On April 22, 2026, the U.S. Department of Labor’s Wage and Hour Division published a proposed rule to establish a single, nationwide standard for determining joint employer status under the Fair Labor Standards Act (“FLSA”), the Family and Medical Leave Act (“FMLA”), and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). The proposed rule directly affects franchisors and manufacturers that rely on staffing agencies, subcontractors, franchise models, or other multi-employer manufacturing and distribution arrangements. It is important to note that any changes to the DOL’s definition of joint employment will not affect the IRS’s rules on this issue, but the IRS does frequently consider the relevant DOL rule in its analysis.

The Four-Factor Test

The proposed rule centers on a four-factor test for “vertical” joint employment—where a worker has an acknowledged employer, but another entity benefiting from the work may also be deemed an employer. The factors ask 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. Critically, while actual exercise of control is most probative, reserved contractual authority to act is also “relevant”—a departure from the rescinded 2020 rule, which required some actual exercise of control....

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