The Labor Department proposed a new regulation April 1 to limit shared wage and hour liability for companies in franchise and staffing arrangements.

The proposed rule narrows the situations in which businesses can be considered “joint employers” of a group of workers. The question often comes up when workers at a franchise restaurant try to sue the franchiser for unpaid minimum wages and overtime. It’s also been at the center of debates over whether companies should be required to bargain with workers provided by a staffing firm.

“This proposal will reduce uncertainty over joint employer status and clarify for workers...