meaningful nuances that employers should carefully evaluate, especially in the context of vertical joint employment relationships.

A Unified Framework, and a Departure from the Current Fragmentation

In its current state, the DOL’s joint employer analysis varies significantly, depending on the jurisdiction in which the dispute is being heard and the federal statute being evaluated. There is no comprehensive FLSA joint employer regulation, for example, following the rescission of the 2020 rule. Courts apply divergent, circuit-specific tests, particularly in vertical employment scenarios, and separate regulatory approaches are utilized under the FLSA, FMLA, and MSPA.

The FMLA and MSPA each maintain separate regulatory approaches.

The DOL’s proposed joint employer rule addresses this inconsistency by importing a single FLSA-based analysis across all three statutes and expressly distinguishes between horizontal and vertical joint employment. The stated objective is a uniform national standard that employers, employees, and courts can apply with greater confidence.

Horizontal and Vertical Joint Employment: What’s the difference?

Horizontal Joint Employment

Horizontal joint employment involves employees who work separate hours for two or more employers within the same workweek, where those employers are sufficiently associated with each other. The inquiry defining horizontal employment focuses on the inter-relationship or overlap between the employers, including whether there is an agreement to share employees, one employer acts in the interest of the other with respect to the employee, or the employers share control, including through common ownership or management. For example, two sufficiently affiliated entities with overlapping management and shared scheduling systems may be considered joint employers for employees working at both locations, triggering aggregation of hours for overtime purposes.

Importantly, the proposed rule reiterates that mere participation in a franchise system or the use of common vendors, without more, does not create joint employment.

Vertical Joint Employment

Vertical joint employment presents the more complex and risk-intensive scenario for most modern employers. In a vertical relationship, an employee works for one direct employer, such as a staffing agency or subcontractor, but another entity also benefits from that work and thus may function as a joint employer. Typical vertical joint employment relationships include general contractor and subcontractor relationships, staffing agencies and their client companies, and franchisors and franchisees. The key question to be answered is whether, as a matter of economic reality, the second entity is acting as an employer with respect to the worker? Numerous core factors have been applied by courts, often inconsistently, to determine “economic reality” on a case-by-case basis, including:

• Control over the work (direct or indirect)
• Supervision and direction
• Power to hire, fire, or discipline
• Control over pay and compensation structure
• Permanency and duration of the relationship
• Integration of the work into the presumed employer’s business, and
• Whether the work is performed on the presumed employer’s premises

One of the DOL’s stated intentions in proposing a new joint employer rule is to create a consistent framework for both employers and the courts, utilizing four factors as explained below.

The Four-Factor Test, A Closer Examination

At the center of the DOL’s proposed rule is a four-factor test for determining vertical joint employment. Unlike prior frameworks that varied widely across jurisdictions, this new test is intended to provide a standardized baseline.

The four factors are:

(1) Hiring and firing authority (Whether the potential joint employer directly hires or terminates employees, or meaningfully influences those decisions)

(2) Supervision and control over work schedule or conditions of employment to a substantial degree (Whether the alleged joint employer exercises substantial, ongoing control over the employee’s day-to-day work)

(3) Determination of rate and method of payment (Whether the alleged joint employer influences the employee’s compensation structures), and

(4) Maintenance of employment records (Whether the alleged joint employer creates and maintains employment records for the employee).

Implications for Staffing Agency Arrangements

Staffing agency relationships are directly implicated by the proposed joint employment rule and represent one of the most critical risk areas. The staffing agency is the undisputed primary employer, and the client company may become a joint employer depending on its level of control. Risk increases where the client company directly supervises workers, sets schedules, or influences pay, and risk is reduced where it limits involvement to outcomes and avoids employment decisions.

Franchisor Risk, Clarification with Continued Exposure

The proposed rule provides helpful clarifications for franchisors by stating that operating as a franchisor does not, in itself, make joint employer status more or less likely. Franchisor status will be considered only secondarily in the determination of joint employment. However, this clarification does not completely eliminate possible joint employment risks. Franchisors remain potentially exposed to joint employment liability if they exercise control over franchise employees or become involved in employment decisions.

The proposed rule distinguishes between brand control and employment control, preserving the franchisor’s ability to enforce standards while limiting employment liability when operational control is absent.

Conclusion

The new proposed joint employer rule represents a meaningful and coherent effort by the DOL to harmonize current federal labor standards while at the same time enhancing flexibility for employers through a clear and structured analysis rooted in the economic reality of each employment relationship. While the proposed joint employment rule is in the public comment period, organizations should reassess workforce structures, contracts, and operational practices in light of the proposed framework.

This blog will be updated with the details of any changes to the DOL’s proposed joint employer rule. In the interim, if you need assistance navigating potential FLSA, FMLA, or MSPA joint employment issues or any other federal, state, or local employment law questions for your business, please contact Doug Taylor, rdougtaylor@beankinney.com or (703) 526-5586, or your current Bean, Kinney & Korman attorney.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.