The Labor Department is moving to create one nationwide standard for when two or more employers can be jointly liable for workplace offenses under federal laws that protect wages, unpaid leave, and migrant and seasonal farm employees.
The proposed rule provides “clarity and a measure of uniformity” for employers and aims to resolve circuit court splits, the DOL’s Wage and Hour Division said Wednesday in a Federal Register notice. It would apply to enforcement under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act—echoing the agency’s plan for its independent contractor rule.
“A clear standard on joint employment would give businesses more confidence to invest in partnerships, help employees understand their rights, and make the department’s investigations more efficient,” acting Labor Secretary Keith Sonderling said in a statement Wednesday.
The new proposal is the department’s first attempt at tackling joint employment since the Biden administration rescinded a Trump 1.0 rule that required one business to exert “actual” control over another company’s workers to be jointly on the hook for wage, overtime, and other labor violations. That previous test limited how often corporate brands like major fast-food giants were responsible for labor violations by their business partners and franchisees. Joint employer liability also has broad implications for companies that outsource their labor.
The 2020 rule was largely vacated by the US District Court for the Southern District of New York. The judge found that requiring an employer to actually exercise one of the four factors in order to qualify as a joint employer—rather than merely reserving the right to do so—makes the standard inconsistent with the FLSA.
Wednesday’s planned rule mostly walks back that earlier approach in light of the district court opinion, saying that a set of four factors should “weigh the economic reality of the potential joint employer’s control, direct or indirect, over the employee.”
The four factors are whether a company has the power to hire or fire a worker; supervises or controls a worker’s schedule or conditions of employment to a substantial degree; determines the rate and method of payment; and maintains a worker’s employment records. The DOL acknowledged that some circuit courts consider more factors and said the four listed were “not exhaustive.”
“The Department believes that the greater the number of factors in a multi-factor test, the more complex and difficult the analysis, and the greater the likelihood of errant or inconsistent results in similar cases,” the proposal said.
Worker advocates had argued that the first Trump regulation allowed businesses to escape their responsibility to prevent wrongdoing and failed to meet the realities of a labor market where companies are commonly relying on staffing agencies and contractors to avoid that liability.
Some labor stakeholders have predicted a new Trump rule would also be challenged in court.
Matt Haller, president and CEO of the International Franchise Association, called it a “pro-franchise standard,” in a statement Wednesday.
“On behalf of the entire franchise community, we commend the Trump Administration and Acting DOL Secretary Keith Sonderling for delivering this win that will unleash opportunity, upward mobility and strengthen the franchise model as a cornerstone of the American economy,” he said.
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