Labor Dept proposes narrower contractor liability

The U.S. Labor Department has proposed a rule that would make it harder to hold companies liable when contractors or franchisees short workers on pay. (dol.gov) The proposal, released April 22 and published in the Federal Register on April 23, would set one nationwide test for “joint employer” status under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. Public comments are due by June 22, 2026. (dol.gov) (federalregister.gov) Under the draft, a company would generally face joint liability only if it actually exercises direct or indirect control over key job terms such as hiring, firing, supervision, scheduling, pay-setting, or recordkeeping. If that joint-employer relationship exists, the employers remain jointly and severally liable for unpaid wages and overtime. (federalregister.gov) (dol.gov) That standard would replace the regulatory vacuum the department says has existed since 2021, when prior joint-employer regulations were withdrawn. The agency said it wants a rule that tracks common points in federal court decisions and reduces differences among regional appeals courts. (federalregister.gov) (dol.gov) The practical fight is over franchise chains, staffing firms, subcontracting, and farm-labor arrangements, where workers often deal with one business day to day while another business writes the contracts or sets the business model. A narrower rule can leave the direct employer on the hook while making it tougher to reach a parent company, brand owner, or client company with deeper pockets. (federalregister.gov) (news.bloomberglaw.com) Acting Labor Secretary Keith Sonderling said the proposal would give businesses “a clear, consistent understanding” of when multiple employers are responsible and would make investigations more efficient. Wage and Hour Division Administrator Andrew Rogers said the rule would also help workers know when they can recover wages if one employer cannot or will not pay. (dol.gov) Franchise groups backed the move. The International Franchise Association said the proposal gives “a clear and commonsense approach” for the nation’s 832,000 franchised businesses and said a federal standard would reduce uncertainty for operators and brands. (franchise.org) The rule lands as federal labor policy is moving in different directions on different issues. On April 15, the Federal Trade Commission ordered Rollins, the parent of Orkin, HomeTeam, and Critter Control, to stop enforcing noncompetes against more than 18,000 workers and sent warning letters to 13 other pest-control companies. (ftc.gov) That leaves employers with a narrower proposed federal test for shared wage liability, while federal antitrust enforcers are still pursuing specific noncompete cases. The Labor Department’s proposal is only a draft for now, and the next marker is June 22, when the comment period closes. (federalregister.gov) (ftc.gov)