U.S. Department of Labor Proposes Independent Contractor & Joint Employment Rules

Background

After a slow start to the second Trump term, the DOL has announced two proposed rules under the Fair Labor Standards Act (“FLSA”) that are likely to give employers a greater degree of flexibility in structuring their relationships with workers. The first proposed rule, announced in February 2026, would modify the analysis for determining whether a worker can properly be classified as an independent contractor, while the second rule, published in April, addressed the standard for determining whether multiple entities are joint employers with respect to a worker. Both proposed rules are departures from the standards implemented during the Biden administration.

Independent Contractor Classification

On February 26, 2026, the U.S. Department of Labor (DOL) issued a Notice of Proposed Rulemaking concerning the analysis for determining independent contractor status under the FLSA.¹ The proposed rule would rescind and replace a 2024 Biden-era final rule and return to the framework from the first Trump administration. According to the DOL, the rule “would make it easier to properly differentiate between employees ... and those workers who work as independent contractors.”

The DOL characterizes its proposed standard as an “economic reality” test, stating that the rule is grounded in “actual practice” and emphasizing that the working relationship matters more than what may be contractually or theoretically possible. Unlike the current rule, which utilizes a six-factor, “totality-of-the-circumstances” test in which no factor is given more weight than any other,² the primary focus of the new analysis is on two “core factors”: 1) the nature and degree of control over the work, and 2) the worker’s opportunity for profit or loss based on initiative or investment. The proposed rule also identifies other subordinate factors that impact the determination of status such as the amount of skill required for work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production. In the rule, the Department explained the relationship between the core factors and the subordinate factors. “Given these two core factors’ greater probative value, if they both point towards the same classification, whether employee or independent contractor, there is a substantial likelihood that is the individual’s accurate classification.”³ Similarly, the Department explained that other factors are “less probative and, in some cases, may not be probative at all” in answering the ultimate “economic reality” inquiry to which these tests are directed. Typically, these other factors “are highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors.”⁴

The proposed rule’s framework also extends to employment status determinations under the Family and Medical Leave Act (FMLA) and Migrant and Seasonal Agricultural Worker Protection Act (MSPA). The DOL said that this expansion aims to increase uniformity across statutes that adopt and integrate the broad definition of “employ” in the FLSA.

“The rule we are proposing today is not only based on long-standing legal principles used in federal courts across the country but also is aimed at ensuring that workers and employers know how to apply those principles predictably,” said Wage and Hour Division Administrator Andrew Rogers in the DOL press release. “The department believes that streamlined regulations in line with Congress’s intent when it passed the Fair Labor Standards Act would improve compliance, reduce misclassification, and reduce costly litigation in an economic environment that needs flexibility and innovation.”

The comment period with respect to the proposed rule ended on April 28, 2026. The proposed rule received over 16,500 comments in the comment period.⁵

Joint Employer Rule

The DOL’s second notice of proposed rulemaking relates to determination of joint employment status under the FLSA, FMLA and MSPA.⁶ Joint employment arises when two or more separate employers jointly control an employee’s working conditions. When a joint employment relationship between two or more employers exists, those employers are jointly and severally liable for any wages, damages and other relief owed to the jointly employed employees, including overtime pay due based on aggregation of all hours the employee worked for all joint employers. Joint employment is also frequently alleged to exist between a temporary staffing agency and the business to which the agency’s employees are assigned.

Currently, the rules governing joint employment determinations vary by federal circuit. “The rule we propose today would deliver much-needed regulatory clarity in the face of divergent judicial precedent throughout federal courts of appeals. Clear guidance strengthens worker protections because it ensures that employees receive all wages and benefits they are owed, even if one employer is unable or unwilling to pay,” said Wage and Hour Division Administrator Andrew Rogers. “The proposal would also reduce compliance and litigation costs for employers while helping Wage and Hour Division investigators identify what is and is not a joint employment relationship.”

The proposal lays out guidance for “vertical” and “horizontal” joint employment relationships. A vertical joint employment relationship exists when a worker has a direct employment relationship with one employer but is controlled by another, while horizontal joint employment arises when an individual has separate employment relationships with multiple employers that are closely related or jointly controlled.

The proposed rule emphasizes that “horizontal” joint employment is a matter of relation between the employers. Such employment exists when separate employers are sufficiently related when it comes to the employment of a specific employee. For example, horizontal employment would exist when one employee works at two businesses that are owned by the same entity, and have intermingled administrative operations and a central manager, such as a restaurant and its sister restaurant. Taking these factors together, the restaurants are the horizontal joint employer of an employee that works at both locations. As a result, the employer must aggregate all hours worked by the employee across both entities in a single workweek when calculating overtime premium pay.⁷ This status also impacts benefits and leave eligibility of that employee. Joint horizontal employers have joint and several liability for noncompliance by either entity with wage, hour and labor standards.⁸ However, horizontal joint employment does not exist when the business relationships between the employers have little to do with the employment of specific employees, such as sharing a vendor or being franchisees of the same franchisor.

Vertical joint employment is determined by a four-factor analysis, including whether the potential joint employer hires or fires the employee, substantially supervises and controls the employee’s schedule or conditions, determines the employee’s rate and method of pay, and maintains the worker’s employment records. The proposed rule also explicitly states that while more factors may come into play than those listed, a unanimous finding on any of these core factors is determinative as to the status of employment. One example of this joint vertical employment occurs when a general contractor hires a subcontractor to complete electrical work on a construction site. The electrician is on the subcontractor’s payroll, but the general contractor controls the daily schedule, supervises the site, and requires the electrician to follow specific safety protocols. Because both entities benefit from and exert control over the electrician’s labor, the general contractor and subcontractor are vertical joint employers.⁹ As a result of this relationship, similarly to horizontal joint employment, both employers must track aggregate overtime, leave and other benefits, and are jointly and severally liable for noncompliance by either entity with wage, hour and labor standards.¹⁰

The DOL also pointed out certain business practices that are helpful in determining the status of employment: contractual agreements, providing employee handbooks to employees of another employer, offering a health plan to employees of another employer, joint participation in an apprenticeship program, operating as a franchise, or dictating consistent quality control standards across multiple employers.

The comment period on this proposed rule runs through June 22, 2026.

Practical Considerations

Determinations with respect to both independent contractor status and the existence of joint employment are among the most difficult and uncertain that employers are required to make. The DOL’s proposed rules are intended to make these determinations more predictable and, if that proves to be the case, will be a welcome development for employers. However, determinations with respect to both issues remain exceedingly complex, and employers and their counsel must continue to give them careful consideration and deliberation.