On Wednesday, the U.S. Department of Labor’s Wage and Hour Division released proposed regulations setting forth guidance for when two or more companies are considered joint employers for purposes of liability under the Fair Labor Standards Act, Family and Medical Leave Act, and other federal employment laws. The proposed rules replace ones issued during the first Trump administration, which were withdrawn but not replaced during the Biden administration.

Under the proposal, companies can be considered joint employers if they meet either a horizontal or vertical test. A vertical employment relationship exists where a worker is a W-2 employee of one entity, but is controlled by another company. A horizontal relationship exists when two or more entities jointly control the employee’s work. Under the DOL proposal, horizontal joint employment is limited to employment practices, and does not extend to other business relationships such as franchisor-franchisee ones. Vertical employment depends on the right to hire and fire, to set pay rates and schedules, and to prepare and retain personnel information.

Worker classification as independent contractors is not a factor in this analysis, and neither is the specific business model used between the two companies. The proposed regulations adjust several factors cited by a federal court to invalidate the rules issued during the first Trump administration. For employers, the specific rejection of a franchise relationship as the basis for a joint employment claim would undercut wage payment and other claims filed against franchisors in recent years.

DOL is accepting comments on the proposed rules through June 22, 2026.

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