DOL Proposes New Joint Employer Rule With Direct Implications for Franchising

A proposed rule from the U.S. Department of Labor could reshape how joint employment is defined across multiple federal statutes, with meaningful implications for franchise systems. A recent analysis published on JD Supra by Foley & Lardner LLP highlights how the proposal would create a single, nationwide standard under the Fair Labor Standards Act, the Family and Medical Leave Act and the Migrant and Seasonal Agricultural Worker Protection Act.

The proposal looks at who is really involved in employment decisions. For franchisors, the key questions are whether they can hire or fire workers, control schedules or working conditions, set pay or keep employment records. The rule would also allow regulators to consider authority under a contract, even if the franchisor never exercises it.

For franchisors, that distinction matters. Many franchise agreements include language that outlines brand standards, operational expectations or the ability to step in under certain conditions. Under the proposed rule, those reserved rights could factor into a joint employer analysis, even if they are rarely used.

At the same time, the rule outlines several “neutral” business practices that, on their own, should not increase joint employer risk. These include maintaining brand standards, requiring legal compliance, offering sample employee handbooks and providing access to group benefits. For franchise brands, this reinforces the importance of separating brand oversight from day-to-day employment decisions.

The main concern is liability. A joint employer finding could make the brand responsible for certain wage and hour violations, even when the workers are employed by a franchisee. It could also affect whether federal leave rules apply.

As the rule moves through the comment period, franchisors may need to take a closer look at how their systems are structured. Reviewing agreements, clarifying operational boundaries and ensuring franchisees retain control over hiring, pay and scheduling could help mitigate risk if the rule is finalized.

Franchise brands have until June 22 to review the proposal, evaluate where their agreements may create risk and decide whether to submit comments.

Read the original report here.

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