Sofia Khaira is a cornerstone of modern HR strategy, focusing on how diversity and inclusion intersect with complex labor regulations. With the Department of Labor recently unveiling a new joint employer rule on April 22, 2026, the landscape of talent management is shifting rapidly. Sofia joins us to unpack how these changes will impact everything from franchise agreements to daily payroll operations, providing a roadmap for businesses navigating this new regulatory environment.
The new standard for vertical joint employment relies on a four-factor balancing test involving hiring, scheduling, payment methods, and record-keeping. How will these criteria change daily operations for HR managers, and what specific steps should they take to evaluate their current relationships with third-party contractors?
HR managers need to immediately peel back the layers of their third-party relationships to ensure they aren’t accidentally assuming liability. You can’t just sign a contract and walk away anymore; you have to audit who is actually clicking “approve” on a shift or signing the paycheck. If your team is maintaining the employment records for a contractor’s staff, that’s a massive red flag under this four-factor test. It’s a gut-check moment for companies that have traditionally kept vendors at arm’s length but find themselves knee-deep in their daily workflows. I recommend a “clean room” approach where HR departments strictly separate their internal payroll systems from those used by external staffing agencies.
Regulatory guidance suggests that while reserved control is relevant, actually exercised control carries more weight in determining employer status. What internal auditing processes should companies implement to monitor how much control they exert, and how can they document that reserved contractual rights are rarely utilized?
There’s a palpable tension between what’s written in a contract and what happens on the factory floor every morning. The DOL is signaling that while having the right to fire someone is important, actually pulling the trigger on that decision is what really tips the scales in an investigation. Companies should implement “shadowing” audits where internal legal teams observe these third-party interactions to see if reserved rights are being accidentally triggered. We want to see documentation that proves these powers are “rare or never exercised,” keeping the legal exposure at bay. Keeping a log of instances where a company deferred to a contractor’s decision-making can be a powerful shield during a federal audit.
Horizontal joint employment now focuses on whether separate employers are sufficiently associated through their operations. Under this framework, how should businesses manage shared vendors or franchise agreements to avoid joint liability, and what evidence is necessary to prove these relationships are purely administrative?
The fear of being tied to a fellow franchisee’s labor violations can be paralyzing for small business owners who are just trying to keep their doors open. Under the new framework, being part of the same franchise or sharing a single administrative vendor is alone “insufficient” to establish joint employment. You need to demonstrate that your operations are distinct and that any overlap is purely for administrative efficiency rather than joint control over a specific employee’s life. It’s about building a wall between your business and your neighbor’s, even if you both buy supplies from the same truck on Tuesday mornings. Clear, separate bank accounts and independent hiring policies are the strongest evidence that your association is purely formal.
Establishing a single nationwide standard is intended to resolve conflicting precedents across different federal circuit courts. What impact do you anticipate this will have on long-term litigation costs for mid-sized firms, and what metrics should legal teams use to measure the efficiency of these new compliance rules?
For a mid-sized firm operating across state lines, the “legal map” has been a fragmented mess of conflicting court precedents for far too long. This single nationwide standard aims to cut through that noise, hopefully shrinking the bloated legal fees that come with navigating different rules in different federal circuit courts. Success will be measured by a drop in the hours spent on “pre-emptive” litigation and a smoother, faster path through Wage and Hour Division investigations. It’s about turning a confusing legal labyrinth into a straight, paved road for HR departments. Legal teams should track the “time-to-resolution” for employment claims as a key metric to see if these streamlined rules are actually working.
These proposed changes specifically exclude the Wagner Act, creating different standards for the FLSA and the NLRA. How does this regulatory split complicate compliance for labor relations departments, and what strategies can they use to satisfy both sets of rules without increasing their legal exposure?
This split creates a bit of a “two-headed monster” for labor relations departments because the rules for wages don’t match the rules for unionizing. You might be considered a joint employer for the purpose of paying overtime under the FLSA, but not for the purpose of collective bargaining under the Wagner Act, which is a dizzying prospect. To manage this, departments must create separate compliance checklists that address the specific nuances of both the FLSA and the NLRA. It’s a high-wire act where one misstep in documentation could leave you exposed on one front while you’re safely covered on the other. I suggest conducting “dual-path” audits to ensure that a win in one regulatory area doesn’t accidentally trigger a loss in another.
A unanimous finding on all four factors of the balancing test creates a “substantial likelihood” of a joint employment relationship. In scenarios where only two or three factors are met, how should a company assess its risk, and what anecdotal evidence often sways a department investigation?
When you only hit two or three out of the four factors, you’re entering a “gray zone” that keeps many executives up at night. The DOL notes that a unanimous finding on all four factors creates a “substantial likelihood” of joint employment, but anything less requires a deeper dive into the specific facts of the case. Investigators often look for the “smell test”—anecdotal evidence like whose logo is on the employee’s vest or who they go to when they need a day off for a family emergency. Even if you don’t control their pay, if you’re the one dictating every minute of their schedule, the risk remains dangerously high. Companies must be wary of “micro-management” by mid-level supervisors who might inadvertently create a joint-employment link through casual daily instructions.
What is your forecast for joint employer regulations?
My forecast for joint employer regulations is that we are entering a period of much-needed stabilization, but the road to get there will be paved with heavy public debate. With the 60-day comment period closing at 11:59 p.m. on June 22, we should expect a massive surge of feedback from industry giants and labor advocates alike. This push for a single nationwide standard is a bold attempt to finalize a vision of simplified compliance, yet the exclusion of the Wagner Act ensures that the legal battle over what it means to be a “boss” is far from over. I anticipate that the focus will shift heavily toward digital record-keeping as the ultimate evidence in future DOL audits. Businesses that invest in transparent, automated tracking systems today will be the ones that survive the regulatory shifts of tomorrow.
