Joint Employer Liability: A Guide for Franchisees
Some franchisees believe that paying for the rights to operate a franchised business guarantees everything they need to succeed. However, this is not true. The franchisor, who owns the brand, has specific limitations on what they can provide to franchisees due to joint employer liability.
The joint-employer rule in the franchise industry has existed for a long time, but over the past 10 years, the level of risk franchisors face has increased significantly, which also affects the type of support franchisees can receive from brand owners.
This week, I attended the Emerging Franchisor Conference (EFC) in Nashville, Tennessee, and led a training session on managing joint employer risk. While the session was aimed at franchisors, in this blog post, I will explore not only what joint employer liability is but also its implications for franchisees and how both parties can avoid the risks associated with this law.
Disclaimer: This is not legal advice, but rather a strategic overview based on industry best practices.
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What is Joint Employer Liability?
A joint employer is when two businesses are both considered employers of the same worker. And therefore, they can be held jointly liable for employment-related matters, such as labor law compliance, wage issues, or other employment-related issues.
That is the technical definition of joint employer, but the bottom line is that in franchising, it’s all about the direct or indirect control over employment matters.
In the last 10 years, the joint employer law has gone back and forth between stricter and less strict rules, and this can change at any time. Another thing that makes this complex is that, while there are federal laws related to joint employment, there are also state or local laws, and franchisors have to address both.
When it comes to the joint-employer standard, doing business in California is different from doing the same business in Alabama, and business owners and franchisors need to understand that.
The challenge for franchisors and franchisees is to draw the line in a way that complies with current laws while protecting the brand and the business. It is also to find ways to ensure that systems, processes, and standards are in place, and that employees are well-trained to execute the brand and the business with a high level of excellence, without any risks to any party.
FYI: I strongly suggest you stay in close contact with the International Franchise Association (IFA). They are the ones on the front lines protecting the franchise model, so getting their newsletters and updates is critical to staying up to date on what's happening with the joint employer standards.
What Franchisees Can Receive from their Franchisors
The key factors determining joint employer liability in franchise businesses have to do with the things that franchisors can support their franchisees with. This includes:
- The brand standards, to protect how the brand is executed across the franchised units. This includes the product, service, image, and marketing side of the business.
- Training in anything that may affect the brand.
- Training on how to run the business.
- Training materials for franchisees to train their people.
- Recommendations on optional tools or systems for the daily operations, like scheduling, training, and HR software. It's up to the franchisee to decide which one to use.
- Monitoring business performance, overseeing indicators such as speed of service, customer service scores, sales, and sales growth.
Keep learning: 7 Signs You’ve Found a Proven Franchise Brand
What Franchisees Can’t Receive from their Franchisors
On the other hand, there are certain things that franchisees will not get from franchisors because, if they were to provide them, they would face high risks:
- Employment practices or tips on how to manage labor.
- While they can provide training materials, they cannot give any direct training to the franchisees’ employees.
- Mandate which tools, platforms, or systems they must use to manage their people, though most franchises are likely going to use what the franchisor recommends.
- Anything related to employee performance, their discipline, or coaching.
- Interviewing candidates or approving who they hire. This includes Unit Managers, District Managers, or any hourly staff at the franchise locations.
- Require specific wages, bonuses, or overtime policies.
- Too much involvement in the day-to-day labor matters of the franchise organization.
How to Overcome Joint Employer Risk
Even though Franchisees don’t get everything they need to succeed from their Franchisors, they can compensate for what they lack through professional franchise training and external resources.
The American Franchise Academy is one of those resources, and we are here to help you!
We pick things up where the franchisor ends by providing Single-Unit and Multi-Unit Franchisees and their leaders with the knowledge and resources they need to manage people, revenue, profits, and scale. We do that through three elite training programs:
- The MANAGE Program, where we teach Unit Managers how to be great leaders, produce profits, and increase sales year over year. This program is divided into Unit Management 1.0 Basics and Unit Management 2.0 Advanced courses.
- The LEAD Program, a Multi-Unit Leadership Certification for District Managers who oversee multiple franchised units.
- The COMMAND Program, for Multi-Unit Franchisees who are growing.
We created this AFA Development Ladder so that business owners and their leaders can get the training they need to succeed:
Click here to access our FREE course “Joint Employer Rules Demystified” and discover what you must know to protect your business, and how the American Franchise Academy can help.
And don’t forget to visit the AFA’s program website to learn more about each training and certification, and how we can help you and your team overcome the joint employer risks in franchising. You are not alone, and we’ll be happy to help!
