What It Means To Be a ‘Joint Employer’ Under the U.S. Department of Labor’s New Rules

When things get legally dicey within a franchised business regarding employees, the franchisor can often be held as a responsible party because of a policy referred to as ‘joint employer’ status. In the past, the regulations surrounding this status have been somewhat murky, making legal proceedings that much more difficult to navigate. But in late 2019, the U.S. Department of Labor finally narrowed down the specific criteria in which a franchisor can be considered a joint employer.

The set of new criteria explains that for a franchisor to quality for joint employer status, it must do any of the following: Hire or fire employees; substantially supervise employee conditions of employment including work schedule; determine wages; or maintain employment records.

“This is, by all accounts, a big win for franchisors and franchisees,” said Doug Groves, president of franchise insurance compliance management company EZ CERT . “A narrow interpretation of what it means to be a joint employer is crucial for success within the franchise model. The International Franchise Association has fought extensively to protect the industry from a punitive joint employer relationship between the franchisor and employees of the franchisee, and this new definition greatly benefits the industry we serve.”

For many franchisors, this will vastly clear up confusion and likely reduce the number of lawsuits where joint employer status comes into question, including in several recent legal battles that have put McDonald’s at the forefront of this issue . The case that finally provided clarity involved the Golden Arches—in December, a special panel within the National Labor Relations Board ruled that McDonald’s is not a joint employer of its franchisees’ staff members. This lawsuit had been percolating for the brand since 2014.

The definition of a joint employer wasn’t always as broad as it has been in recent past. The culpability of franchisors was first broadened back in 2015 by the National Labor Relations Board, a decision that faced “significant pushback from franchisors and industry governing bodies like the IFA,” Groves said. It also muddied the waters for franchise insurance resources like EZ CERT and providers like affiliate Program Insurance Group , too, because of the uptick in lawsuits, unclear definitions of what coverage constitutes and the overall losses facing the industry as a result.

At the time of the McDonald’s ruling essentially eliminating that culpability, IFA spokesperson Matt Haller had this to say: “After five years of litigation, five years of unnecessary legal costs, and five years of uncertainty in the franchise sector, IFA is thrilled the NLRB came to this common-sense conclusion. Franchise businesses are separate businesses; holding one business responsible for the actions of a different business that it does not and cannot control is utter nonsense. This decision can bring much-needed clarity to franchise businesses of all sizes.”

Of the new joint employer definition born of the ruling, IFA president Robert Cresanti added the new regulation returns to a “simple, clear, and thoughtful joint employer standard.”

“Simply put, franchisors are covering their bases to avoid legal trouble, as many of them have faced legal threats by franchisees,” Groves said. “This new ruling protects the brand—and as a result, the rest of its franchise system—from liability for the actions of the employee or employees of one of the franchisees among them. While 2020 will continue to shed light on where the line of demarcation is in regard to joint employer as cases continue to arise, this clarity is a welcome development for franchising across the board."

Maddie has spent her career in the media industry, serving in various editorial roles before migrating into a hybrid content strategy and PR role with No Limit Agency. Her passion for storytelling and love of writing help her create meaningful content on behalf of her clients and fulfill No Limit Agency’s mission to tell people-driven stories. Maddie is a graduate of Saint Louis University, where she studied Communications with a focus in journalism and media studies as well as Sports Business.

In her spare time, Maddie can be found exploring Chicago’s food scene, watching an NBA game or lamenting over her middling fantasy baseball team.