DOL's Proposed Joint Employer Rule: What HR Operations Teams Need to Know

If your organization uses staffing agencies, subcontractors, or operates within a franchise model, there is a new regulatory development that deserves immediate attention from HR operations.

On April 23, 2026, the U.S. Department of Labor published a Notice of Proposed Rulemaking (NPRM) in the Federal Register that would create a single, nationwide standard for determining when two or more entities are "joint employers" under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

For HR teams that manage third-party labor relationships — or simply work with temp agencies to fill seasonal roles — this proposed rule changes how the federal government will evaluate whether your organization shares employer obligations like minimum wage, overtime, and leave compliance. The comment period is open until June 22, 2026, and if finalized, the rule will replace years of shifting guidance and inconsistent court decisions with a clear four-factor framework.

Here is what HR operations professionals need to understand — and what to do about it now.

Why This Rule Matters

Joint employer status determines whether your organization is legally responsible for wage, hour, and leave obligations owed to workers who are technically employed by another entity, such as a staffing agency, labor contractor, or franchise operator.

When two entities are found to be joint employers, they are jointly and severally liable for any violations. That means if a staffing agency fails to pay overtime correctly, and your organization is deemed a joint employer, your organization is on the hook too — for back wages, liquidated damages, and penalties.

Since 2021, there has been no active federal regulation defining how joint employer status is determined under the FLSA. The DOL rescinded the previous rule and left employers navigating a patchwork of court decisions that varied by federal circuit. As Gibson Dunn noted, the absence of regulatory guidance created confusion and inconsistency for employers operating in multiple jurisdictions.

This proposed rule is designed to fix that.

The Four-Factor Test for Vertical Joint Employment

The core of the proposed rule is a four-factor test for what the DOL calls "vertical" joint employment — the most common scenario, where an intermediary employer (like a staffing agency or subcontractor) places workers at a client company.

Under the proposed 29 C.F.R. Part 791, the analysis focuses on 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
4. Maintains the employee's employment records

No single factor is determinative. The DOL uses a "totality of the circumstances" approach, meaning the facts of each relationship are weighed together. However, the rule notes that if all four factors uniformly point toward — or away from — joint employer status, that finding will carry a "substantial likelihood" of being correct.

As Fisher Phillips observed, this framework is intended to provide more predictability than the open-ended balancing tests that federal courts have applied inconsistently.

What About Reserved vs. Exercised Control?

One important nuance: the proposed rule considers both actual (exercised) and reserved (contractual but unexercised) control. However, it gives more weight to control that is actually exercised. A contract that gives your organization the theoretical right to set a temp worker's schedule matters less than whether your managers are actually setting that schedule day to day.

This distinction is critical for HR operations teams reviewing staffing agency contracts. A broadly written agreement that reserves extensive control rights could be a factor in the analysis — even if those rights are never used — but it will not be the deciding factor on its own.

Horizontal Joint Employment

The proposed rule also addresses "horizontal" joint employment, which occurs when an employee works for two or more related entities in the same workweek — for example, a worker who splits time between two restaurants owned by the same group.

In horizontal scenarios, the DOL evaluates whether the two entities are "sufficiently associated with or related to each other with respect to the employment of the employee." The key indicators include shared management, intermingled operations, common ownership, and coordinated scheduling.

For employers with multiple business entities, subsidiary structures, or shared services arrangements, this is where the analysis becomes particularly relevant. Hours worked across all joint employers must be aggregated when calculating overtime under the FLSA.

What the Rule Does Not Do

The proposed rule includes several important carve-outs that should reassure employers with standard business relationships:

• Franchise agreements alone do not create joint employer status. Being a franchisor and setting brand standards, providing operational manuals, or offering training templates does not, by itself, make the franchisor a joint employer.
• Requiring compliance with health, safety, or legal standards does not create joint employer status. If you require a staffing agency or subcontractor to follow OSHA rules or carry workers' compensation insurance, that does not make you a joint employer.
• Independent contractor factors are excluded. The analysis does not import factors used to distinguish employees from independent contractors, such as the worker's skill level, opportunity for profit or loss, or investment in tools and equipment.

As Ogletree Deakins summarized, the rule "explicitly states that a business relationship alone — such as between franchisees or merely sharing a vendor — is insufficient without more to establish joint employment."

How This Applies to FMLA and MSPA

Because the FMLA and MSPA incorporate the FLSA's definition of "employ," the DOL is proposing to apply the same four-factor standard across all three statutes.

Under the FMLA, this has a specific operational impact: if two entities are joint employers, the employees of both are counted when determining whether the employer meets the FMLA's 50-employee threshold. However, the "primary employer" — typically the staffing agency or direct employer — remains responsible for providing leave and maintaining benefits.

For MSPA, each joint employer must independently comply with the statute's worker protections, including housing, transportation, and disclosure requirements for migrant and seasonal agricultural workers.

What HR Operations Teams Should Do Now

This proposed rule is not yet final, but the comment period closes on June 22, 2026. Whether or not your organization plans to submit comments, the underlying four-factor framework reflects how the DOL already evaluates joint employment in investigations. Here are the practical steps to take now:

1. Audit Your Third-Party Labor Relationships

Map every arrangement where your organization uses workers supplied by another entity — staffing agencies, temp firms, subcontractors, labor brokers, managed service providers. For each arrangement, document which entity:

• Makes hiring and termination decisions
• Sets and supervises the daily work schedule
• Determines pay rates
• Maintains employment records (timesheets, I-9s, payroll records)

If your organization is doing more than two of these, you are in the zone where joint employer status becomes more likely under the proposed framework.

2. Review and Update Contracts

Many staffing agency and subcontractor agreements were drafted with broad control provisions that may have been acceptable under previous standards but could become problematic under the proposed rule.

Key contract provisions to review:

• Scope of control clauses. Does the contract give your organization the right to hire, fire, or discipline the staffing agency's workers? If so, narrow those provisions to reflect the actual operational relationship.
• Scheduling provisions. Does the contract reserve the right for your organization to set specific work schedules? If the staffing agency handles scheduling, the contract should say so clearly.
• Pay rate provisions. Does the contract specify pay rates, or does the staffing agency set compensation independently?
• Recordkeeping responsibilities. Which entity maintains the worker's employment records?

3. Align Operational Practices With Contractual Terms

The proposed rule's emphasis on exercised versus reserved control means that what happens on the ground matters more than what the contract says. If your contract assigns scheduling authority to the staffing agency, but your line managers are routinely setting start times and break schedules for temp workers, the operational reality may override the contractual language.

Train managers and supervisors who interact with third-party workers on what they should and should not do. Specifically:

• Direct work tasks and quality standards — this is generally acceptable
• Set specific hours, break times, or overtime schedules — this may indicate joint employer control
• Decide to terminate or reassign a staffing agency worker — this is a strong indicator of joint employer status

4. Evaluate FMLA Headcount Implications

If your organization uses a significant number of staffing agency workers, consider whether joint employer status could push your employee count over the FMLA's 50-employee threshold at a given worksite. If it does, those workers may become eligible for FMLA leave through the primary employer, and your organization's obligations as a joint employer would include counting them for threshold purposes.

5. Consider Submitting Comments

The DOL is accepting public comments through June 22, 2026, via the Federal eRulemaking Portal under docket number 2026-07959. If your organization has concerns about how the proposed framework would affect specific types of business arrangements — particularly staffing, franchising, or managed services — this is the window to make those concerns heard.

The Process Improvement Angle

For HR operations teams, the proposed joint employer rule is not just a legal compliance issue — it is a process improvement opportunity. Organizations that take the time now to document their third-party labor relationships, clarify operational boundaries, and align contracts with actual practice will be better positioned regardless of the final rule's outcome.

The organizations that tend to get caught in joint employer disputes are not the ones with malicious intent. They are the ones with messy operational handoffs, contracts that do not match day-to-day practice, and managers who blur the lines between directing work and controlling employment terms.

Cleaning up those processes now — mapping relationships, tightening contracts, training supervisors — is good operational hygiene whether or not this specific rule is finalized.

For organizations already working to strengthen their compliance infrastructure, BlueHive's white paper 2026 OSHA Changes: What Has Taken Effect, What is Coming, What Employers Should Do Now provides a complementary overview of the broader 2026 regulatory landscape that HR teams need to navigate alongside this proposed rule.

Sources

• Federal Register — Joint Employer Status Under the FLSA, FMLA, and MSPA (91 FR 21878, Document 2026-07959) — Full text of the proposed rule
• DOL Wage and Hour Division — NPRM: Joint Employer Status Under the FLSA, FMLA, and MSPA — Official DOL summary and Q&A
• Gibson Dunn — "U.S. Department of Labor Proposes New Joint-Employer Rule Under the FLSA" — Legal analysis of the proposed rule
• Fisher Phillips — "DOL to Scale Back Joint Employer Liability for Businesses: What You Need to Know" — Practical employer guidance
• Ogletree Deakins — "Breaking: DOL Unveils New Proposed Rule for Joint Employer Liability" — Summary of key provisions and exclusions
• National Law Review — "DOL Proposes Unified Joint-Employer Standard for 2026" — Overview of vertical and horizontal joint employment standards
• BlueHive — 2026 OSHA Changes: What Has Taken Effect, What is Coming, What Employers Should Do Now — White paper on the broader 2026 regulatory landscape for employers