The U.S. franchise sector employs roughly 8 million people across more than 790,000 locations, spanning fast food, fitness, home services, real estate, automotive, hospitality, and professional services. For the workers and the legal system, the defining question is who the employer is: the individual franchisee operating the location, or the franchisor behind the brand. That question is the single most consequential issue in franchise HR, and the answer has shifted several times in the past decade as the National Labor Relations Board and the courts have moved between narrower and broader joint-employer tests.
How Franchise Employment Typically Works In the standard franchise arrangement, the franchisee signs a franchise agreement with the franchisor that licenses the brand, operating system, and products. The franchisee operates the location as an independent business, hires and manages employees, handles payroll , sets schedules, and bears operational risk. The franchisor provides training, marketing, supply chain, and standards enforcement but generally does not directly employ the franchisee's workers.
The franchisee is the employer for most purposes: W-2, Form 941 , FICA deposits, workers' compensation, unemployment insurance, and state wage and hour compliance. The franchisor is not listed as the employer on any of those forms and typically doesn't carry the direct tax or wage liability.
The Joint-Employer Question Joint-employer status arises when a franchisor exercises enough control over franchisee employees that courts or agencies treat the franchisor as a co-employer for specific purposes. The current federal test (as of 2026, after several regulatory swings) generally requires direct and immediate control over essential terms of employment: wages, hours, discipline, hiring, and termination.
If joint-employer status attaches, the franchisor can be pulled into wage-and-hour claims, discrimination lawsuits, and union organizing campaigns at the franchisee level. That's expensive and creates liability the franchisor typically designed the franchise model to avoid.
What Kinds of Controls Can Trigger Joint-Employer Status? Franchisor practices that historically have moved toward joint-employer status include mandatory scheduling software that controls labor allocation, required wage rates above market, required background check standards, centralized HR support with direct employee contact, and required specific training curricula with franchisor trainers. Practices that stay on the safe side include brand standards (quality, appearance, product specifications), general training frameworks, and marketing oversight.
State Law Variations Several states have narrowed joint-employer standards specifically for franchises (Georgia, Tennessee, Texas, Wisconsin). California has pushed the other direction, with broader joint-employer concepts under the Dynamex decision and AB 5. Multi-state franchise systems have to run joint-employer analysis state by state for each jurisdiction where they have franchisees.
The NLRB has also shifted position multiple times, most recently with the 2023 rule broadening joint-employer standards, which was partially vacated in court. For 2026, the federal joint-employer test continues to evolve, and franchisors watching this issue should monitor both NLRB rulemaking and circuit court decisions closely.
Building a Franchise HR Framework That Protects Both Sides Four practices reduce joint-employer risk and clarify employment responsibilities. First, the franchise agreement should spell out the franchisee's exclusive responsibility for employment decisions. Second, franchisor training and support should be offered rather than required, and should avoid direct employee contact. Third, operational standards should focus on customer and brand outcomes, not employment practices. And fourth, any data the franchisor collects on franchisee employees should be limited to what's needed for brand oversight, not HR management.
The Department of Labor publishes guidance on joint-employer status under the FLSA at dol.gov/agencies/whd . The NLRB publishes current joint-employer guidance and rulemaking at nlrb.gov . For related HR concepts, see onboarding , compliance , and compensation .
.svg)
.svg)
