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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exercise of control is most probative, reserved contractual authority to act is also “relevant”—a departure from the rescinded 2020 rule, which required some actual exercise of control. Additional factors, including whether the worker is economically dependent on the potential joint employer, may also be considered. 

Safe Harbors for Franchisors 

Notably, the proposed rule identifies several business practices that are neutral in the joint employer analysis. Merely operating as a franchisor, requiring compliance with legal or safety standards, imposing quality control requirements, providing sample employee handbooks, or offering association health plans will not, standing alone, make joint employer status more or less likely. However, a franchisor that exercises day-to-day control over a franchisee’s employees could still be found to be a joint employer. 

Why It Matters

A joint employer finding triggers joint and several liability for wage and hour violations under the FLSA and statutory protections under the MSPA. Under the FMLA, jointly employed workers must be counted for coverage and eligibility thresholds, which could push businesses over the 50-employee threshold and trigger leave obligations. The comment period closes at 11:59 p.m. ET on June 22, 2026. 

Practical Tips for Franchisors 

In the event the DOL adopts this new rule, you should consider the following:

• Audit your operational control. Evaluate whether your organization hires, fires, supervises, sets pay, or maintains employment records for workers employed by franchisees, staffing agencies, or manufacturing partners.
• Scrub your contracts. Review franchise and manufacturing agreements for broadly reserved rights to direct, discipline, or terminate another entity’s workers, as reserved control may now carries some relevance.
• Leverage the safe harbors. Structure quality control, brand standards, and compliance requirements in ways that fall within the neutral business practices identified by the proposed rule.
• Reassess FMLA exposure. Businesses near the 50-employee FMLA threshold should evaluate whether the unified standard would result in additional “jointly employed” workers that trigger leave obligations.
• Submit comments. If this rule affects your operations, consider submitting comments before the June 22, 2026, deadline to help shape the final rule. 

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