Joint Employer Standard: Restore Responsibility in Fissured Workplaces

Executive Summary

• The “joint employer” question asks to what extent large firms that design, direct, and profit from complex business arrangements can offload legal responsibility for workers onto their contractors and franchisees.

• In recent years, the National Labor Relations Board (NLRB) and the Department of Labor (DOL) have oscillated between expansive and narrow joint employer standards. The consequence has been regulatory uncertainty in which businesses cannot plan and workers do not know who is responsible for the conditions under which they labor.

• A conservative approach should harmonize predictability with accountability. Congress should codify a statutory joint employer framework that anchors liability in substantial, regular, direct control over core employment terms, adds objective triggers for heightened scrutiny in fissured sectors, and provides safe harbors for beneficial coordination. Responsibility would follow actual authority, so workers know who is accountable for their pay and conditions, while keeping the rules transparent, predictable, and consistent with conservative commitments to ordered markets.

The Policy Question

Federal law does not contain a single, unified definition of “joint employer.” The concept has developed piecemeal through case law and regulations under different statutes, chiefly the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA). Over the past decade, the standard has fluctuated with each administration, creating instability and vulnerability for both workers and businesses.

How should federal law define “joint employer” so that responsibility follows real authority in fissured workplaces, while providing businesses with clear, durable rules and preserving the legitimate benefits of contracting and franchising?

Why it Matters

Applying federal labor and employment law depends on defining the “employer.” But in an economy increasingly organized through franchising, subcontracting, gig work, and the use of staffing agencies, the firm that appears on a worker’s paycheck is often not the firm that dictates the terms of that worker’s job. In many sectors—cleaning and maintenance, home health care, warehousing, logistics—the “fissured workplace” is no longer an exception but the norm. A brand-name corporation controls pricing, quality standards, and often the software that governs staffing and scheduling. Yet the workers wear the logo of a staffing agency or subcontractor that may be little more than a shell designed to limit the larger company’s taxes, legal liabilities, or reputational risk.

When federal labor and employment law is violated, it is often the intermediary that appears as a defendant in the lawsuit, even though it might have less financial capacity or bargaining power to ensure compliance than the larger corporation it was hired to serve.

For workers, this arrangement can mean limited leverage and weak, unreliable remedies. When wages are stolen or safety corners are cut, the company with real power to fix the problem insists it is “not the employer,” while the nominal employer is too small or undercapitalized to negotiate better terms or pay judgments if it loses. Workers cannot bargain with the entity that actually sets the standards of the job, and even when they win a case, they may never receive their payout.

For businesses, the stakes are high as well. When the joint employer standard expands or contracts with each administration, firms cannot know whether coordinating training and compliance, or imposing ordinary brand standards, might suddenly expose them to unanticipated liability. Nowhere is this clearer than in the franchise sector, where the basic model depends on a division of labor: the franchisor supplies brand, systems, and know-how, while the local owner hires, pays, and manages workers. If the result is classification as an employer, franchisors face powerful incentives to pull back from training and compliance assistance, or to avoid smaller operators altogether. That uncertainty discourages long-term investment, undermines productive partnerships with smaller firms and entrepreneurs that rely on franchising to get started, and encourages risk-averse behavior that may hurt workers—by reducing local ownership opportunities and eroding compliance support—more than it helps them.

Stable, clearly defined rules allow firms to structure relationships that are both efficient and responsible, rather than chasing the latest regulatory dictate from Washington. A well-designed joint employer standard should restore the link between authority and responsibility. It should discourage business models that depend on evasion and arbitrage, without punishing firms that genuinely respect the agency of their counterparties. It should also reduce the scope for discretionary administrative policymaking by anchoring the rules in statute rather than leaving them to oscillating agency interpretations.

State of Play

Under current doctrine, two entities may be deemed “joint employers” and share responsibility for complying with wage-and-hour rules or bargaining obligations. But the line between ordinary commercial influence and genuine employer control has been continuously drawn, erased, and redrawn.

During the Obama administration, the NLRB’s 2015 Browning-Ferris Industries decision adopted a broad joint employer standard under the NLRA. Two entities could be joint employers if they “share or codetermine” essential terms and conditions of employment, and the NLRB could treat direct control, indirect control, and even reserved but unexercised authority to control as relevant evidence.¹Judy Conti, The NLRB’s Browning-Ferris Decision Explained, Nat’l Emp. L. Project (Sept. 30, 2015). In 2016, the Obama DOL issued interpretive guidance under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act that likewise emphasized expansive coverage and “economic reality,” treating economic dependence and indirect influence as central features in the determination of employer status.²U.S. Dep’t of Labor, Wage & Hour Div., Administrator’s Interpretation No. 2016-1: Joint Employment Under the Fair Labor Standards Act and Migrant and Seasonal Agricultural Worker Protection Act (Jan. 20, 2016).

The first Trump administration moved in the opposite direction. The Trump DOL withdrew the Obama-era guidance³Press Release, U.S. Dep’t of Labor, US Secretary of Labor Withdraws Joint Employment, Independent Contractor Informal Guidance (June 7, 2017). and, in early 2020, promulgated an FLSA joint employer regulation that focused narrowly on four factors: whether the putative joint employer hires or fires the worker, supervises and controls work schedules or conditions, determines the rate and method of payment, and maintains employment records. Joint employer status had to be based on the actual exercise of control; economic dependence factors—such as whether the worker’s livelihood depends on the lead firm or whether the work is integral to its business—were declared irrelevant.⁴Joint Employer Status Under the Fair Labor Standards Act, 85 Fed. Reg. 2,820 (Jan. 16, 2020) (codified at 29 C.F.R. pt. 791). A federal district court later vacated key parts of this rule for the “vertical” joint employment context,⁵New York v. Scalia, 490 F. Supp. 3d 748 (S.D.N.Y. 2020). but the basic signal was clear: indirect and structural influence would not matter much.

At the NLRB, a short-lived 2017 decision to overrule Browning-Ferris and restore an older “direct and immediate control” standard was soon vacated.⁶Press Release, Nat’l Lab. Rels. Bd., NLRB Overrules Browning-Ferris Industries and Reinstates Prior Joint-Employer Standard (Dec. 14, 2017). The NLRB then turned to rulemaking and in 2020 issued a joint employer rule under the NLRA.⁷Joint Employer Status Under the National Labor Relations Act, 85 Fed. Reg. 11,184 (Feb. 26, 2020) (codified at 29 C.F.R. pt. 103).  That rule, still in effect, limits joint employer status to situations where a second entity possesses and exercises substantial, regular, and direct control over at least one essential term of employment, such as wages, benefits, hours, hiring, discipline, or supervision. Indirect or reserved control may only supplement evidence of direct control and never establishes joint employer status by itself.

The Biden administration again attempted to broaden the standard. DOL rescinded the 2020 FLSA joint employer rule in 2021, returning to an “economic reality” approach without a new comprehensive regulation.⁸Serra Capital (SBIC) III, L.P.; Conflicts of Interest Exemption, 86 Fed. Reg. 41,145 (July 30, 2021). In 2023, the NLRB finalized a broader joint employer rule that resembled Browning-Ferris and expressly emphasized unexercised authority and indirect control over enumerated essential terms to support joint employer findings.⁹Standard for Determining Joint Employer Status, 88 Fed. Reg. 73,946 (Oct. 27, 2023) (to be codified at 29 C.F.R. pt. 103). Before it took effect, a federal district court vacated the rule and restored the 2020 Trump-era standard; the NLRB then withdrew its appeal.¹⁰Chamber of Com. of the U.S. v. Nat’l Lab. Rels. Bd., No. 6:23-cv-00553, slip op. (E.D. Tex. Mar. 8, 2024).

The result is a fragmented and unstable environment. Under the NLRA, a narrow “direct control” standard remains in place; under the FLSA, the Trump rule is gone, but no stable replacement exists, leaving both businesses and workers uncertain about who will ultimately be held responsible under federal labor and employment law.

Analysis

The debate over joint employer standards is often framed as a clash between worker advocates, who want to hold large corporations accountable, and business advocates, who want to preserve flexibility and avoid unpredictable liability. A conservative approach recognizes the legitimacy of both concerns while focusing on deeper structural problems that neither side’s preferred solution fully addresses.

On the one hand, the broad standards pursued by Obama-era and Biden-era regulators stem from a real diagnosis. Many of the most troubling labor practices today occur in fissured workplace arrangements, in which the direct employer is a small, undercapitalized intermediary and the firm that designs and controls the system can plausibly claim to be a mere “client.” If the law focuses only on who gives direct instructions to the worker, it will consistently miss the entity that sets the economic terms—including prices and wages, staffing models, and timelines and schedules—that make violations likely or might lead workers to pursue collective representation. That disconnect is especially apparent in third-party logistics and contracted building services, where the economics of the contract all but guarantee low wages, rushed work, and high turnover, while the brand-name company remains formally distant.

On the other hand, the expansive, open-ended standards developed by Obama-era and Biden-era regulators have genuine flaws. Treating any indirect influence or reserved authority as relevant, without clear boundaries, forces businesses to guess whether ordinary actions—such as insisting that vendors follow basic compliance procedures or training franchisees in best practices—might be recharacterized after the fact as evidence of joint employment. That uncertainty is fundamentally at odds with the rule of law. It can deter large firms from providing support that would actually benefit workers, such as shared training and safety programs, and it invites a style of policymaking in which the scope of liability shifts with the political winds.

A durable solution must therefore accept three premises at once. First, the ordinary case should be governed by a narrow and predictable rule focused on actual, substantial, and direct control over clearly defined core employment terms. Second, specific fissured arrangements are sufficiently prone to abuse that a stronger presumption of shared responsibility is warranted, but that presumption should be tied to objective triggers (e.g., concentration of revenue, contract terms that dictate wages or headcount) rather than to unbounded notions of “economic dependence.” Third, the law should draw clear lines between safe, desirable forms of coordination and the types of control that properly give rise to joint employer liability, so that firms know in advance which tools they can use without becoming employers by accident.

Recommendations

Policymakers should adopt a statutory joint employer framework that establishes a clear and narrow baseline rule, identifies the types of fissured workplaces subject to greater scrutiny, and creates safe harbors for activities that should be excluded from any test because they actively benefit workers and thus are to be encouraged in all relationships. The American Franchise Act illustrates this approach well, codifying a narrow, direct-control joint employer test for franchisors and making clear that ordinary brand, training, and compliance support do not, by themselves, turn a franchisor into an employer.¹¹American Franchise Act, H.R. 5267, 119th Cong. (2025) (introduced Sept. 10, 2025). The recommendations here are meant to complement that approach.

• Congress should amend the NLRA and FLSA to adopt a shared core definition of “joint employer.” Under this definition, an entity would be a joint employer of another firm’s employees only if it actually exercises control over at least one core term and condition of employment (i.e., wages and benefits, hiring and firing, hours and scheduling, job assignments, discipline, day-to-day supervision). This test should make explicit that control must be both substantial and regular, not sporadic or de minimis, and that indirect or reserved authority may not, by itself, establish joint employer status, though it can corroborate evidence of actual control. These standards would give businesses certainty. If a firm is not playing a role in decisions about the core terms of employment, it will not be deemed a joint employer.

• Congress should create a supplemental “fissured workplace test” under the NLRA and FLSA that would apply heightened scrutiny to the limited set of sectors and arrangements where fissuring is most prominent and the risk of abuse highest—such as third-party logistics, large-scale janitorial contracting, and staffing agencies. Under this overlay, the law would identify specific, objective conditions that might include: (1) the lead firm accounts for a substantial share (e.g. more than 80%) of the contractor’s revenue; (2) the lead firm’s contract fixes or tightly constrains wage scales, labor budgets, or staffing levels for the contractor’s workforce in ways that go beyond ordinary system standards and leave little room for local business judgment; or (3) the contractor shows a demonstrated collection risk, evidenced by one or more of the following: unsatisfied final judgments or enforceable settlements for wage-and-hour violations, or repeated final agency findings of wage-and-hour violations. If two or more such conditions are present, the lead firm would be presumed a joint employer unless it can demonstrate that, despite those conditions, it does not in fact determine or effectively dictate any of the core terms of employment. This approach recognizes that some business models pose special risks, but puts them on notice of heightened scrutiny and then evaluates their status through transparent, ex ante rules rather than open-ended administrative discretion.

• To further enhance predictability, Congress should also define in both statutes the activities that should never constitute evidence of joint employment. Safe-harbored activities should include setting brand standards, product specifications, and service-quality requirements; requiring compliance with health and safety laws; and providing training materials, model policies, or compliance audits. Removing these activities from the joint employer analysis would ensure that efforts to better protect workers do not inadvertently harm them by discouraging beneficial economic activity.

Further Reading

David Weil, The Fissured Workplace: Why Work Became So Bad for So Many and What Can Be Done to Improve It (Harvard University Press, 2014)

Michael Lind, “Who Should Pay for College?” Tablet, June 6, 2021.