Department of Labor Withdraws Joint Employer Doctrine…a Mixed Blessing for Franchisees?

On Wednesday, June 7^th, The Department of Labor made the expected announcement that the Trump administration is withdrawing the Obama era joint employer doctrine.

This action is a mixed blessing for franchisees. On the one hand, the threat of joint employer classification has clearly negatively impacted many franchisees, including triggering the withdrawal of vital HR support by many “threatened” franchisors. On the other hand, the joint employer doctrine has given franchisees ammunition to achieve greater autonomy and certainty of “business ownership” of their franchises businesses. The doctrine had also given franchisee associations the opportunity to provide useful services to both franchisors and franchisee constituents.

The AAFD has long urged franchisees to leverage the threat that their franchisor may be deemed the joint employer of a franchisee’s employees to achieve contractual assurances of equity ownership of the franchised business. The joint employer controversy was a hot topic at the AAFD’s recent Franchisee Leadership Summit and a through provoking session present by Robert Zarco and Erin Conaway.

A franchise agreement and culture that clearly defines a franchisee as an independent business owner has never been threatened—only franchise systems that have crossed a line of control over franchise operations were impacted.

Now that the DOL has backed down from the joint employer doctrine, franchisors can give a sigh of (partial) relief as it is much less likely that the Department of Labor will challenge all but the most egregiously controlling franchisors. But for franchise systems where complaints abound from franchisees who claim their independent business judgements are eviscerated by excessive franchisor control, the loss of the DOL doctrine may diminish the legal options of franchisees to obtain remedies.