The American Franchise Act and Joint Employer Liability: Part 1
Joint employment means two separate businesses share employer responsibilities for the same worker. In franchising, the question is whether a franchisor is a joint employer of its franchisees’ employees, and the answer determines who can be held responsible for wages, overtime, and labor violations.
That answer has changed repeatedly. The National Labor Relations Board’s (NLRB) joint employer rule has been rewritten, vacated, and restored since the 2015 Browning-Ferris decision, and the Department of Labor (DOL) has proposed its own joint employer test under the Fair Labor Standards Act (FLSA) and Family and Medical Leave Act (FMLA). Discrimination laws enforced by the Equal Employment Opportunity Commission (EEOC) raise separate questions.
In part 1 of this series covering the American Franchise Act and joint employers, we explain franchise joint employer liability and the legal and regulatory considerations affecting franchisors and franchisees in 2026.
Executive Summary
- Joint-employer liability asks whether a franchisor shares employer responsibilities for workers employed by a franchisee. The answer depends on the applicable law, not simply the existence of a franchise relationship.
- The American Franchise Act proposes a franchise-specific standard under the National Labor Relations Act (NLRA) and FLSA. It has not become law, and it would not resolve every employment-law framework relevant to franchise businesses.
- The controversy around joint employers predates the 2023 NLRB rule. Enforcement proceedings and the 2015 Browning-Ferris decision brought indirect control and reserved authority into the discussion. Subsequent rules have continued to change the landscape.
- The NLRB and Department of Labor have issued separate rules under separate statutes. The broader 2023 NLRB rule was vacated before it took effect; the DOL’s 2020 wage-and-hour rule was largely vacated in 2020 and rescinded in 2021.
Why Joint-Employer Liability Matters to Franchisors and Franchisees in 2026
One recurring issue for franchise systems is not necessarily joint-employer liability itself, but the uncertainty created by changes in legislation, agency rules, enforcement positions, and court decisions.
A franchise system requires consistency, but franchisees also need room to operate as independent businesses. The question at the center of the debate is straightforward: Can a franchisor protect its brand without creating unintended employment liability?
That question affects both sides of the relationship. A franchisor wants to provide training, technology, standards, and support, and a franchisee wants the benefits of the franchise system, while retaining responsibility for running the business. The proposed American Franchise Act is structured around the distinction between uniform brand standards and independent day-to-day operations.
Without standards, there is no system. Without independence, there is no franchise model.
The difficulty, however, is determining where independence ends and employment control begins over employees in the franchise system. To understand why the debate continues, it is necessary to look beyond a single case or rule.
What Is a Joint Employer in a Franchise Relationship?
Joint employment means that two separate entities can share employer responsibilities for the same worker— in the case of a franchise relationship, the question is whether both the franchisor and franchisee qualify as an employer of workers employed by the franchisee. The DOL describes this as a potential vertical joint-employment relationship.
The consequences of whether the franchise relationship is considered joint employment depend on the statute. Under the FLSA, joint employers can be jointly and severally liable for wages, damages, and relief. Under the NLRA, joint-employer status can bring bargaining responsibilities and potential responsibility for unfair labor practices.
These are different legal questions. A dispute concerning overtime is not the same as a dispute concerning retaliation for organizing activity, even if both involve the same franchise relationship.
Which Agencies and Employment Laws Govern Joint Employment?
There is no single federal joint-employer rule covering every employment obligation. The principal frameworks discussed are:
- NLRB / NLRA: organizing, protected concerted activity, collective bargaining, and unfair labor practices.
- DOL / FLSA: federal minimum wage and overtime responsibility.
- DOL / FMLA: employee counting, eligibility, and allocation of family-and-medical-leave responsibilities.
- EEOC / Title VII, ADA, and ADEA: employment discrimination under three separate statutes. EEOC guidance recognizes that workers in multi-entity arrangements may have more than one employer.
Courts also determine employer status. The DOL acknowledges that federal appellate courts apply widely varying wage-and-hour standards, while state wage laws remain separately applicable.
For franchise businesses, the analysis involves more than simply, “Are we joint employers?” Relevant questions include, “Under which law, for which obligation, and based on what control?”
How McDonald’s and Browning-Ferris Brought Joint Employment Into Focus
McDonald’s: Enforcement Exposure, Not a Final Franchisor-Liability Finding
The McDonald’s proceeding concerned alleged retaliation against workers engaged in organizing and other protected activity. The complaints sought to hold McDonald’s USA responsible as a joint employer for alleged franchisee violations. This was an NLRA proceeding, not an FLSA unpaid-wage case.
In December 2019, the NLRB directed approval of settlements resolving complaints involving McDonald’s entities and 29 franchisees. The settlements did not impose joint-and-several liability on McDonald’s USA as a joint employer, although the franchisor undertook obligations supporting the remedies.
The distinction matters. The proceeding demonstrates exposure to a disputed joint-employer theory. It does not establish that the franchisor was ultimately adjudicated liable as a joint employer.
Browning-Ferris: A Broader Standard in a Staffing Case
In 2015, the NLRB found that Browning-Ferris jointly employed workers supplied by Leadpoint at a recycling facility. The Board considered direct and indirect control, along with reserved authority over employment terms.
Browning-Ferris was not a franchise case. Its importance to this discussion is the broader approach to control, not a finding that ordinary franchise standards automatically create employment responsibility.
The distinction between control actually exercised and authority retained became central to the regulatory changes that followed.
What Changed in the 2020 NLRB and DOL Joint-Employer Rules?
Two agencies adopted narrower approaches in 2020. They were not the same rule.
The NLRB’s 2020 Rule: Labor Relations
The NLRB’s rule took effect April 27, 2020, and required substantial direct and immediate control over essential employment terms. The agency’s later comparison contrasts that threshold with the 2023 approach recognizing indirect and reserved control.
The DOL’s 2020 Rule: Wages and Overtime
The DOL’s separate FLSA rule took effect in March 2020. It emphasized hiring and firing, substantial control over schedules or employment conditions, determining pay, and maintaining employment records. It required actual exercise of one or more control factors for vertical joint employment.
A federal court vacated most of the DOL rule in 2020. The department subsequently rescinded it, effective September 28, 2021. The DOL stated that the rule conflicted with statutory language and congressional intent.
The history illustrates an agency rule may not provide a permanent standard. Courts and later agency action can change what remains in place.
What Did the 2023 NLRB Rule Say, and Why Was It Struck Down?
The NLRB’s 2023 rule recognized authority to control essential employment terms whether exercised or not, and whether direct or indirect. It still required an employment relationship; it did not automatically make every franchisor an employer.
The covered terms included compensation, scheduling, assignment of duties, supervision, work rules governing methods and discipline, hiring and discharge, and safety-related working conditions.
The agency’s stated rationale was that reserved authority and control through intermediaries matter under common-law principles. The debate therefore extended beyond individual hiring and pay decisions to a broader range of authority over working conditions.
On March 8, 2024, the U.S. District Court for the Eastern District of Texas vacated the rule before it took effect. It was never the operative basis for enforcement against franchisors. In February 2026, the Board formally returned its regulatory text to the prior language.
This chronology is important: a court vacated the rule in 2024. It was not a rule that the Trump administration first vacated in 2025.
Where Do Franchise Joint-Employer Rules Stand in 2026?
The broader NLRB rule is not in effect. But that does not settle the separate wage-and-hour framework or every other employment statute.
The 2026 DOL Proposal Is a Separate Development
On April 22, 2026, the DOL announced a proposed framework under the FLSA, FMLA, and Migrant and Seasonal Agricultural Worker Protection Act. The agency’s published materials describe a proposal, not a final rule.
The proposal uses four principal control factors. Actual control carries more weight, but reserved authority remains relevant. Mandatory directions through another employer can indicate indirect control; voluntarily following a recommendation does not constitute that form of indirect control.
The proposal also identifies franchise status, quality standards, sample handbooks, and certain safety or compliance practices as neutral standing alone. It does not change the NLRA or state wage-and-hour laws.
Regulatory Snapshot: Q4 2026
- NLRA: The 2023 rule was vacated before taking effect; the NLRB has restored the prior regulatory language.
- FLSA: The 2020 DOL rule was rescinded. DOL describes its 2026 action as a proposal and acknowledges differing judicial standards.
- Legislation: H.R. 5267 was reported by the House committee on September 8, 2026, but has not been enacted.
A proposal, an effective rule, and a statute are not interchangeable. An announced proposal does not govern franchise operations in the same manner as an effective rule or enacted statute, and obligations continue to depend on applicable law.
Why Seek the American Franchise Act If the Broader Rule Was Vacated?
The proposed American Franchise Act addresses the stability question. The vacatur of the 2023 NLRB rule did not end federal joint-employer rulemaking. The Department of Labor is separately considering a joint-employer rule under the FLSA. That rulemaking illustrates an important distinction between an agency-established standard and the statutory approach proposed by the American Franchise Act.
As reported, it would require a franchisor to possess and exercise substantial direct and immediate control over at least one essential employment term under the NLRA and FLSA. It also defines specific activities that do not constitute that control.
The proposal would place that franchise-specific boundary in statutory text. Unlike an agency regulation, the standard would be enacted by Congress as part of the NLRA and FLSA. It would not eliminate interpretation or litigation, and it would not amend the FMLA, Title VII, ADA, or ADEA.
The policy question concerns how federal law should distinguish legitimate franchise support from actual employment control. That is more precise than treating the bill as either blanket immunity or a response to liability imposed under the never-effective 2023 rule.
In part 2 of this series, we examine the proposed protections, their limits, and what they would mean for franchisors and franchisees.
Final Thoughts
The franchise model depends on both consistency and independence. The joint-employer debate asks where employment responsibility belongs when those interests overlap.
For franchisors, the proposed legislation reflects questions about how federal law distinguishes franchise-system support for employment control. For Franchisees, it impacts what support the system can provide.
The policy issue concerns not less support or fewer standards, but more permanent clarity.
FAQs
Q: Are franchisee employees also employees of the franchisor?
A: Not automatically. Joint-employer status requires analysis under applicable law. The Department of Labor’s proposed framework expressly treats operating as a franchisor as neutral standing alone, but that proposal is not a universal exemption under every statute.
Q: Was McDonald’s found liable as a joint employer in the NLRB case?
A: The 2019 settlements did not impose joint-and-several liability on McDonald’s USA as a joint employer. The case illustrates a disputed enforcement theory, not a final finding of the sought liability.
Q: Did the 2023 NLRB joint-employer rule take effect?
A: No. A federal court vacated it on March 8, 2024, before it took effect. The Board subsequently restored the prior regulatory language.
Q: Are the DOL and NLRB joint-employer rules the same?
A: No. The NLRB applies the NLRA. DOL’s 2026 proposal concerns the FLSA, FMLA, and agricultural-worker statute and expressly does not change the NLRA.
Q: Does providing a handbook or scheduling tool establish joint employment?
A: Not automatically. The DOL’s proposal treats sample handbooks and certain ordinary practices as neutral standing alone, but examines employment control separately. The reported Act also distinguishes offering tools from assigning individual schedules and tasks. Neither proposed provision is blanket current-law immunity.
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