By Steven Torgesen, Associate Attorney at Plave Koch PLC
Joint employer liability is having its moment in Washington. H.R. 5267, the American Franchise Act (AFA), has picked up momentum. The International Franchise Association is actively lobbying for it, and it recently earned an endorsement from the bipartisan Problem Solvers Caucus. That is a meaningful sign that Congress may finally settle a question that has plagued franchisors for years: when does a franchisor become legally responsible for a franchisee’s employees?
If enacted, the AFA would provide a clear and permanent standard for when a franchisor is considered a joint employer under federal law. Current law is the result of differing and inconsistent standards from different government agencies that can change quickly from administration to administration. A well-meaning franchisor can face liability based on even indirect influence, overreaching brand oversight, or training it provides system wide. The AFA would ensure exposure is limited to only those cases where a franchisor directly exercises control over certain conditions of employment such as wages, benefits, hiring, discipline, etc., which fall outside the franchisor’s typical role.
However, franchisors can’t afford to wait for Congress. The franchise model depends on a precise balance – corporate brand consistency paired with the operational independence of local business owners. If a franchisor is found to exercise too much control over a franchisee’s personnel, it faces increased exposure to that franchisee’s workplace lawsuits, wage-and-hour violations, and discrimination claims.
The State-Level Enforcement Environment
While federal legislation works through the legislative process, roughly 18 states have passed “joint employer shield laws” that explicitly protect franchisors from being treated as co-employers under state labor law, including Georgia, Indiana, Louisiana, Michigan, Tennessee, Texas, Wisconsin, and Wyoming, among others.
These shields help, but they aren’t enough on their own. System-wide operational safeguards remain necessary no matter where a location operates.
Brand Standards vs. Employment Policies
To reduce the risk of being held responsible for employment-related claims across the franchise system, franchisors need to draw a clear line between protecting the brand and managing franchisee employees. Franchisors should reserve the authority to set standards that protect the customer experience and their federally registered trademarks, but decisions about hiring, supervising, and managing employees should remain with the independent franchisee.
For example, a franchisor may establish brand standards by requiring a specific recipe, approved vendors, standard operating hours, or even recommended staffing levels. However, it should avoid directing personnel policies, such as employee scheduling, overtime practices,