Key Takeaways:
- The DOL has proposed a new multi-factor standard addressing vertical and horizontal joint employer status under the FLSA, FMLA, and MSAWPA.
- The proposal could redraw wage-and-hour liability boundaries by expanding when multiple entities share responsibility.
The Department of Labor strikes again. To help address circuit splits and compliance challenges on April 22, 2026, the DOL proposed a new rule attempting to establish a more uniform standard to determine whether joint employment exists under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSAWPA).
Horizonal versus Vertical Joint Employment
Joint employment is when a worker is considered employed by two or more entities such that each may be liable for compliance with the FLSA. Prior administrations have taken markedly different approaches—ranging from broader, worker-friendly interpretations to narrower, control-based frameworks—when determining whether joint employment exists, leaving employers navigating conflicting guidance.
The DOL’s current proposal aims to resolve that inconsistency by creating separate tests for “vertical” and “horizontal” joint employment. Vertical joint employment exists when a worker has a direct employment relationship with one employer but is controlled by another. Horizontal joint employment exists when an individual works for two or more related employers that jointly control the work.
The DOL’s proposed rule clarifies that horizontal joint employment would exist when separate entities are sufficiently related when it comes to the employment of a specific employee. “Sufficiently related,” for purposes of determining whether horizontal joint employment exists, does not require a formal affiliation but instead turns on whether the entities operate as part of a common business. The DOL will consider factors such as common ownership, overlapping management, shared operations, and coordination over employees in making this determination. In practice, the more the entities function as an integrated enterprise—rather than truly independent businesses—the more likely they are to be deemed sufficiently related and joint employers.
Importantly, ordinary business relationships—such as franchising or vendor sharing—without involvement in the employee’s terms and conditions of employment would not, standing alone, establish joint employment.
The Proposed Standard
The proposed test for determining whether vertical joint employment exists is whether the potential joint employer:
(1) hires or fires the employee
(2) substantially supervises and controls the employee’s schedule or conditions of employment
(3) determines the employee’s rate and method of pay
(4) maintains the worker’s employment records
If the four factors unanimously point towards one finding or another, there would be a “substantial likelihood” that there is or is not joint employment. If the factors yield different conclusions, they are weighed holistically, and additional relevant factors may be considered. In practice, this signals a return to a control-based—but still flexible—analysis.
Notably, the proposal excludes certain factors relevant in the independent contractor analysis—such as opportunity for profit/loss, investment, and special skills—confirming they are not relevant in determining whether joint employment exists.
Where the FLSA and FMLA Converge
The proposed rule could have a meaningful impact on FMLA coverage, particularly for employers near the 50-employee threshold.
An employer is subject to the FMLA if it employs 50 or more employees within a 75-mile radius for at least 20 workweeks in the current or preceding calendar year. If the proposed rule results in a broader or more functional interpretation of joint employment, it could increase the likelihood that:
- A business is deemed a joint employer alongside a staffing agency, franchisee/franchisor, or subcontractor, and
- The workers in those relationships are aggregated when determining FMLA coverage.
For some employers, this may be the most immediate compliance risk—not liability for wages, but newly triggered leave obligations.
What Employers Should Know
For employers, one of the most significant implications of the proposal is its potential to redraw liability boundaries. Businesses that have structured operations to minimize direct employment relationships—by outsourcing functions or relying on third-party labor providers—may face renewed scrutiny if they retain meaningful control over working conditions. Even “hands off” influence, if functionally significant, may favor a joint employment finding.
In anticipation of the new rule, employers may consider:
- Reviewing contracts with staffing agencies and subcontractors to clarify independence
- Auditing the degree of control exercised over non-direct employees
- Assessing whether existing practices could be construed as indicative of joint employment
- Tracking state laws on joint employment to determine how different jurisdictional factors may converge
- Evaluating potential FMLA liability by recalculating employee counts, reviewing contracts and operational control over non-direct employees, and coordinating with staffing agencies on leave responsibilities and compliance protocols.
While the DOL’s proposed rule likely won’t take effect until July, the takeaway is clear: if your business touches the work, it may own the risk. As the DOL continues to edge toward uniformity, the most successful organizations will be the ones that treat compliance as part of their business model moving forward.
