Congress Moves to Clarify Joint Employer Rule

Entrepreneur

a day ago

After years of back-and-forth regulatory changes, a new bill aims to bring long-awaited clarity to the franchise industry.
Franchise owners could soon see relief from one of the industry's most contentious legal issues: the joint employer standard. A bill working its way through the U.S. House of Representatives aims to permanently define when two businesses can be considered joint employers — an issue with major implications for the more than 800,000 franchise establishments across the country. Together, those businesses generate hundreds of millions in annual economic output and support close to nine million jobs in the U.S.
Related: Considering franchise ownership? Get started now to find your personalized list of franchises that match your lifestyle, interests and budget.
The Save Local Business Act, sponsored by Rep. James Comer (R-KY), would lock in the current, narrower joint employer definition that requires "direct and immediate control" over essential terms of employment. This would replace the shifting regulatory standards that have bounced back and forth for more than a decade, depending on which party controls the National Labor Relations Board (NLRB).
At stake is the legal relationship between franchisors and franchisees. Under a narrow joint employer standard, franchisees are considered independent operators responsible for hiring, firing, scheduling and supervising their own employees. But under broader definitions — like the one the NLRB attempted to implement in 2023 — franchisors could be held liable simply for having the potential to influence those decisions, even if they never exercised that power.
Related: 'Send a Man Next Time': How an Entrepreneur and Her Daughters Built a $2.5 Million Franchise in a Male-Dominated Field
The 2023 rule faced immediate backlash from the business community, including franchise owners, labor attorneys and trade organizations, led by the International Franchise Association. Many argued that it was too vague and broad, leaving employers uncertain about their legal responsibilities. A federal judge struck down the rule in March 2024, calling it overly expansive and difficult to enforce.
Despite that legal win for franchise businesses, the concern remains that future administrations could revive similar language. The Save Local Business Act is designed to prevent that by codifying the narrower standard into federal law.
Previous attempts to expand the joint employer standard have had measurable economic consequences. When a broader rule was adopted in 2015, the franchise sector saw an estimated $33 billion in lost output, according to IFA research.
Related: I Walked Away From a Corporate Career to Start My Own Small Business — Here's Why You Should Do the Same
The uncertainty has also made some franchisors more hesitant to support or expand their franchise networks. Under a broader rule, offering training, guidance or shared HR tools could expose them to legal liability, undermining the collaborative model that helps local owners succeed.
Supporters of the new bill argue that locking in a clear, consistent joint employer definition would restore confidence for franchise operators, investors and employees alike. They say the current model balances brand standards with local control and allows small business owners to grow within a proven system.
Related: 3 Lessons I Learned Selling My Billion-Dollar Company
Opponents of the bill, including some labor advocates, argue that the narrow standard makes it harder for workers to hold the appropriate parties accountable in cases of labor violations. They believe companies that benefit from franchise labor should also share in the responsibility.
Still, for most franchise businesses, the issue is about clarity, not politics. Whether they run gyms, restaurants, home services or child care centers, local owners are looking for regulatory stability so they can plan for growth without fear of surprise liability.
The Save Local Business Act now heads to committee and may be folded into broader labor or small business legislation later this year. Whether or not it passes, the debate over who qualifies as a joint employer is likely to remain a flashpoint in labor policy — and a top priority for the franchise sector heading into 2025.
Join top CEOs, founders and operators at the Level Up conference to unlock strategies for scaling your business, boosting revenue and building sustainable success.