The franchise business model, specifically within the fast-food industry, has played a significant role in the development of the gig economy, primarily through its application of a "joint-employer" standard. This standard, which has seen considerable shifts over the past decade depending on the presidential administration, determines when a franchisor can be held accountable for labor violations by its franchisees. The International Franchise Association (IFA) has actively pushed for a narrower definition of joint employment, arguing it is crucial for the survival and growth of the franchise model, which it claims contributes $907 billion annually to the U.S. economy and supports 8.8 million jobs.
While previous administrations, like President Trump's, have sought to limit franchisor liability by defining an employer as only those directly involved with hiring, firing, and setting wages, courts have sometimes challenged these interpretations. For instance, a 2019 Labor Department regulation under Trump, which stated a franchisor was not a joint employer unless it directly controlled a worker's conditions, was later overturned by a federal court. This back-and-forth illustrates the ongoing struggle to define the extent of a franchisor's responsibility.
The proposed American Franchise Act (H.R. 3467), supported by the IFA and currently stalled in committee, aims to legislatively define the joint-employer standard more narrowly. It posits that a franchisor is a joint employer only if it exhibits "substantial, direct and immediate control" over essential employment terms like wages, benefits, and hours. This mirrors the National Labor Relations Board's (NLRB) 2020 rule, which distinguished franchisors and franchisees as separate entities. Critics, however, argue that such a narrow definition could undermine workers' rights, facilitate unlawful practices by franchisees, and make it harder for unions to organize, potentially impoverishing millions of workers.
Estimates from organizations like the Economic Policy Institute suggest that a narrow joint-employer rule could affect approximately 15 million workers in "fissured establishments," with about 10 million being franchisee employees, potentially costing these workers nearly $1 billion annually. The concern is that by shifting accountability away from the larger franchisor entities, this model incentivizes a flexible, low-wage workforce where individual franchisees might struggle to provide competitive pay and benefits, leaving employees with limited recourse and contributing to a gig-like employment structure.
