Why Joint Employer Risk Matters in Franchising
For emerging franchisors, launching a franchise system is an exciting step; however, it comes with legal responsibilities that extend beyond brand-building and franchisee support. One of the most significant legal concerns in today’s franchise landscape is joint employer liability. This is a legal doctrine that can unexpectedly expose franchisors to lawsuits and compliance obligations tied to their franchisees’ employment practices.
Joint employer risk emerges when a franchisor is viewed as having direct or even indirect control over a franchisee’s employees. If such control is established, franchisors may be held accountable for wage violations, workplace conditions, union negotiations, and other employment-related issues. Yes, even when they do not employ the workers in question.
The NLRB Rule and the Legal Firestorm It Created
The joint employer issue gained national attention in 2015, when the National Labor Relations Board (NLRB) issued its landmark Browning-Ferris Industries decision. That ruling significantly broadened the joint employer standard by stating that a company could be considered a joint employer if it exercised indirect control over workers or even reserved the right to do so.
This move sent shockwaves through the franchise industry. Brands like McDonald’s became the face of the controversy when the NLRB filed complaints alleging it was a joint employer of franchisee employees. The fast-food giant argued it did not control day-to-day employment practices at independently owned franchise locations, igniting years of litigation and a firestorm of public debate.
Trade organizations like the International Franchise Association (IFA) pushed back hard, warning that the ruling threatened the foundation of the franchise model. Many feared that if franchisors could be deemed responsible for employment actions they did not control, it would discourage franchising altogether. Especially among emerging brands without large legal teams.
A Rollercoaster of Rule Changes
The legal definition of joint employment has shifted multiple times in the years since. Under the Trump administration in 2020, the NLRB narrowed the standard again, making it harder to classify franchisors as joint employers unless they exercised direct and immediate control.
That changed once again in October 2023, when the NLRB issued a final rule intended to reinstate a broader, Obama-era joint employer standard. This 2023 rule reintroduced the concept of indirect or reserved control as a basis for joint employment and was scheduled to go into effect in early 2024.
The business community quickly challenged the rule. In March 2024, a Texas federal judge vacated the NLRB rule, calling it overly broad and inconsistent with the National Labor Relations Act. While this decision put the rule on hold, the Department of Justice declined to appeal, leaving the future of joint employer enforcement in a gray area.
Despite the setback, NLRB officials signaled they would continue to pursue joint employer cases on a case-by-case basis, keeping franchisors on edge about how their support systems and compliance protocols could be interpreted.
Proactive Strategies for New Franchisors
For new and prospective franchisors, these shifting standards make it essential to proactively protect their brand and system from potential liability. Best practices include:
- Clearly defining franchisee independence in franchise agreements, especially regarding hiring, firing, scheduling, and pay decisions.
- Limiting mandates that impact franchisee employment practices and instead offering them as resources or recommendations.
- Training field reps to avoid giving employment-related advice or instructions.
- Reviewing manuals and documents with legal counsel to remove language that suggests control over franchisee staff.
- Staying current with NLRB developments and potential legislation that could revive a broader standard.
Franchisors are strongly encouraged to consult franchise and labor attorneys as part of their risk management strategy.
The Bottom Line
Joint employer liability is not just a theoretical risk. It’s a moving legal target that continues to evolve with each administration, court ruling, and enforcement shift. For new franchisors, understanding this complex landscape and designing your franchise system accordingly could be the difference between scaling smoothly and becoming entangled in challenges.
Editorial Note:
Franchise Brief does not take a political position on labor law, joint employer standards, or related rulemaking. Our goal is to inform franchisors of the facts, legal developments, and potential business implications so they can make informed decisions with the guidance of qualified professionals.
Disclaimer:
This article is intended for informational purposes only and does not constitute legal advice. Franchisors should consult with a qualified franchise attorney to assess the specific legal risks relevant to their business and to stay up to date with changing labor laws and regulatory guidance.
