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Home | BakerHostetler

DOL Proposes New Joint Employment Test for FLSA and FMLA

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Harder to prove joint employment: The DOL’s proposed rule raises the threshold for finding joint employer status under the FLSA and FMLA.

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New, clearer standards: A four‑factor test focuses on actual control, pay decisions, and hiring/firing, with separate guidance for related companies.

Common arrangements protected: Franchising, brand standards, and routine compliance requirements alone would not create joint employment.

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Last week, the Department of Labor (DOL) proposed a new test for determining whether joint employment exists under the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). Under the FLSA, joint employers are equally responsible for any failure to pay overtime or minimum wages. Under the FMLA, joint employers have shared obligations as well.

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The new test, if adopted, would set a higher bar, essentially making it harder to prove the existence of a joint employment relationship under the FLSA or the FMLA.

Joint employment comes in two flavors: vertical and horizontal. The proposed rule addresses both types.

Vertical Joint Employment (unrelated companies)

Vertical joint employment can arise when the W-2 employees of one company are providing services for the benefit of a second, unrelated company. The second company could be deemed a joint employer if it meets the applicable joint employment test.

The FLSA and FMLA statutes contain no test for joint employment. Courts have adopted different versions of a multifactor test.

The DOL has made various efforts over the years to adopt regulations that contain a joint employment test. The most recent effort was in March 2020, when the first Trump administration adopted a joint employment regulation, but that regulation was later enjoined by a federal court. The court found the regulation arbitrary and capricious, which is a fancy way of saying “no can do.” In 2021, under the Biden administration, the DOL rescinded the 2020 rule and replaced it with … well, nothing. There is no current joint employment regulation under the FLSA.

The DOL now seeks to fill that gap. The proposed rule is a close relative of the failed March 2020 rule, but this version was reengineered to try to plug the leaks that sank the last ship.

Under the proposed new rule, four factors would be considered when evaluating whether unrelated entities are joint employers, which are whether the potential joint employer:

Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree

Determines the employee’s rate and method of payment

Maintains the employee’s employment records

The proposed test is a balancing act and no single factor would be determinative.

Factor No. 2, control, is always the most contentiously litigated factor. Under the proposed test, reserved control would be relevant but actual control would be more important in assessing this factor. The March 2020 rule required the exercise of actual control and said that reserved control by itself could not support joint employer status. The court, however, found that interpretation to be inconsistent with well-settled law. Reserved control has to play some part in the analysis. So under the new rule, it’s relevant but only kinda sorta relevant and not as relevant as actual control.

The proposed rule would also clarify that the following factors are not relevant to determining whether there is joint employment under the FLSA and FMLA, even though they remain relevant in determining whether someone is an employee or an independent contractor under those laws:

Whether the employee is in a job that requires special skill, initiative, judgment or foresight

Whether the employee has the opportunity for profit or loss based on their managerial skill

Whether the employee invests in equipment or materials required for work or in the employment of helpers

Horizontal Joint Employment (related companies)

The proposed rule also addresses horizontal joint employment, which exists when related entities employ the same individual. Entities are sufficiently related and are therefore joint employers when:

There is an arrangement between them to share the employee’s services

One employer is acting directly or indirectly in the interest of the other employer in relation to the employee

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

Horizontal joint employment may exist, for example, when related ownership entities control two restaurants and an employee is scheduled to work at each location during the same workweek. Even if the restaurants operate under separate corporate identities, the hours worked by an employee would be aggregated for determining whether the employee worked enough hours to earn overtime. An employee who works 20 hours at Restaurant A and 30 hours at Restaurant B would be entitled to 10 hours of overtime, even though the employee did not work 40 hours for either employer.

Business Arrangements That Are Not Relevant

The proposed rule would clarify that certain common business arrangements are not indicative of joint employer status. These include:

Franchisor-franchisee relationships or brand and supply agreements

Contractual requirements to protect the health and safety of employees or to comply with applicable employment laws

Contractual obligations setting quality control standards or product specifications

Providing a sample employee handbook or other forms

Jointly participating in an association health or retirement plan or an apprenticeship program

The proposed rule has been published in the Federal Register, and the public now has 60 days to submit comments. After the comment period closes, the DOL is obligated to review the comments. The DOL can then adopt the proposed rule, revise it and adopt a modified final rule or abandon the effort entirely.

In all likelihood, the DOL will adopt a final rule that is identical or almost identical to the proposed rule. We can expect to see a final rule sometime in 2027.

If a new rule is adopted, we can expect court challenges, as we saw in 2020-21. But this proposed rule seems more carefully drafted to avoid the earlier problems.

Please contact the author of this alert or your BakerHostetler attorney contact if you have any questions.

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