Joint employer risk is the exposure a franchisor takes on when the law decides it shares enough control over a franchisee’s employees to be held legally liable for that franchisee’s wage, safety, or discrimination violations. For years, the safest-sounding move was to stay hands-off: no input on hiring, no shared systems, nothing that looked like control. That instinct made sense under the wrong assumption. It doesn’t hold up anymore.
The cost of getting joint employer risk wrong is rising, too. Segment-wide franchise hiring fell about 15% between January and May 2025 compared to the same window in 2026, per our 2026 Franchise Hiring Report. A tighter market makes hands-off inaction more expensive, not safer.
“The joint employer fog that’s kept you on the sidelines is about to lift.” — Clint Smith, CareerPlug CEO and author of The Franchise People Playbook
Here’s a quick guide to what changed, and what it means for how you support your franchisees.
Table of Contents:
- What joint employer risk actually means
- Joint employer status turns on how much control you actually have
- Four arrangements commonly create joint employer risk
- What happens once joint employment is established
- What franchisors are legally free to do right now
- How franchisors actually reduce joint employer risk
- FAQs: What franchisors ask about joint employer risk
What joint employer risk actually means
A joint employer is what the law calls two or more businesses when they share control over the same workers’ essential terms and conditions of employment: wages, benefits, hours of work, hiring and promotion, termination, discipline, supervision, and direction. Joint employer status gets determined by looking at how much control a business actually exercises over those specific terms, not by the label on the contract. Joint employer risk, then, is simply the possibility that a franchisor’s involvement in a franchisee’s operations crosses that line and pulls the brand into liability for something the franchisee did.
That determination isn’t about intent. A franchisor that never meant to control hiring can still end up classified as a joint employer if its systems function that way in practice. That’s the part worth understanding before anything else: it’s architecture, not attitude, that decides the outcome.
For a broader look at where hiring compliance risk shows up across a franchise system, see our guide to hiring compliance basics.
Joint employer status turns on how much control you actually have
Joint employer status is decided by one question: does a business exercise direct, actual control over another company’s employees, or does it merely have the right to, on paper, without ever using it. That distinction is what turns ordinary franchise support into joint employer risk, or keeps it well clear of that line.
The federal standard for answering that question has swung hard in the last few years, and the current standard is the one that matters.
As of February 27, 2026, when the NLRB‘s final rule formally reinstating it took effect, the National Labor Relations Board is back to the 2020 standard: substantial, direct, and immediate control over essential terms of employment is required for joint employer status. The broader 2023 rule, which would have counted indirect or merely reserved control, was vacated by a federal court in March 2024 and never took effect. The Department of Labor’s 2026 proposed rule goes further, naming specific business practices, including the franchisor-franchisee relationship itself, that do not, standing alone, create joint employer status. That DOL rule is proposed, not final.
The 2020 standard replaced the vacated 2023 rule
Under the 2020 standard, the question is whether a business actually exercises control, day to day, over the eight essential terms: wages, benefits, hours of work, hiring and promotion, termination, discipline, supervision, and direction. Under the vacated 2023 rule, even the right to exercise control, whether or not it was ever used, could be enough. That distinction is the whole ballgame.
Reserved control and actual control are not the same thing
Reserved control is the right to step in, written into a contract but never exercised. Actual control is what a business actually does, day to day, on the ground.
Under the current standard, reserved control that stays on paper doesn’t create joint employer status. Actual, direct control, a franchisor logging into a franchisee’s system and making hiring decisions for them, does. This is the line every franchisor needs to know before deciding what kind of hiring support to offer.
Four arrangements commonly create joint employer risk
Joint employer risk shows up most often in four structures: franchising, staffing agency placements, professional employer organization (PEO) arrangements, and subcontracting. Each one puts two businesses in a position to share control over the same workers, and each one gets evaluated by the same actual-control test.
| Arrangement | Where control risk usually concentrates |
|---|---|
| Franchise | Shared logins, a single corporate ATS account running every location’s hiring |
| Staffing agency | The client business directing day-to-day work and discipline |
| PEO | Co-management of payroll, benefits, and HR administration |
| Subcontractor | The general contractor directly supervising subcontracted workers |
The franchise model doesn’t create liability on its own
Does the franchise model create joint employer liability for the franchisor? Not by itself. Setting brand standards doesn’t make a franchisor a joint employer.
What does is the architecture underneath: shared logins, a single corporate applicant tracking system account controlling every location’s hiring, or a generic HR platform never built for multi-unit structures. Those setups look like helpful centralization, but they concentrate control at the brand level, which is exactly what plaintiffs point to.
Mad Science shows the alternative in practice. The franchise runs a nationwide, franchisor-level partnership across 150-plus locations in 28 countries, syndicating job postings to eight-plus boards, with each location hiring on its own account.
“CareerPlug has found me more applicants and applicants of higher quality than I have found through any other medium,” is how the franchise puts it. Support at scale, without a shared login in sight. See how this plays out for franchisors and networks more broadly.
What happens once joint employment is established
Once joint employment is established, both businesses can be held liable, together, for the same violations: wage and hour claims, discrimination charges, OSHA citations, and benefits obligations. That’s the sharp end of joint employer risk, and it doesn’t stay contained to the franchisee who made the hiring mistake. It becomes the brand’s exposure too.
The quieter risk is what bad hiring does before it ever becomes a legal problem. As Clint Smith puts it:
“The biggest difference between your top and bottom performing franchisees is the quality of their teams.”
A franchisee hiring off a resume stack and gut feel isn’t just a legal exposure waiting to happen. It’s a location quietly underperforming every location around it, often through early turnover the franchisor never sees coming.
See the full recruiting metrics and benchmarks for what separates the two, or the Franchise Onboarding Report for what early turnover actually costs a location.
Congress is also weighing legislation, the American Franchise Act, that would write the current standard into law so it can’t be undone by a future administration.
What franchisors are legally free to do right now
Doing nothing is not neutral. Under the current 2020 standard, franchisors can set brand standards, offer training materials, establish minimum staffing requirements, and provide resources, all without becoming a joint employer.
“According to the 2020 National Labor Relations Board ruling, franchisors can set brand standards, offer training materials, establish minimum staffing requirements, and provide helpful resources.” “You’ll be able to provide real guidance on hiring and retention without risking your entire business model.” — Clint Smith, CareerPlug CEO and author of The Franchise People Playbook
The data backs up where that joint employer risk-free support actually pays off, per our 2026 Franchise Hiring Report:
- Job boards bring in 65% of applicants but produce only 47% of hires.
- Careers-page applicants make up 18% of applicants but 25% of hires, 1.9 times as likely to be hired as the job-board baseline.
- Referral applicants make up a small fraction of applicants, but they convert at 5.9 times the job-board rate, the highest-converting source in the report
Coaching a franchisee to build a referral program or a stronger careers page is high-leverage support. Logging into their account to run it yourself is not.
See the full franchisor resources built around exactly that distinction, or the franchisor partnership page for what hands-on-but-hands-off support looks like in practice.
How franchisors actually reduce joint employer risk
The fix for joint employer risk isn’t inaction. It’s architecture. The right model has the franchisor steering, brand standards, templates, benchmarks, coaching, while each franchisee rows: posting, screening, interviewing, and hiring under their own login. That split isn’t a compliance workaround bolted on after the fact. It’s a design decision.
Give every franchisee their own account
The two-sided design, franchisor visibility plus franchisee simplicity, means there are no shared accounts and no control-based joint employer exposure to begin with. CareerPlug has spent more than ten years building franchise hiring software around exactly that separation, not as a legal patch, but as the actual product architecture.
The two-sided design, franchisor visibility plus franchisee simplicity, means franchisees hire on their own account, with no shared logins and no single corporate account running every location’s hiring. That’s an architecture choice, not a legal opinion: what matters for joint employer status is how much control a business actually exercises.CareerPlug has spent more than ten years building franchise hiring software around that separation, not as a legal patch, but as the actual product architecture.
Coach to benchmarks, standardize the process, train managers
A franchisor can coach a location toward the 48-hour service-franchise response standard without ever touching the hire itself. A standardized hiring process and manager training on what control to avoid do the same job: real guidance, no shared control.
The Goddard School saw a 70% increase in applicant volume, a 50% decrease in recruitment cost, and a 100% increase in candidate quality after rolling out CareerPlug this way. Culligan replaced what franchise owner William Bocast called “rolling the dice” resume-stack hiring with a structured, streamlined process: “If you’re not using CareerPlug what the heck are you doing?”
Onboarding and team management tools carry that same standardization past the hire.
FAQs: What franchisors ask about joint employer risk
What is the difference between a joint employer and a co-employer? The terms are often used interchangeably, but “co-employer” is generally reserved for a mutually-agreed upon relationship, such as a PEO relationship. “Joint employer” is a legal status that is determined by actual control, regardless of what any agreement says.
Does using a staffing agency or PEO automatically create joint employer liability? No. It depends on how much direct, actual control each party exercises over the workers’ essential terms, not on the existence of the arrangement itself.
Does the franchise model automatically make a franchisor a joint employer? No. Setting brand standards and offering support doesn’t create joint employer status. Risk comes from architecture, shared logins or a single account controlling every location’s hiring, not from the franchise relationship itself.
What is the current NLRB joint employer standard? As of early 2026, the NLRB uses the 2020 standard: substantial, direct, and immediate control over essential terms of employment. The broader 2023 rule was vacated and no longer applies.
What does “reserved” vs. “actual” control mean? Reserved control is the contractual right to step in, unused. Actual control is what a business does day to day. Under the current standard, only actual, direct control creates joint employer exposure.
Can a franchisor provide hiring resources without becoming a joint employer? Yes. Brand standards, training materials, minimum staffing requirements, and hiring resources are all things a franchisor can offer under the current standard without crossing into joint employer territory.
Hiring built for franchise systems
The fog is lifting. Franchisors can support hiring, share resources, and coach franchisees on benchmarks without automatically becoming a joint employer. The key is how the system is set up: each franchisee needs to retain control over its own employees and make its own employment decisions.
That’s the model behind Mad Science’s network-wide rollout and Molly Maid’s growth from seven employees to ten. Explore a partnership built for franchisors, or start with the 2026 Franchise Hiring Report and The Franchise People Playbook for the data and the model behind it.