U.S. Department of Labor Proposes New Joint Employer Rule for FLSA, FMLA and MSPA that Distinguishes Between Vertical and Horizontal Joint Employers

John Agbonika, Associate

On April 23, 2026, the U.S. Department of Labor (“DOL”) published a proposed joint employer rule (“Proposed Rule”)[1] that would apply to 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 seeks to clarify when two or more entities simultaneously employ the same worker (i.e., when they are joint employers) and thus, share legal obligations under the FLSA, FMLA, and MSPA.  Specifically, if the Proposed Rule is adopted, vertical joint-employer status would be determined by, in pertinent part, a four-factor test focused on whether a potential joint employer actually controls key employment decisions, such as hiring, firing, supervision, scheduling, pay, and maintaining employment records, while horizontal joint-employer status would result if two entities are “sufficiently associated.” Regardless of whether an employer qualifies as either a vertical or horizontal joint employer, the employer would have legal obligations under the FLSA, FMLA, and/or MSPA.

Background

In a prior post, we discussed the NLRB’s recent decision to withdraw the 2023 joint employer rule and reinstate the narrower 2020 standard under the National Labor Relations Act (“NLRA”).[2] That development returned the NLRB to a more control-based test, under which joint employer status generally requires substantial direct and immediate control over essential employment terms. The DOL has now proposed a joint employer rule of its own, which aims to provide more uniformity in determining joint employer status in the FLSA, FMLA, and MSPA contexts. Under the FLSA, joint employers are determined based on the degree of common control, shared management, ownership and operations, and work hours, which must be aggregated for determining overtime. The Proposed Rule could impact jointly employed workers by counting them towards each joint employer’s 50-employee threshold for coverage under the FMLA. The MSPA requires each employer to ensure workers receive all statutory rights, including disclosure of employment terms, accurate payroll records, timely wage payment, and the Proposed Rule may join two companies as the employer, where only one company is providing the employee the MSPA requirements.

The Proposed Rule

The Proposed Rule distinguishes between and sets distinct standards for “vertical” and “horizontal” joint employment. Horizontal joint employment may exist where an employee works for multiple employers that are “sufficiently associated” with respect to that employee’s employment, whereas vertical joint employment may exist when an employee has a recognized employer, but another entity benefits from the employee’s work so much so that the other entity also qualifies as an employer.

The key to determining whether an employer qualifies as a horizontal joint employer with another employer is whether the employers are “sufficiently associated” with one another.  The Proposed Rule provides three situations where the employers will generally be “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 employer in relation to the employee; or (3) they share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer. To illustrate, where a cook works 30 hours and 15 hours a week for two restaurants owned by the same person, and the restaurants coordinate and set the cook’s schedule of hours at each location, the restaurants are considered horizontal joint employers due to their shared ownership and coordination.

Regarding vertical joint employment, the DOL proposes a four-factor test. The DOL would consider 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. The Proposed Rule also explains that reserved or indirect control may be considered when determining vertical joint employment status, but actual exercised control is more important. In other words, a contractual right to control another entity’s workers may be relevant, but it is less persuasive than evidence that the potential joint employer actually controlled hiring, firing, supervision, scheduling, pay, or employment records. For example, where an office park contractually reserves the right to supervise the employees of a janitorial company, but does not in fact supervise the employees or set pay, the office park is not a joint employer. However, where the office park actively supervises the janitorial company’s employee, assigns tasks, and sets work hours, the office park may be considered a joint employer. The Proposed Rule would exclude from the vertical joint employment analysis, the consideration of factors that are relevant only in assessing whether a worker is an employee or independent contractor, such as whether the job requires special skills, the employee shares profit, or the employee invests in equipment required for work.

Employer Considerations

If adopted, the Proposed Rule would provide updated guidelines for employers covered by the FLSA, FMLA, and MSPA when determining who may qualify as their employee.  Employers dealing with staffing agencies, subcontractors, franchisees, vendors, or labor contractors should be especially careful to determine whether they meet the four-factor test for vertical joint employment or the “sufficiently associated” situations for horizontal joint employment, as the lines between employer and non-employer are not as clear in these contexts. For instance, a contract between a company and a subcontractor that says the subcontractor is the sole employer would likely not be dispositive of joint employment status, if the company actually controls workers schedules and/or supervises or pays workers.

If you want to provide comments to the Proposed Rule, you can do so up to June 22, 2026, and the link to do so is https://www.regulations.gov/commenton/WHD-2026-0067-0001. Campbell Litigation will continue to monitor the adoption process for the Proposed Rule and is available to assist employers in evaluating joint employer risks under federal and state employment laws.

[1] See https://www.govinfo.gov/content/pkg/FR-2026-04-23/pdf/2026-07959.pdf.

[2] See National Labor Relations Board Reinstates Joint Employer Standard (Mar. 26, 2026), https://www.rockymountainemployersblog.com/blog/2026/3/26/national-labor-relations-board-reinstates-joint-employer-standard.