Employment & Labor Insider

The U.S. Department of Labor Wage & Hour Division has issued a Notice of Proposed Rulemaking on the criteria for determining joint employer status under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. 

As you may recall, the DOL under the first Trump Administration published a Final Rule in January 2020 on this same subject. That Final Rule was immediately challenged in federal court by 17 states as being in violation of the Administrative Procedure Act. The states largely prevailed at the district court level, and the decision was appealed to the U.S. Court of Appeals for the Second Circuit.  

Meanwhile, the 2020 elections put President Biden in the White House, and in July 2021 the Biden DOL rescinded the Final Rule, leaving in place the pre-Trump regulations, which by that time had become quite dated. No further rulemaking proceedings were undertaken on this subject by the Biden DOL.

Which brings us back to 2026. The DOL says that it intends for the proposed regulations to provide clarity and uniformity, and that it hopes to resolve splits among the federal courts of appeal.

The proposed regulations attempt to address the criticisms of the court ruling that vacated most of the 2020 Final Rule. The new proposal provides guidance for both “vertical” and “horizontal” joint employment determinations. In “horizontal” situations, the proposed regulations are essentially the same as the 2020 regulations. The 2026 changes primarily relate to “vertical” situations.

“Vertical” joint employment

The proposed regulations drop the requirement in the 2020 Final Rule that a business must exert actual control over another employer’s workers (as opposed to merely reserving the right to exercise control) for joint employer liability to be found. 

Under the proposed rule, four factors would be considered in determining whether there was a joint employer relationship in a “vertical” situation. The considerations are whether the alleged joint employer 

• Hires or fires the employees
• Supervises and controls the employees’ work schedule or conditions of employment to a substantial degree
• Determines the employees’ rates and method of payment
• Maintains the employees’ employment records

According to the DOL, these four factors assess the economic reality of the alleged joint employer’s control, direct or indirect, over the employees. The DOL stresses that no single factor is determinative. Although other factors may be taken into consideration, the DOL makes it clear that the above four factors are the most important and should usually control the outcome.

Franchisor-franchisee relationships

Of importance to franchisors, the DOL proposal makes it clear that being a franchisor has no categorical impact -- positive or negative -- in determining whether a franchisor and franchisee are joint employers. Nor does the fact that a franchisor may require franchisees to comply with applicable law, including wage and hour laws.

Comments accepted until June 22

The public comment period will remain open through June 22, and could conceivably be extended by the DOL. Once the proposal is finalized, legal challenges are likely. The final outcome remains to be seen, but it appears that the current DOL has tried to preempt the basis for the challenges to the 2020 version.