diff --git a/compiler/src/dotty/tools/dotc/core/TypeComparer.scala b/compiler/src/dotty/tools/dotc/core/TypeComparer.scala
index 452fa2d898ed..4cb9a232f9ac 100644
--- a/compiler/src/dotty/tools/dotc/core/TypeComparer.scala
+++ b/compiler/src/dotty/tools/dotc/core/TypeComparer.scala
@@ -417,6 +417,7 @@ class TypeComparer(initctx: Context) extends ConstraintHandling[AbsentContext] w
         if (tp11.stripTypeVar eq tp12.stripTypeVar) recur(tp11, tp2)
         else thirdTry
       case tp1 @ OrType(tp11, tp12) =>
+
         def joinOK = tp2.dealiasKeepRefiningAnnots match {
           case tp2: AppliedType if !tp2.tycon.typeSymbol.isClass =>
             // If we apply the default algorithm for `A[X] | B[Y] <: C[Z]` where `C` is a
@@ -427,6 +428,12 @@ class TypeComparer(initctx: Context) extends ConstraintHandling[AbsentContext] w
           case _ =>
             false
         }
+
+        def containsAnd(tp: Type): Boolean = tp.dealiasKeepRefiningAnnots match
+          case tp: AndType => true
+          case OrType(tp1, tp2) => containsAnd(tp1) || containsAnd(tp2)
+          case _ => false
+
         def widenOK =
           (tp2.widenSingletons eq tp2) &&
           (tp1.widenSingletons ne tp1) &&
@@ -435,7 +442,15 @@ class TypeComparer(initctx: Context) extends ConstraintHandling[AbsentContext] w
         if (tp2.atoms.nonEmpty && canCompare(tp2.atoms))
           tp1.atoms.nonEmpty && tp1.atoms.subsetOf(tp2.atoms)
         else
-          widenOK || joinOK || recur(tp11, tp2) && recur(tp12, tp2)
+          widenOK
+          || joinOK
+          || recur(tp11, tp2) && recur(tp12, tp2)
+          || containsAnd(tp1) && recur(tp1.join, tp2)
+              // An & on the left side loses information. Compensate by also trying the join.
+              // This is less ad-hoc than it looks since we produce joins in type inference,
+              // and then need to check that they are indeed supertypes of the original types
+              // under -Ycheck. Test case is i7965.scala.
+
       case tp1: MatchType =>
         val reduced = tp1.reduced
         if (reduced.exists) recur(reduced, tp2) else thirdTry
diff --git a/compiler/src/dotty/tools/dotc/core/TypeOps.scala b/compiler/src/dotty/tools/dotc/core/TypeOps.scala
index e71416828505..65a42cd42561 100644
--- a/compiler/src/dotty/tools/dotc/core/TypeOps.scala
+++ b/compiler/src/dotty/tools/dotc/core/TypeOps.scala
@@ -198,13 +198,18 @@ trait TypeOps { this: Context => // TODO: Make standalone object.
 
     def mergeRefinedOrApplied(tp1: Type, tp2: Type): Type = {
       def fail = throw new AssertionError(i"Failure to join alternatives $tp1 and $tp2")
+      def fallback = tp2 match
+        case AndType(tp21, tp22) =>
+          mergeRefinedOrApplied(tp1, tp21) & mergeRefinedOrApplied(tp1, tp22)
+        case _ =>
+          fail
       tp1 match {
         case tp1 @ RefinedType(parent1, name1, rinfo1) =>
           tp2 match {
             case RefinedType(parent2, `name1`, rinfo2) =>
               tp1.derivedRefinedType(
                 mergeRefinedOrApplied(parent1, parent2), name1, rinfo1 | rinfo2)
-            case _ => fail
+            case _ => fallback
           }
         case tp1 @ AppliedType(tycon1, args1) =>
           tp2 match {
@@ -212,14 +217,16 @@ trait TypeOps { this: Context => // TODO: Make standalone object.
               tp1.derivedAppliedType(
                 mergeRefinedOrApplied(tycon1, tycon2),
                 ctx.typeComparer.lubArgs(args1, args2, tycon1.typeParams))
-            case _ => fail
+            case _ => fallback
           }
         case tp1 @ TypeRef(pre1, _) =>
           tp2 match {
             case tp2 @ TypeRef(pre2, _) if tp1.name eq tp2.name =>
               tp1.derivedSelect(pre1 | pre2)
-            case _ => fail
+            case _ => fallback
           }
+        case AndType(tp11, tp12) =>
+          mergeRefinedOrApplied(tp11, tp2) & mergeRefinedOrApplied(tp12, tp2)
         case _ => fail
       }
     }
diff --git a/tests/pos/i7965.scala b/tests/pos/i7965.scala
new file mode 100644
index 000000000000..ee9a9e64a01b
--- /dev/null
+++ b/tests/pos/i7965.scala
@@ -0,0 +1,66 @@
+class Has[A]
+trait X
+trait Y
+trait Z
+
+abstract class Test {
+  def x: Has[X] | (Has[Y] & Has[Z])
+  val y: Has[? >: (X & Y) | (X & Z) <: (X | Y) & (X | Z)] = x
+
+  def foo[T <: Has[_]](has: T): T = has
+  foo(x)
+}
+
+// -------------------------------------------
+
+trait ZLayer[-RIn, +E, +ROut <: Has[_]] {
+  def >>>[E1 >: E, ROut2 <: Has[_]](that: ZLayer[ROut, E1, ROut2]): ZLayer[RIn, E1, ROut2]
+  def ++[E1 >: E, RIn2, ROut1 >: ROut <: Has[_], ROut2 <: Has[_]](that: ZLayer[RIn2, E1, ROut2]): ZLayer[RIn with RIn2, E1, ROut1 with ROut2]
+}
+object ZLayer {
+  type NoDeps[+E, +B <: Has[_]] = ZLayer[Any, E, B]
+}
+
+type ServiceA = Has[ServiceA.Service]
+object ServiceA {
+  trait Service
+  val live: ZLayer.NoDeps[Nothing, ServiceA] = ???
+}
+
+type ServiceB = Has[ServiceB.Service]
+object ServiceB {
+  trait Service
+  val live: ZLayer.NoDeps[Nothing, ServiceB] = ???
+}
+
+type ServiceC = Has[ServiceC.Service]
+object ServiceC {
+  trait Service
+  val live: ZLayer.NoDeps[Nothing, ServiceC] = ???
+}
+
+type ServiceD = Has[ServiceD.Service]
+object ServiceD {
+  trait Service
+  val live: ZLayer.NoDeps[ServiceC, ServiceD with ServiceC] = ???
+}
+
+val combined =
+    ServiceA.live >>>
+      (ServiceB.live ++ (ServiceC.live >>> ServiceD.live))
+
+// -------------------------------------------
+
+class Outer {
+  class Elem
+}
+
+abstract class Test2 {
+  val o1: Outer = ???
+  val o2: Outer = ???
+  val o3: Outer = ???
+
+  val x: o1.Elem | (o2.Elem & o3.Elem)
+  def foo[T <: Outer#Elem](has: T): T = ???
+  foo(x)
+}
\ No newline at end of file