U.S. DOL Proposes New Joint-Employer Rule

Key Takeaways

• DOL proposes rule mirroring 2020 joint‑employer standard
• Vertical joint employment evaluated via four‑factor balancing test
• Horizontal joint employment requires “sufficient association” between employers
• Rule adds control‑ability factor, not just actual exercised control
• California’s broader joint‑employer laws may supersede federal rule

Pulse Analysis

The Department of Labor’s latest proposal seeks to bring clarity to a fragmented joint‑employer landscape that has unsettled employers for years. After a 2020 rule was struck down for violating the Administrative Procedure Act, the agency re‑engineered the standard to address judicial concerns while preserving the core four‑factor test. By reopening the rulemaking process, the DOL signals a willingness to harmonize joint‑employer definitions across the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, giving businesses a potential single benchmark.

Under the new draft, vertical joint employment—common in staffing and labor‑contracting arrangements—will be judged on whether a potential employer hires or fires workers, controls schedules, sets pay, and maintains records. Importantly, the rule now considers an employer’s *ability* to control, even if that power is not exercised, expanding the scope of liability. Horizontal joint employment, less frequent but still relevant, hinges on a "sufficient association" test that looks at shared services, indirect interests, or common control structures. These nuanced criteria aim to balance employer flexibility with worker protections, especially in gig‑economy and multi‑entity supply chains.

For California firms, the federal proposal arrives alongside a state framework that already casts a wider net. California law not only mirrors the federal factors but also imposes liability when a company knows of, and fails to prevent, violations by a staffing agency. Employers must therefore conduct a dual‑track compliance review, updating contracts, record‑keeping practices, and risk assessments to satisfy both jurisdictions. The 60‑day comment window offers a strategic opportunity for industry groups to shape the final rule, while legal counsel should advise on aligning federal and state obligations before the rule is finalized.