“Joint” At the Hip? The DOL's New Proposal Could Reshape Joint Employer Liability

Why It Matters

A clearer, nationwide test could limit joint‑employer exposure for companies that outsource labor, reducing costly litigation while still holding truly controlling entities accountable.

Key Takeaways

• DOL proposes four‑factor test for joint‑employer status.
• Reserved contractual control now considered, unlike 2020 rule.
• Economic dependence can influence analysis but is weighted lower.
• Certain routine agreements excluded from joint‑employer liability.
• State laws may still impose stricter joint‑employer standards.

Pulse Analysis

The joint‑employer doctrine has long been a flashpoint between labor regulators and businesses that rely on third‑party labor. Under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act, courts have applied a patchwork of tests to decide when two entities share liability for wages, overtime, or benefits. The Department of Labor’s April 22 proposal seeks to codify a single, nationwide standard, aiming to bring predictability to an area that has generated costly litigation for franchisors, staffing firms, and subcontractors alike.

The core of the rule is a four‑factor test that looks at hiring and firing authority, schedule and condition control, payment determination, and record‑keeping. Unlike the 2020 final rule, the new proposal gives weight to contractual or ‘reserved’ control, meaning a company that merely retains the right to approve pay rates or direct work can be deemed a joint employer even if it does not actively exercise that power. Economic dependence of the worker is also back on the table, though it is treated as a secondary consideration rather than a decisive factor.

For employers that depend on staffing agencies, franchisees, or on‑site vendors, the proposal narrows the circumstances that trigger joint‑employer liability, potentially shielding them from costly back‑pay awards. However, the rule also carves out exclusions for routine agreements such as health‑plan enrollment, sample handbooks, and quality‑control standards, allowing companies to maintain brand consistency without added risk. Because the guidance is advisory and state courts may continue to apply stricter standards, businesses should monitor the June 22 comment deadline, reassess contractual language, and prepare to document actual control versus reserved authority to mitigate exposure.