Joint Employment Reframed: DOL’s Proposed Rule Would Unify FLSA, FMLA, and MSPA Standards

On April 22, 2026, the Department of Labor’s (“DOL”) Wage and Hour Division (“WHD”) issued a Notice of Proposed Rulemaking that would restore federal regulatory guidance on joint employer status under the Fair Labor Standards Act (“FLSA”)—guidance that has been absent since July 2021. The Proposed Rule would reinstate a four-factor test for determining “vertical” joint employment and readopt a well-established criterion for “horizontal” joint employment. Critically, the Proposed Rule would also align joint employer determinations under the Family and Medical Leave Act (“FMLA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”) with the FLSA standard, because both statutes incorporate the FLSA’s definition of “employ.” According to the DOL, the goal is to provide clarity and a measure of uniformity for employers, workers, and federal wage and hour enforcement alike.

Background: The 2020 Rule and Its Rescission

In January 2020, the DOL published a final rule (the “2020 Rule”) addressing joint employer status under the FLSA. This was the first comprehensive regulatory guidance on the topic in decades. The 2020 Rule distinguished between two types of joint employment scenarios and deployed separate tests for each.

The first type of joint employment scenario was “vertical.” This occurs when an employee’s work simultaneously benefits two or more employers. The 2020 Rule applied a four-factor test asking whether the potential joint employer: (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. Notably, the 2020 Rule required that the potential joint employer actually exercise one or more of those factors; contractual authority or a reserved right to act was insufficient on its own.

The second type of joint employment scenario was “horizontal.” This arises when a single employee works separate hours for two or more employers during the same workweek. For example, when an employee works part of the week for one business and the remainder for a related or commonly owned business. In that situation, the hours worked for each employer may need to be aggregated for purposes of calculating overtime obligations under the FLSA. The 2020 Rule applied the DOL’s established criterion for determining whether horizontal joint employment exists, focusing on whether the employers are sufficiently associated with respect to the employee such that they should be treated as a single employer. Relevant indicia of that association include common ownership or management, shared control over the terms and conditions of employment, interrelated operations, and coordinated hiring or scheduling of the employee.

The 2020 Rule was challenged by seventeen states and the District of Columbia. In September 2020, the U.S. District Court for the Southern District of New York vacated the vertical joint employment portion, finding it inconsistent with the FLSA. The DOL subsequently rescinded the rule in its entirety in July 2021 and has not issued any replacement regulatory guidance since.

The Proposed Rule

The Proposed Rule would restore joint employer guidance in a revised 29 CFR Part 791, covering general principles, vertical joint employment, horizontal joint employment, and the relevance—or irrelevance—of certain common business practices. While the Proposed Rule retains the four-factor framework from 2020, it introduces several meaningful modifications.

Vertical Joint Employment: A Broader, More Flexible Analysis

Vertical joint employment typically arises where an employee’s work simultaneously benefits two entities—such as a staffing agency employee working at a client’s worksite. The question is whether the client is also the employee’s employer for FLSA purposes.

The Proposed Rule applies the same four core factors as the 2020 Rule: whether the potential joint employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. No single factor is dispositive; the determination depends on all the facts of a particular case.

The Proposed Rule departs from the 2020 Rule in four key respects:

1. Reserved control is now relevant. Unlike the 2020 Rule, which required the potential joint employer to have actually exercised control, the Proposed Rule expressly recognizes that a potential joint employer’s contractual authority or reserved right to act is relevant to the analysis; though actually exercised control carries more weight.
2. Economic dependence factors are permitted, with caveats. The 2020 Rule categorically excluded economic dependence from the analysis. The Proposed Rule permits such factors to be considered as additional, supplemental factors, while making clear they carry less weight than the four core factors and are not the “ultimate question” of the analysis.
3. Additional factors may be considered. The 2020 Rule allowed additional factors only if they related to control. The Proposed Rule is more flexible, permitting consideration of circumstances such as whether the employee has a continuous or repeated relationship with the potential joint employer, or whether the employee performs work at a location owned or controlled by the potential joint employer.
4. Certain independent-contractor factors are excluded. The Proposed Rule expressly excludes three factors from the joint employer analysis on the ground that they bear only on employee-versus-independent-contractor status, not joint employer status: (1) whether the work requires special skill, initiative, judgment, or foresight; (2) whether the employee has an opportunity for profit or loss based on managerial skill; and (3) whether the employee invests in equipment or materials required for the work.

Horizontal Joint Employment: The Established “Sufficiently Associated” Criterion

Horizontal joint employment arises when an employee works separate hours for two or more employers in the same workweek—for example, a worker employed by two restaurants owned by different entities.

The Proposed Rule readopts the DOL’s established criterion: if employers are acting independently of each other and are disassociated with respect to the employee’s employment, each employer may disregard the hours worked for the other in calculating its own FLSA obligations. If, however, the employers are sufficiently associated, they are joint employers and must aggregate the employee’s total hours.

The Proposed Rule identifies three scenarios in which employers will generally be considered sufficiently associated: (1) there is an arrangement between them to share the employee’s services; (2) one employer is acting directly or indirectly in the interest of the other with respect to the employee; or (3) they share control of the employee—directly or indirectly—because one controls, is controlled by, or is under common control with the other.

Importantly, business relationships that have little to do with the employment of specific workers—such as sharing a vendor or being franchisees of the same franchisor—are insufficient, standing alone, to establish that two employers are sufficiently associated.

Alignment of FMLA and MSPA Standards

Because the FMLA and MSPA both incorporate the FLSA’s definition of “employ,” the Proposed Rule would revise the DOL’s FMLA and MSPA regulations to apply the same joint employer analysis set out in the revised Part 791. In practice, this would be implemented by revising 29 CFR 500.20(h)(5) (MSPA) and 29 CFR 825.106(a) (FMLA) to cross-reference Part 791’s criteria—replacing the existing, inconsistent standards under those statutes with a single, uniform framework. The DOL expects this alignment will reduce compliance burdens and litigation costs for employers who must currently navigate differing standards across these three federal regimes.

What Happens Next

The Proposed Rule is subject to a 60-day public comment period following its publication in the Federal Register. The rule is scheduled for Federal Register publication on April 23, 2026, placing the comment deadline on or around June 22, 2026. After the comment period closes, the DOL will review submissions and may modify the Proposed Rule before issuing a final rule with a forthcoming effective date. Employers and other interested parties should consider participating in the comment process, particularly if their operations are affected by multi-employer or staffing-agency arrangements.

Employer Takeaways

1. Assess exposure under the expanded vertical joint employer analysis. The Proposed Rule’s recognition of reserved or contractual control as a relevant factor, even if never actually exercised, represents a meaningful expansion from the 2020 Rule. Contracts that give one party the right (but not the obligation) to direct, supervise, or terminate workers may now weigh in favor of joint employer status, even if that right has never been invoked. Employers should audit their staffing, vendor, and contractor agreements to understand where such provisions exist and whether they create unintended exposure.
2. Revisit workforce structures across FLSA, FMLA, and MSPA. Because the Proposed Rule would apply a single joint employer standard across three major federal statutes, a finding of joint employer status under the FLSA would carry concurrent implications for FMLA leave obligations and MSPA protections. Employers—particularly those in agriculture, hospitality, healthcare, and staffing—should evaluate their multi-employer arrangements holistically, not statute by statute.
3. Franchisors and businesses using vendor networks: pay attention to horizontal employment. The Proposed Rule reaffirms that mere franchisor-franchisee relationships or shared vendor arrangements are not enough, standing alone, to establish horizontal joint employment. The Proposed Rule also includes guidance indicating that common franchisor practices, such as setting brand standards, providing training resources, or requiring compliance with applicable law, do not, by themselves, tip the joint employer analysis. That said, where those arrangements include provisions that go further—such as shared scheduling systems, interchangeable staffing, or overlapping managerial authority—a more detailed analysis is warranted.
4. Local and state law still governs alongside the federal standard. Even if finalized, the Proposed Rule sets only a federal floor. Many states, such as California, Illinois, and New York, apply broader joint employer standards under their own wage, leave, and labor laws. Employers operating across jurisdictions must continue to comply with the most demanding applicable standard in each location, which may differ substantially from the Proposed Rule’s requirements.
5. Misclassification exposure remains a parallel risk. The Proposed Rule addresses joint employer status, not independent contractor classification. While the Proposed Rule expressly excludes several independent-contractor-related factors from the joint employer analysis, those factors remain highly relevant to the separate question of whether a worker is an employee at all. State law misclassification claims, private class actions, and IRS audits will continue to apply their own tests, independent of the Proposed Rule.
6. Monitor the rulemaking results. The Proposed Rule is subject to revision based on the comments received. Significant changes are possible, particularly given the litigation history of the 2020 Rule. Employers should not structure their compliance programs around the Proposed Rule until a final rule is published.
7. Engage counsel now. Multi-employer relationships are fact-intensive, and the stakes for missteps are significant. Employers with complex staffing arrangements, franchise structures, or agricultural workforces should consult counsel before the final rule takes effect. Sheppard’s Labor and Employment team is closely tracking this rulemaking and is available to assist with compliance assessments, contract reviews, and comment submission.