Workforce structures are becoming more complex, especially as businesses rely on staffing agencies, subcontractors, and third-party partnerships. As a result, many employers are asking how responsibility is shared when more than one business is involved in managing workers. The recent update from the National Labor Relations Board brings this issue back into focus.
Understanding the joint employer standard is critical for compliance, risk management, and insurance planning. The reinstatement of the 2020 rule changes how businesses evaluate their level of control over workers and what that means for legal responsibility.
Key Takeaways
- The NLRB reinstated the 2020 joint employer rule in February 2026.
- Joint employer status depends on whether a business has substantial direct and immediate control over workers.
- Indirect or theoretical control may still be considered, but it is not the primary factor.
- Businesses using staffing agencies or subcontractors should review their agreements and operational practices.
- Misunderstanding joint employer status can increase liability and compliance risk.
What Is a Joint Employer and Why It Matters
A joint employer situation occurs when two or more businesses share control over the same group of workers. This can happen in arrangements involving staffing agencies, franchises, subcontractors, or vendor partnerships.
When joint employer status exists, both businesses may be responsible for compliance with labor laws. This includes obligations related to wages, working conditions, and workplace policies.
According to the update, joint employment typically arises when organizations share responsibilities such as hiring, supervision, or management practices . This makes it important for employers to understand how much influence they have over workers who are not directly on their payroll.
What Changed With the 2026 Joint Employer Rule
The National Labor Relations Board announced in February 2026 that it would reinstate the 2020 joint employer standard. The rule was published in the Federal Register and took effect immediately .
This update reverses prior efforts to expand the definition of joint employer under a broader standard introduced in 2023. That earlier approach would have made it easier for businesses to be classified as joint employers based on indirect or potential control.
The reinstated rule returns to a narrower framework. It focuses more heavily on actual control exercised over workers rather than theoretical influence.
For employers, this creates a clearer and more predictable standard, but it still requires careful evaluation of business relationships.
Understanding “Substantial Direct and Immediate Control”
At the center of the rule is the concept of “substantial direct and immediate control.” This determines whether a business is considered a joint employer.
In practical terms, this means looking at whether a company directly influences key aspects of employment. These include decisions about hiring, firing, discipline, supervision, scheduling, and wages.
If a business actively makes or significantly influences these decisions for workers employed by another organization, it may be classified as a joint employer.
The rule also acknowledges that other types of control can be relevant. Indirect control or contractual authority may be considered, but these factors alone do not automatically establish joint employer status .
The distinction is important. It shifts the focus toward real-world actions rather than hypothetical authority.
Why This Matters for California Employers
California businesses often operate in environments where multiple parties share responsibility for workers. This is common in industries such as construction, logistics, hospitality, and staffing.
The reinstated rule provides more clarity, but it does not eliminate risk. Employers must still evaluate how their business relationships function in practice.
For example, if a company works closely with a staffing agency and directly supervises temporary workers, sets schedules, or influences pay rates, it may still face joint employer exposure.
This can lead to shared liability for labor law compliance. It may also impact how insurance policies respond to claims involving those workers.
Understanding your level of control is essential when structuring agreements and managing day-to-day operations.
Risk Areas Businesses Should Review
To align with the updated standard, employers should take a closer look at how they interact with third-party workers.
Focus on how decisions are made regarding supervision and management. If your team directly oversees another company’s employees, that level of involvement may increase risk.
Review contracts carefully. While written agreements are important, they do not override actual working conditions. The NLRB emphasizes that real-world practices carry more weight than contractual language.
Consider how responsibilities are divided between your company and partners. Clear boundaries can help reduce confusion and limit exposure.
Finally, evaluate how your insurance coverage aligns with your workforce structure. Misalignment between operational control and policy coverage can create gaps in protection.
Businesses can review broader risk strategies through Arroyo South Bay’s commercial insurance services.
How This Rule Impacts Insurance and Liability
Joint employer status does not only affect labor compliance. It also has implications for insurance and risk management.
If your business is considered a joint employer, you may share responsibility for workplace incidents involving those workers. This can impact workers’ compensation, employment practices liability, and general liability exposure.
For example, if a worker from a staffing agency is injured while working under your supervision, questions may arise about which policy responds. Without clear coverage alignment, disputes and uncovered costs can occur.
This is why understanding your role in the employment relationship is essential when reviewing insurance policies. Coverage should reflect how your business actually operates, not just how contracts are written.
Frequently Asked Questions
1. What is a joint employer?
A joint employer exists when two or more businesses share control over workers and their employment conditions.
2. What changed in the 2026 rule?
The NLRB reinstated the 2020 standard, focusing on direct and immediate control rather than broader interpretations.
3. Does indirect control make a business a joint employer?
Indirect control may be considered, but it is not the primary factor in determining status.
4. Which industries are most affected?
Construction, staffing, logistics, and franchising are commonly impacted due to shared workforce structures.
5. How can businesses reduce joint employer risk?
Clearly defining roles, limiting direct control over third-party workers, and reviewing contracts and insurance coverage can help.
What This Means for Your Business Moving Forward
The reinstatement of the 2020 joint employer rule brings more clarity, but it does not remove the need for careful evaluation. Businesses must understand how their day-to-day operations influence worker classification and responsibility.
Taking a proactive approach helps reduce compliance risk and strengthens overall business stability. Reviewing contracts, clarifying responsibilities, and aligning insurance coverage with actual practices are essential steps.
If your business works with staffing agencies, subcontractors, or third-party labor, now is the time to review your risk exposure. Contact Arroyo Insurance South Bay to evaluate your coverage, assess potential liability, and ensure your policies match your workforce structure.
