The U.S. Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) last month for its proposed rule on joint employment, where multiple employers simultaneously employ the same employee.
The proposed rule aims to clarify joint-employer status under the Fair Labor Standards Act (FLSA) and would align DOL’s Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA) joint-employer analysis with DOL’s FLSA analysis.
Joint employment has been recognized by DOL since the FLSA was enacted in 1938. In 1958, the first joint employer regulation appeared in the Federal Register. Fifteen years later, the Supreme Court expressly approved the concept of joint employment under the FLSA. Falk v. Brennan, 414 U.S. 190 (1973).
Following Falk, courts (and the department) looked to the FLSA’s broad definitions of “employer” – which includes “any person acting directly or indirectly in the interest of an employer in relation to an employee” – and of “employ,” which “includes to suffer or permit to work.” They endorsed and routinely applied a holistic “economic realities” analysis to determine whether a joint employment relationship exists.
Through 2016, the department’s regulations and guidance emphasized that “the concepts of employment and joint employment under the FLSA are notably broader than the common law concepts of employment and joint employment” because of the FLSA’s inclusion of “suffer or permit to work” language in its definitions.
The 2020 Rule
In January 2020, under the prior Trump administration, DOL sought to depart from this backdrop. Gone was the holistic analysis of the employee’s economic reality. Instead, the 2020 rule established a four-factor test for vertical joint employment focused on whether the prospective joint employer exercises “actual control” over the employee.
That September, most of the 2020 rule was blocked by U.S. District Judge Gregory Woods, finding the rule’s changes to vertical joint employment to be overly narrow and inconsistent with the FLSA’s broader definitions of “employee” and “employer.”
The 2020 rule’s amendments to horizontal joint employment were “non-substantive” and, as such, remained intact. In July 2021, the 2020 rule was formally withdrawn by the Biden administration, removing and reserving 29 C.F.R. § 791 in its entirety (the rescission of the final rule was published effective Sept. 28, 2021).
But the Biden administration did not propose its own joint employer rule, leading to years of uncertainty for employers who were forced to grapple with divergent judicial interpretations of joint employment circuit-by-circuit.
The 2026 Proposed Rule
Horizontal joint employment remains addressed separately in the latest proposal. It exists where an employee works for two or more employers (at different times) and the employers arrange to share the employee’s services and share control of the employee. The proposed rule does not substantively or meaningfully alter horizontal joint employment.
It’s vertical joint employment where the change is noticeable. The proposed rule draws from the 2020 rule’s four-factor test for vertical joint employment, asking (emphasis added):
- Does the joint employer hire or fire the employee?
- Does the joint employer supervise and control the employee’s work schedule or conditions of employment to a substantial degree?
- Does the joint employer determine the employee’s rate of pay and method of payment?
- Does the joint employer maintain the employee’s employment records?
To attempt to immunize the proposed rule against a legal challenge, the department describes the test as a “multi-factor balancing test” that is a “common denominator” across the federal circuits. The factors carry great weight but “are not exhaustive.” The proposed rule permits the consideration of additional factors but argues that fewer factors will decrease the likelihood of “errant or inconsistent results in similar cases.”
The proposed rule emphasizes that factors which carried more weight in the past, like an employer’s “reserved right of control,” are still relevant to the analysis but are superseded by the actual control exercised by the employer(s) over the employee.
In that sense, the department expressly tries to distance the proposed rule from the 2020 rule, which sought to ignore the FLSA’s broad statutory definition of “employ.” But that broad definition of “employ” was the driving force behind Woods’ decision to vacate the 2020 rule. Now, the department states that it recognizes that the FLSA’s definition of “employ” as including “to suffer or permit to work” is relevant in a joint employment analysis.
It does the same regarding “actual control” of the employee — while the 2020 rule mandated a finding of actual control, the proposed rule permits the consideration of “reserved control” (though actual control will trump reserved control). And the same regarding factors of economic dependence were excluded from consideration under the 2020 rule but are now properly considered in the analysis (though they are not the “ultimate question” or “ultimate test” under the FLSA).
The department also proposes prohibiting the consideration of factors relevant in an independent contractor analysis, like whether the employee must obtain the equipment or materials required for the job.
How the New Rule Could Work
If the proposed rule is finalized in its current form, it will be more straightforward (under DOL’s test) for an employer to avoid a finding of joint employment if it can point to facts to show that it does not actually exert control over an employee’s wages, schedule, worksite and other conditions of employment, even if it may retain some contractual or other right(s) to do so.
For example, when a company mandates its multiple contractors comply with the company’s wage floor and a particular code of conduct, that does not indicate joint employment because it does not indicate that the company exercises any actual control over the employees hired by the contractors or other entities doing business with the company.
So, too, is the case where a franchisor provides its franchisees with proprietary software, sample employment applications and employee handbook, and other documents for the franchisee to use. These facts, says the department, do not, on their own, indicate that the franchisor exercises control over the franchisee’s employees and, as such, do not move the needle one way or the other in determining joint employment. Even though other factors may be relevant, an employer’s actual control appears to carry the day.
It also is important to note that the proposed rule does NOT apply to the National Labor Relations Act (NLRA), or the joint employer framework used by the National Labor Relations Board (NLRB).
Conclusion and Takeaways
If adopted in its current form, the rule would shift the department’s interpretation and enforcement of the FLSA as it pertains to prospective joint employers. Employers who routinely engage other employers for staffing or other employment needs have more wiggle room to escape joint employment based on their actual control, or lack thereof, over the employees at issue.
But litigation is likely, particularly given Woods’ ruling in Scalia and the fact that the NPRM is replete with efforts by the department to distance the proposed rule from the vacated 2020 rule. And after the Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo, federal courts no longer defer to an agency’s interpretation of the law. This confluence, ironically enough, leaves employers and courts guessing as to the viability of the proposed rule.
Miles & Stockbridge’s Labor, Employment, Benefits & Immigration team will continue to monitor developments related to the NPRM, the comment process and any subsequent final rulemaking. The team can advise on how the proposed framework may affect staffing, contractor, franchise, and other third-party business relationships, as well as discuss joint employment under the NLRA – something not addressed by the proposed rule.
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