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On February 27, 2026, the National Labor Relations Board published a rule in the Federal Register—Withdrawal of 2023 Standard for Determining Joint Employer Status, 91 Fed. Reg. 9707 (Feb. 27, 2026) (the “2026 Rule”)—which withdrew a 2023 final rule (the “2023 Rule”) governing the standard for determining joint employer status under the National Labor Relations Act. The 2026 Rule resulted from a decision by the U.S. District Court for the Eastern District of Texas vacating the 2023 Rule. It replaces the vacated regulatory text with the prior version of the joint employer standard and became effective on February 27, 2026.
The 2026 Rule replaces the “substantial direct and immediate control” standard previously adopted in 2020. To establish that an entity shares or codetermines the essential terms and conditions of another employer’s employees, the entity “must possess and exercise such substantial direct and immediate control over one or more essential terms and conditions of employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” The party asserting joint employer status bears the burden of proof.
Under the 2026 Rule, “essential terms and conditions of employment” include wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. “Substantial direct and immediate control” is defined as direct and immediate control that has a regular or continuous consequential effect on an essential term or condition of employment of another employer’s employees. The Rule also clarifies that control is not substantial if it is exercised only on a sporadic, isolated, or de minimis basis.
U.S. Department of Labor Proposes Return to Economic Realities Test
On the same day, the U.S. Department of Labor’s Wage and Hour Division published a proposed rule (the “2026 Proposed Rule”), Employee or Independent Contractor Status Under the Fair Labor Standards Act, Family and Medical Leave Act, and Migrant and Seasonal Agricultural Worker Protection Act, 91 Fed. Reg. 9932 (Feb. 27, 2026). The 2026 Proposed Rule rescinds prior guidance relating to the analysis for determining employee or joint employer status under the Fair Labor Standards Act (FLSA) and replaces it with the prior final rule issued on January 7, 2021, with certain modifications. The Department also intends for this analysis to apply to the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.
Two Core Factors for Independent Contractor Analysis
The 2026 Proposed Rule would rescind the Biden Administration’s 2024 independent contractor classification rule under the FLSA. It returns to the economic realities test and focuses on two core factors, “the nature and degree of control over the work” and “the individual’s opportunity for profit or loss.”
The first factor emphasizes the worker’s ability to control key aspects of the work, such as scheduling, selection of projects, and the ability to work for others. The second factor examines the worker’s opportunity for profit or loss based on the exercise of initiative, including managerial skill, business acumen, or management of investments or capital expenditures on helpers or equipment.
Additional Factors to Consider
The 2026 Proposed Rule also considers additional factors, including the level of skill required for the work, the degree of permanence of the working relationship, whether the work is part of an integrated unit of production, and any other relevant factors.
If issued as a final rule, the 2026 Proposed Rule is generally viewed as more employer-friendly and would likely result in more workers being classified as independent contractors. However, it would not affect state law tests for worker classification, and employers must remain attentive to applicable state and federal standards to ensure compliance. The Department of Labor is accepting public comments on the 2026 Proposed Rule through April 28, 2026. After the comment period closes, the Department will review the comments and issue a final rule.
If you have questions about how these changes may impact your business or organization, Chartwell’s Labor & Employment team can help. Reach out to your Chartwell contact or any member of our L&E team to learn more.
