Employment Law Update: DOL Seeks to Clarify Joint Employer Liability
By Laraya Parnell
June 18, 2026
DOL Seeks to Clarify Joint Employer Liability
On April 22, 2026, the U.S. Department of Labor’s (DOL) Wage and Hour Division released a proposed rule to clarify joint employer liability and status under the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). This proposal, if finalized, would reduce compliance burdens for employers, promote greater awareness among workers of their rights, and ensure uniformity in DOL’s enforcement of its wage and hour laws.
This is an important update in employment law for financial institutions, particularly for those that work with staffing agencies, contractors, and shared services. Note that a common arrangement for credit unions in particular are shared employees with brokers for selling non-deposit investments.
Where Does Joint Employment Currently Stand?
The proposal closely tracks the rule issued during the first Trump administration, which a federal court in New York later invalidated and the DOL rescinded under the Biden administration. Biden’s administration, without issuing a rule to replace the one rescinded, took a “totality of the circumstances” approach and returned to prior case law as guidance on the issue. The new rule, however, includes key changes that would give the DOL a more consistent standard for investigations and enforcement actions. For financial institutions and the labor and employment attorneys who advise them, these proposed changes will be important to watch.
The DOL’s Proposal – Two Types of Joint Employment
As a matter of employment law for financial institutions, understanding how the DOL analyzes joint employment is important because determination can affect wage-and-hour compliance obligations. The proposed rule addresses concepts of “vertical” and “horizontal” joint employment, and the ramifications under the FLSA if two employers or entities are joint employers of one or more employees, notably explaining that they are jointly and severally liable for compliance with the FLSA.
Horizontal Joint Employment
“Horizontal” joint employment exists when an employee works for two or more employers in the same workweek and where those employers are sufficiently associated with respect to that employee’s employment to be considered joint employers. In most cases, each employer separately employs the employee for some of the hours worked. If the employers are sufficiently associated, they must combine all hours the employee worked for them during the workweek to determine compliance with applicable legal requirements.
Employers will be sufficiently associated if:
- An agreement exists between the employers to share the employees’ services
- One employer is acting directly or indirectly in the interest of the other employer in relation to the employee; or
- They share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer.
However, the rule proposed clarifies that business relationships which have little to do with the employment of specific employees, such as sharing a vendor, are alone insufficient to establish joint employment.
Vertical Joint Employment
Vertical joint employment is an arrangement in which an employee “is jointly employed by two or more employers that simultaneously benefit from the employee’s work.” This “scenario is described as ‘vertical’ because it often centers around whether business partners—such as staffing agencies and their clients—are joint employers of the employee.” Like the 2020 rule, the proposed rule would establish a four-factor test based on federal case law to determine where vertical joint employment exists, where no single factor would be dispositive and the ultimate determination of joint-employer status would depend on all facts in the case.
The proposed rule adopts a four-factor analysis for use in every case of potential vertical joint employment, examining whether the potential joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment;
- Maintains the employee’s employment records.
Additional factors may also inform the vertical joint employment analysis, but a unanimous finding on the four primary factors in either direction would create a “substantial likelihood” that an individual or entity is, or is not, a joint employer. Unlike the 2020 rule, which required a potential joint employer to actually exercise control, the proposed rule provides that an employer’s ability, power, or reserved right to act in relation to the employee is relevant to the analysis. However, the proposed rule also makes clear that the actual exercise of control carries greater weight. DOL believes this approach is more consistent with the FLSA and longstanding case law.
Important Takeaways
The public comment period closed on June 22, 2026, and the DOL is in the process of reviewing feedback and may revise the proposal before issuing a final rule.
The proposed rule does not affect the National Labor Relations Board (NLRB)’s February 2026 rule, which reinstated the 2020 “substantial direct and immediate control” standard for joint employment. Under the NLRB standard, joint employment exists only where employers share or co-determine employees’ essential terms and conditions of employment, exclusively defined as wages, benefits, hours of work, hiring, discharge, discipline, supervision and direction.
Employers should recognize that federal joint-employer guidance is only one part of the analysis. Many states, including California, apply broader standards that may impose liability even when a business does not directly supervise or control workers. Depending on the jurisdiction, factors considered in determining joint employment include the parties’ broader business relationship, shared responsibilities, operational integration, and the extent to which multiple organizations benefit from the individual’s work.
For credit unions, this risk commonly arises when employees shared with brokers provide members with non-deposit investment services. Even if those individuals are employed by a broker-dealer or other investment services provider, a credit union would likely offer the brokered employee office space, member access, operational support, or oversight of services and expectations. In some states, these collaborative arrangements may create joint-employer exposure despite the credit union not being the individual’s direct employer. Credit unions should therefore periodically review vendor, staffing, and shared-service relationships to evaluate potential state-law risk and identify each party’s responsibilities.
What to Watch Going Forward
Employment law for financial institutions continues to evolve as federal agencies revisit key workplace standards and enforcement priorities. The DOL’s proposed changes and the NLRB’s reinstated rules regarding joint employment could affect how credit unions and other financial institutions manage staffing agencies, contractors, and shared-service arrangements. Given the potential for shifting administrative priorities and legal challenges, financial institutions should continue to monitor these developments and assess their impact on workforce management practices.
SW&M’s labor and employment attorneys can assist with compliance under applicable federal, state, and local labor laws and provide guidance on navigating evolving joint employment standards.
About the Author
Laraya Parnell
Laraya Parnell, Of Counsel at SW&M, brings nearly a decade of expertise in employment law and civil litigation. Her impressive portfolio includes guiding clients through the complexities of hiring, termination, employee benefits, and workplace policies, as well as tackling challenging […]
Learn More