The U.S. Department of Labor (DOL) released a proposed rule on April 22 that would establish a new nationwide standard for determining when two businesses may be considered “joint employers” under federal wage and hour laws. The proposal could have significant implications for construction contractors, staffing arrangements, subcontracting relationships, and other common business models used throughout the merit shop construction industry.
According to the DOL, the proposed regulation, Joint Employer Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, is intended to provide greater clarity and consistency under existing applicable federal laws. The department stated that the rule seeks to simplify compliance obligations for employers while also helping employees better understand their rights.
Joint employer status is a critical issue for employers because, when such a relationship exists, multiple businesses can be held jointly and severally liable for wage and hour violations, overtime obligations, damages, and other remedies owed to employees.
Under the proposal, DOL would distinguish between “vertical” and “horizontal” joint employment relationships. Vertical joint employment generally refers to situations where a worker performs labor benefiting more than one employer simultaneously, such as contractor-subcontractor or staffing arrangements. Horizontal joint employment typically involves related businesses employing the same worker.
For vertical joint employment, the proposed rule would apply a four-factor test focused on whether an alleged joint employer:
- Has authority to hire or fire the employee;
- Exercises substantial control over work schedules or conditions of employment;
- Determines the worker’s rate or method of pay; or
- Maintains employment records.
Importantly for contractors and franchise-style business arrangements, the DOL proposal states that certain ordinary business relationships alone—such as franchising arrangements, vendor relationships, or shared service providers—would not automatically establish joint employer status.
The proposal is widely viewed as more employer-friendly than the broader joint employer standards advanced during the Obama and Biden administrations. The Trump administration’s DOL said the rule is intended to provide businesses with greater certainty and reduce litigation risk while maintaining worker protections.
The proposal also follows recent action by the National Labor Relations Board (NLRB), which earlier this year reinstated a narrower Trump-era joint employer standard under federal labor law. That NLRB standard generally requires direct and immediate control over essential employment terms before joint employer liability attaches.
“IEC is still reviewing the proposed rule,” IEC government relations advocate Ben Brubeck said. “For IEC contractors, the proposal could provide greater clarity regarding subcontracting relationships, temporary labor arrangements, and workforce partnerships that are common in the construction industry. However, the rule remains only a proposal at this stage, and legal challenges are likely regardless of the final version adopted by the agency.”
The DOL’s proposed rule is currently open for public comment through June 22, 2026. Please reach out to IEC’s advocacy team to share helpful information that will inform IEC and coalition comments.
Additional information on the proposed rule is available from the U.S. Department of Labor Wage and Hour Division.