Strategic Choices Remain Despite Proposed Joint Employer Rule

The patchwork of joint employer rules that remains under federal and state law despite the U.S. Department of Labor’s (DOL’s) recent proposed joint employer rule requires strategic choices by HR. While the DOL’s rule proposed a unified joint employer standard under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Migrant and Seasonal Agricultural Worker Protection Act (MSPA), the National Labor Relations Board (NLRB), the U.S. Equal Employment Opportunity Commission (EEOC), and many state agencies all have different joint employer standards.

‘Patchwork Quilt’ Compliance Problem

Even if the DOL’s proposed rule is finalized, HR will still face a “patchwork quilt” compliance problem, said Marissa Mastroianni, an attorney with Cole Schotz in the New York City metropolitan area. 

A company could be a joint employer under applicable state law but not under the DOL’s standard or vice versa, she noted. In addition, federal courts in different circuits may continue to apply their own established tests, because after the U.S. Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo, courts are not bound to follow the DOL’s regulatory interpretations, she added.

“Avoiding a finding of joint employment when considering the various sources of potential liability is a headache,” said Noah Finkel, an attorney with Seyfarth in Chicago. “Employers, in consultation with their lawyers and HR professionals, need to determine which of those sources poses their most significant risk and structure their relationships with other companies based on that source’s definition.”

For some companies and in some contexts, avoiding a joint employment finding under the NLRB’s test for collective bargaining is going to be the most important consideration, he said.

For many, avoiding a class or collective action for overtime pay and penalties due to another company’s pay practices will be paramount, Finkel noted.

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“Other companies may desire a lowest-common-denominator approach in which they structure how they interact with a potential joint employer so that they can minimize their risk of a joint employment finding under all employment statutes by considering the broadest test of joint employment,” he said.

Different Standards

The DOL’s proposed rule does provide more clarity. If finalized, it would give HR a more predictable framework for evaluating whether their company might be considered a joint employer under the FLSA, the FMLA, and MSPA, Mastroianni said. 

The proposed rule excludes certain common business practices from the joint employment analysis, including operating as a franchisor, requiring compliance with health and safety standards, providing sample employee handbooks, offering association health or retirement plans, imposing quality control standards to protect brand consistency, and jointly participating in apprenticeship programs, she explained. 

“That’s a big deal practically, because it means HR teams can maintain brand standards and share compliance resources with some protections against inadvertently triggering joint employer liability,” Mastroianni said.

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The practical impact of the DOL’s proposed rule centers on how companies manage relationships with staffing agencies, subcontractors, and onsite vendors, said Ted Hollis, an attorney with Quarles in Indianapolis. “The proposed rule treats reserved or contractual rights to control workers as relevant even if not exercised day to day, meaning HR professionals must scrutinize vendor and staffing agreements for provisions that reserve authority over hiring, firing, scheduling, or pay,” he said.

The NLRB’s 2026 joint employer rule requires a joint employer to possess and exercise substantial direct and immediate control over at least one essential term or condition of employment. This is a narrower standard than the DOL’s proposed rule because it requires actual exercise of control and does not credit reserved or indirect control, Hollis noted. Joint employers under the National Labor Relations Act (NLRA) must bargain with any union representing jointly employed workers and may be liable for unfair labor practices.

The EEOC applies a different framework under Title VII of the Civil Rights Act of 1964, relying on either an integrated enterprise test or a common-law right-to-control test, Hollis said. Both differ from the DOL’s economic reality approach.

At the state level, standards vary widely, he added. 

For example, California applies a broad test under which a business can be a joint employer if it 1) controls wages, hours, or working conditions, 2) permits work to occur, or 3) satisfies a common-law right-to-control analysis — any one prong being independently sufficient.

Other states range from New York, which generally tracks federal FLSA tests, to North Carolina, which has franchisor exceptions, to Oregon, which imposes joint and several liability on property owners and direct contractors for unpaid construction worker wages, he added.

“Even if finalized, significant coordination-of-compliance challenges will persist because the joint employer inquiry remains fragmented across multiple federal agencies, 50 states, and numerous local jurisdictions,” Hollis said.  

A single business relationship can be evaluated simultaneously under the DOL’s FLSA/FMLA/MSPA standard, the NLRB’s NLRA standard, and the EEOC’s Title VII standard. The outcome could differ under each because each applies a different test, he said. 

“Overall, while the proposed rule is intended to create more consistency with the DOL’s enforcement, it does not resolve the broader issue that joint employer standards vary across agencies and states,” said Laura Alaniz, an attorney with Liskow in Houston.

The proposed rule, if finalized, will give employers a collective sigh of relief as the bar for finding a joint employer relationship will be higher in at least some respects, said Rob Boonin, an attorney with Dykema in Ann Arbor, Mich. 

However, he added, “employers should be scrutinizing their contracts with subcontractors and franchisees to better conform to the patchwork of rules and to eliminate terms that from a practical perspective need not be included.”

Public comments on the proposed rule are due by 11:59 p.m. ET on June 22.