April 23, 2026|Franchise Frontlines
April 23, 2026 | U.S. Department of Labor, Wage and Hour Division | Notice of Proposed Rulemaking
Executive Summary
In a significant notice of proposed rulemaking, the U.S. Department of Labor (“DOL”) proposed a new regulatory framework to determine joint employer status under the Fair Labor Standards Act (“FLSA”), while aligning that analysis with the Family and Medical Leave Act (“FMLA”) and Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). The proposal seeks to restore regulatory guidance that has been absent since 2021 and to provide a uniform, nationwide standard focused on control-based factors. The DOL proposes a four-factor test centered on hiring, supervision, pay, and recordkeeping, while expressly clarifying that common franchisor practices—such as brand standards, training, and compliance requirements—do not, standing alone, create joint employer liability. The rule is currently in the comment period and does not yet carry the force of law.
Relevant Background
The concept of joint employment has long been embedded in federal wage and hour law, but its application has varied significantly across courts and administrations. The DOL historically maintained interpretive guidance in 29 C.F.R. Part 791, which addressed joint employer status under the FLSA. In 2020, the DOL issued a rule adopting a narrower, control-focused framework, but that rule was partially invalidated and later rescinded in 2021. Since then, no uniform federal regulatory standard has governed joint employer determinations, leaving courts and enforcement personnel to apply a patchwork of judicial tests.
The absence of regulatory guidance has created uncertainty for businesses operating in multi-entity structures, including franchisors, staffing companies, and contractors. In response, the DOL now proposes to reintroduce Part 791 with a revised framework that attempts to synthesize existing case law while providing clearer direction for employers and workers.
The proposed rule also seeks to harmonize joint employer analysis across the FLSA, FMLA, and MSPA, each of which incorporates the FLSA’s broad definitions of “employ” and “employee.” By doing so, the DOL aims to create a consistent analytical framework across multiple statutes that frequently arise in parallel employment disputes.
Decision
The proposed rule introduces a structured framework distinguishing between “vertical” and “horizontal” joint employment. Vertical joint employment arises where an employee works for one employer but another entity simultaneously benefits from that work, such as in contractor-subcontractor or franchisor-franchisee relationships. Horizontal joint employment involves an employee working separate hours for multiple employers that are sufficiently associated with each other, requiring aggregation of hours for wage and overtime purposes.
For vertical joint employment, the DOL proposes a four-factor test derived from longstanding appellate authority. The analysis focuses on whether the potential joint employer: (1) hires or fires the employee; (2) supervises or controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the rate and method of payment; and (4) maintains employment records. No single factor is dispositive, and the analysis depends on the totality of the circumstances.
Importantly, the proposed rule clarifies that both direct and indirect control may be relevant, and that reserved contractual authority may be considered, although actual exercise of control carries greater weight. At the same time, the DOL emphasizes that routine contractual relationships and standard business practices do not, without more, establish joint employer status.
The rule expressly addresses franchising and similar business models, stating that operating as a franchisor—or entering into brand and supply agreements—does not make joint employer status more or less likely. The DOL explains that franchisors typically provide system standards, brand guidance, and operational support, while franchisees retain responsibility for day-to-day management, including hiring, supervision, and compensation decisions.
The proposal further identifies categories of conduct that do not, standing alone, indicate joint employment. These include requiring compliance with legal obligations, enforcing workplace safety standards, implementing quality control measures, providing sample policies or employee handbooks, and offering optional benefit programs. The DOL characterizes these practices as consistent with legitimate business relationships and insufficient to establish employer-level control.
Finally, the proposed rule would extend this framework to the FMLA and MSPA by replacing existing regulatory tests with cross-references to the FLSA analysis, thereby creating a unified standard across these statutes.
Looking Forward
This proposed rule represents a meaningful attempt to bring clarity to an area of law that has remained unsettled for several years. For franchisors, the most significant aspect of the proposal is the DOL’s explicit recognition that the franchise model, standing alone, does not create joint employer liability. The rule reinforces that system standards, brand controls, and compliance requirements are not equivalent to employment control, which remains the central inquiry.
At the same time, the proposal underscores that joint employer risk has not been eliminated—it has been more clearly defined. Courts and regulators will continue to focus on whether a franchisor or other upstream entity exercises meaningful control over hiring, supervision, compensation, or other core employment functions. The inclusion of indirect and reserved control in the analysis suggests that contractual structures and operational practices must still be carefully evaluated.
The proposed alignment of joint employer standards across the FLSA, FMLA, and MSPA may also influence how multi-claim employment cases are litigated and defended. A unified framework could reduce fragmentation across claims, but it may also concentrate analysis on a single set of factors that carries broader implications across statutes.
Because the rule remains in proposed form, its ultimate impact will depend on the final regulatory language and how courts interpret and apply it. Nevertheless, the proposal provides a clear indication of the DOL’s current approach and offers practical guidance for structuring relationships in franchise and other multi-entity business models.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
