The Department of Labor recently proposed a rule that would create a single, consistent standard for determining joint employer status under three federal laws: the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. For employers who use staffing agencies, share workers, or operate in franchise or contractor relationships, this proposal deserves a close read.
Why this matters in practice
Joint employment is one of those issues that catches employers off guard. A company brings on workers through a staffing agency, or a franchisor sets operational standards for its franchisees, and suddenly there’s a question about whether both entities are on the hook for wage-and-hour violations, overtime, or FMLA leave obligations. The consequences of a joint employment finding are real: back pay liability, civil penalties, and litigation costs that can run deep — often shared across entities that never expected to be in the same legal boat.
The DOL says the goal here is to reduce compliance and litigation costs, improve enforcement, and bring more uniformity to how courts analyze these relationships. That last point matters. Right now, the analysis varies significantly depending on the circuit you’re in, which creates real unpredictability for multistate employers.
Two types of joint employment — and they work differently
The proposal distinguishes between two structures, and understanding the difference is important.
Vertical joint employment is the more common scenario: a worker is employed by one business (often a staffing agency or subcontractor) but also performs work that benefits a second employer. Think of a manufacturer that contracts with a staffing firm to supply line workers. The test focuses on whether the second employer — the one that isn’t cutting the paycheck — has real influence over the employment relationship. The key factors are whether that employer can hire or fire, substantially supervises or controls the work schedule or conditions, determines pay rates, and maintains employment records.
The supervision factor tends to be the most contested in practice. Companies often believe that because they’re not formally managing someone, they’re in the clear. But if someone at the host company is the one directing daily work, setting hours, or deciding whether a worker comes back the next day, that functional control matters — regardless of what the contract says.
Horizontal joint employment is less intuitive. This is where a worker splits time between two separate employers that are sufficiently connected to each other — think two commonly owned businesses, or two franchisees that share staff. The question is whether those employers are “sufficiently associated” with respect to the worker. The rule points to three indicators: a formal arrangement to share the worker’s services, one employer acting in the interest of the other regarding the employee, or shared control arising from common ownership or control structures.
What won’t automatically create joint employment
One of the more practically useful parts of the proposal is what it says won’t establish joint employment on its own. Sharing a vendor, being co-franchisees of the same brand, requiring compliance with legal or quality control standards in a contract, offering shared benefit plans, or maintaining brand standards — none of these, standing alone, create a joint employer relationship.
This is significant for franchisors especially, who have spent years navigating the tension between maintaining brand consistency and avoiding joint employer exposure. The proposal doesn’t give franchisors a blank check, but it does acknowledge that routine business relationships aren’t enough.
The control question: reserved vs. actual
The proposal takes a clear position on one of the more nuanced questions in this area: it’s not enough that an employer could exercise control — what matters more is whether they actually did. A contractual right to approve staffing decisions that’s never been used carries less weight than a franchisor that regularly intervenes in day-to-day scheduling.
This distinction between reserved and exercised control is one that matters enormously when structuring these arrangements. Paper distinctions need to be backed up by how things actually operate on the ground — because that’s what investigators and courts look at.
What to do now
The comment period closes June 22, 2026. If you have concerns about how this rule could affect your business arrangements, this is the time to make your voice heard.
More importantly, if this rule is finalized, employers who want to maintain separate employer status should take a hard look at their current arrangements — staffing agency relationships, subcontracting structures, franchise operations, and shared-employee arrangements between affiliated entities. The goal is to understand where actual control is being exercised and, where necessary, restructure so the legal intent matches operational reality.
FOREWORK BENEFIT: If your business supervises, directs, or shares workers through a staffing agency, contractor arrangement, franchise structure, or affiliated entity, you should be thinking carefully about your joint employment exposure — and not just under the FLSA. A joint employment finding can ripple into workers’ compensation coverage, paid leave obligations, benefits eligibility, and more. Talk to a Forework attorney or your designated HR representative to best understand any exposure your business might have under joint employment, and how to minimize any such legal exposure.