DOL Proposes New Joint Employer Rule: What Businesses Need to Know

Proposed federal rule could reshape liability for staffing, subcontractor, and franchise relationships

The United States Department of Labor (DOL) has proposed a new rule that would clarify when multiple businesses may be considered “joint employers” under federal wage and hour laws. The proposal, announced by the Wage and Hour Division on April 22, 2026, could significantly affect businesses that rely on staffing agencies, subcontractors, franchise structures, and other third-party labor arrangements.

If finalized, the rule would apply to joint employer determinations under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act. Comments on the proposed rule must be submitted by June 22, 2026.

The issue is particularly important because businesses found to be joint employers may become jointly and severally liable for wage and hour violations. In practical terms, this can include liability for unpaid wages, overtime compensation, liquidated damages, and attorneys’ fees, even where the workers are technically employed by another entity.

For many employers, especially those operating in construction, healthcare, logistics, hospitality, manufacturing, and franchise systems, the proposal represents another reminder that operational control often matters more than contractual labels.

The DOL’s Proposed Approach

The proposed rule separates joint employment into two categories: vertical joint employment and horizontal joint employment.

Vertical joint employment typically involves situations where a worker is formally employed by one company but simultaneously benefits another business. Common examples include staffing agency arrangements, subcontractor relationships, and labor outsourcing structures. Under the proposed rule, the DOL would analyze whether a potential joint employer exercises sufficient control over the employee through a four-factor test.

The proposed factors focus on whether the company hires or fires the employee, supervises working conditions or schedules, determines pay practices, or maintains employment records. Importantly, the proposal also states that reserved contractual authority may still be relevant even if that authority is not actively exercised. Although actual control carries greater weight, the inclusion of reserved authority will likely draw close attention from businesses that maintain detailed operational requirements within staffing agreements or subcontractor contracts.

Horizontal joint employment applies when an employee works for multiple related employers during the same workweek. The proposal largely maintains the longstanding framework for these situations and focuses on whether the businesses are sufficiently associated with one another in relation to the employee’s work.

Significant Implications for Franchisors

One of the more notable portions of the proposal involves the DOL’s discussion of franchise relationships. The DOL specifically states that common franchise practices do not automatically create joint employer liability. According to the proposal, maintaining brand standards, enforcing quality control requirements, providing sample employee handbooks, monitoring legal compliance, and offering operational guidance do not, standing alone, make joint employer status more or less likely.

That language appears intended to reassure franchisors and franchisees following years of uncertainty surrounding broader joint employer theories advanced by federal regulators. The proposal attempts to distinguish between standard brand protection practices and direct control over day-to-day employment decisions.

For franchise systems, that distinction may prove critically important. Many franchisors have long been concerned that ordinary operational oversight could expose them to wage and hour liability for franchisee employees. The DOL’s proposal suggests that ordinary franchise governance, without more direct employment control, should not automatically create joint employer exposure.

Connection to Prior Federal Joint Employer Battles

The proposed rule follows several years of significant federal disputes over the scope of joint employer liability.

In 2023, the National Labor Relations Board adopted a much broader joint employer rule under federal labor law. That rule was later vacated in 2024 by the United States District Court for the Eastern District of Texas, which found the regulation unlawfully overbroad.

The DOL’s proposal appears more measured and structured than the NLRB rule that was struck down. Nevertheless, employers should remember that different federal agencies and state laws often apply different standards when evaluating employment relationships. As a result, businesses may still face potential exposure under one statute even if they avoid joint employer status under another.

Why Employers Should Pay Attention Now

The proposal reflects the federal government’s continuing focus on indirect employment relationships and so-called “fissured workplaces,” where multiple entities share responsibility for labor operations.

Businesses that use staffing agencies, subcontractors, temporary labor providers, or franchise systems should take this opportunity to review their operational structures carefully. Particular attention should be paid to contractual provisions reserving authority over workers, supervision practices, scheduling control, wage-setting authority, and compliance oversight.

Even where a business does not directly employ workers, excessive operational control may still create substantial legal risk.

Although the rule is only proposed at this stage, employers should closely monitor developments during the comment period and evaluate whether revisions to existing labor arrangements may become necessary if the rule is finalized.

Final Thoughts

The DOL’s proposed joint employer rule represents another important development in the ongoing evolution of federal wage and hour enforcement.

While the proposal attempts to provide additional clarity and predictability, it also reinforces a central principle that courts and regulators continue to emphasize: businesses may face employment liability based on the realities of workplace control, not simply the labels used in contracts.

Companies operating with outsourced labor arrangements should proactively evaluate their current practices, contractual relationships, and operational oversight to assess potential exposure before the rulemaking process concludes.