Responsible for Workers You Did Not Hire
A company can be treated as an employer of people on another company payroll if it exercises enough control over their work. Where that line sits determines liability across franchising, staffing, and contracting.
The Question
A franchisee hires a worker. A staffing agency places a temporary worker at a client site. A general contractor engages a subcontractor whose employees work on its project.
In each case one entity signs the paycheque and another exercises meaningful influence over the work. If the worker has a claim, whether for unpaid wages, discrimination, or the right to bargain collectively, which entity answers for it?
The joint employer doctrine holds that both can, where the second entity has sufficient control over the terms and conditions of employment.
Why the Standard Keeps Moving
The test has oscillated substantially, and the swings are consequential rather than academic.
A direct and immediate control standard finds joint employment only where the second entity actually exercises control over hiring, firing, supervision, scheduling, or pay. This is narrow and predictable.
An indirect or reserved control standard finds joint employment where the entity has the contractual right to control those terms, or influences them indirectly, even if it never exercises the right.
| Standard | Reaches | Effect on Franchising |
|---|---|---|
| Direct and immediate control | Entities that actually supervise | Franchisor generally not liable |
| Indirect or reserved control | Entities with contractual authority | Franchisor potentially liable |
The difference between exercising control and having the right to exercise it decides whether an entire business model works. A franchise agreement specifies operating standards in detail precisely because brand consistency requires it, and under a reserved control standard that specification is evidence of employment.
The Franchising Problem
Franchising is where the doctrine bites hardest, and the tension is genuine.
A franchisor must impose standards to protect the brand: product specifications, hours of operation, uniforms, service procedures, and cleanliness requirements. A customer expects consistency, and without enforceable standards the brand is worthless.
Many of those standards touch how work is performed. Required software for scheduling, mandated training programmes, and staffing guidance all influence employment terms without the franchisor ever hiring anyone.
Under a broad standard, the franchisor becomes a joint employer of every franchisee worker, which exposes it to wage claims, discrimination claims, and collective bargaining obligations across thousands of independently owned outlets. Under a narrow standard, workers face an employer of record that may be a single unit operator with limited resources.
The Regulatory Whiplash
The American history is unusually volatile. A labour board decision in 2015 adopted a broad standard reaching indirect and reserved control. A rule in 2020 narrowed it back to direct and immediate control. A rule in 2023 broadened it again, and was struck down by a federal court in 2024 before taking effect.
Separately, the labour department has issued and rescinded its own rules for wage and hour purposes, which uses a different test again.
The result is that a company may be a joint employer for one statute and not another, and the answer may change with an administration. That instability is itself a cost, because businesses structure operations around a standard that may not survive.
The Practical Responses
Companies exposed to the doctrine adopt recognisable strategies.
Limiting contractual reach. Franchise agreements have been rewritten to specify outcomes rather than methods, addressing what must be achieved rather than how staff should be managed. Recommended rather than mandated practices appear more frequently.
Removing employment touchpoints. Franchisors have withdrawn from providing scheduling software, handbooks, and human resources support, which reduces evidence of control and also removes services that small franchisees genuinely needed.
Indemnification. Contracts allocate liability between the parties, which works between them and does not bind a worker or a regulator.
The second response has a real cost worth naming. A franchisor withdrawing employment guidance to avoid liability leaves compliance to operators with the least capacity to get it right, which is not obviously good for the workers the doctrine is meant to protect.
Beyond Franchising
The same analysis applies wherever labour is supplied through an intermediary. Staffing agencies, professional employer organisations, and subcontracting arrangements in construction, logistics, and agriculture all present the question.
In several of those sectors the doctrine performs its clearest function: preventing a company from insulating itself from wage and safety obligations by interposing an undercapitalised intermediary that cannot satisfy a judgment.
That is the strongest case for a broad standard, and it applies with much more force to a labour supply arrangement than to a brand licensing one.
The Bottom Line
The joint employer standard decides whether a company that shapes how work is done is responsible for the people doing it, and the answer has swung repeatedly between requiring actual control and accepting the right to control. Franchising is where the tension is sharpest, because brand standards and employment control are difficult to separate. The doctrine works best where an intermediary exists to absorb liability it cannot pay, and it works least well where it treats a specification about how to make a sandwich as evidence of employing the person making it.