You run a restaurant franchise, use a temporary staffing agency to cover shifts, or contract with a company that provides services at your locations. You assume employment law responsibilities are clearly divided: they handle their employees, you handle yours.
But under federal law, you might both be considered "joint employers" of the same workers, which means you're both fully liable for wage violations, safety issues, and discrimination claims, even if you never hired those employees, never paid them, and never directly supervised their work.
Welcome to joint employment, where the lines between "my employees" and "their employees" blur, and both companies can be on the hook for the full cost of employment law violations. For franchisors, PEO clients, and businesses using contract workers, understanding joint employment is essential to avoiding six-figure liability.
The Fair Labor Standards Act (FLSA) recognizes joint employment for minimum wage and overtime requirements, OSHA recognizes it for workplace safety, and civil rights laws recognize it for discrimination claims.
Two Types of Joint Employment
The DOL distinguishes between two scenarios where joint employment may exist:
Horizontal Joint Employment
Horizontal joint employment occurs when an employee works for two related or associated employers, and the employers are sufficiently connected that they jointly employ the worker.
Common examples:
- An employee works shifts at two locations of the same restaurant brand, owned by different franchisees
- A worker provides services for a parent company and its subsidiary
- An employee splits time between two businesses with common ownership or control
- A worker is shared between related entities that coordinate staffing
The analysis focuses on the relationship between the employers. Are they truly independent, or are they sufficiently associated (through common ownership, management, operations, or control) that they should be treated as joint employers?
Vertical Joint Employment
Vertical joint employment exists when an employee has an employment relationship with one employer (for example, a staffing agency) but another entity (the host business where the worker actually performs services) also exercises sufficient control over the worker that it should be considered a joint employer.
Common examples:
- Temporary workers from staffing agencies working at your business
- Workers hired through a PEO performing services at your location
- Franchisees' employees when the franchisor exercises significant control over working conditions
- Contract workers provided by a labor contractor but supervised by your managers
The focus for vertical joint employment is on whether the potential joint employer exercises significant control over the worker's employment conditions, even though they're not the direct employer.
The Four-Factor Test (That Keeps Changing)
Determining joint employment under the FLSA has been a regulatory ping-pong match. The test for when a company becomes a joint employer has changed multiple times in recent years.
In 2020, the Trump administration issued a rule using a four-factor balancing test focused on control. A potential joint employer would be considered a joint employer if they:
- Hire or fire the employee
- Supervise and control the employee's work schedule or conditions of employment to a substantial degree
- Determine the employee's rate and method of payment
- Maintain the employee's employment records
In 2021, the Biden administration rescinded that rule, finding it "improperly narrowed the test for vertical joint employment and conflicted with decades of Department interpretation." The rescission returned to a broader "economic reality" standard that considers whether workers are economically dependent on the potential joint employer.
As of 2025, the legal landscape remains in flux with ongoing court challenges and proposed legislation. What's clear is that the standard for joint employment has gotten broader, not narrower, meaning more businesses face potential joint employer liability than in the past.
Common Scenarios That Create Joint Employment Liability
Franchises: The Brand Name Liability
The franchise model seems straightforward: the franchisor provides the brand, systems, and standards; the franchisee independently owns and operates their location and employs their workers. But when franchisors exercise too much control, they can become joint employers.
What creates risk:
- Controlling employee schedules, break times, or shift lengths
- Setting specific wage rates rather than minimum standards
- Directly supervising franchisee employees through regional managers
- Handling employee complaints or disciplinary actions
- Managing time and attendance systems centrally
- Requiring specific staffing levels at particular times
What's generally safe:
- Providing sample employee handbooks or policies
- Setting brand standards for service, cleanliness, and product quality
- Requiring compliance with health and safety regulations
- Training on proprietary systems or recipes
- Quality control inspections that don't direct employee activities
- Offering group benefits programs that franchisees can join voluntarily
The line is whether the franchisor controls how the work is done (joint employer) versus setting standards for what the end result should look like (probably not a joint employer).
Temporary Staffing Agencies: The Automatic Joint Employment
When you use temporary workers from a staffing agency, joint employment is essentially automatic under most employment laws. OSHA explicitly states that "the staffing agency and the staffing agency's client (the host employer) are joint employers of temporary workers and, therefore, both are responsible for providing and maintaining a safe work environment."
This means:
- Both you and the agency are liable for wage and hour violations: if temps aren't paid overtime properly, both entities can be sued
- Both share responsibility for workplace safety: if a temp is injured due to inadequate training, both can be cited by OSHA
- Both can face discrimination claims: you can't reject a temp based on protected characteristics
- Recordkeeping obligations apply to both: if you supervise temps day-to-day, you're responsible for OSHA injury logs
The best practice is to have written agreements that clearly delineate responsibilities for safety training, wage payment, and compliance, but you cannot contractually eliminate joint employer status. The law determines joint employment based on actual control and economic reality, not what your contract says.
Professional Employer Organizations: The Co-Employment Confusion
PEOs explicitly create "co-employment" relationships as a business model. However, the IRS doesn't recognize co-employment under federal tax law, and other agencies view the relationship differently.
For most employment laws, both the PEO and the client company are joint employers, which means:
- Wage and hour liability is shared
- Discrimination claims can be brought against either entity
- Safety violations implicate both parties
- FMLA obligations may be divided, with the client typically being the "primary employer"
The PEO typically handles payroll, benefits, and HR administration, while the client company directs the day-to-day work. This division of responsibilities creates joint employer status.
Contract Workers and Labor Providers
Many businesses contract with companies that provide services using their employees. Think janitorial services, security guards, food service workers in cafeterias, or maintenance crews. If your managers exert too much control over these workers, you may become a joint employer.
Red flags that create joint employment:
- Your managers directly supervise the contract workers' activities
- You set the workers' schedules or shift assignments
- You provide tools, equipment, or materials the workers use
- You evaluate the workers' performance or can demand replacement of specific workers
- You control how the work is performed, not just the end result
Safer approaches:
- The contracting company supervises its own workers
- You evaluate the company's service quality, not individual worker performance
- The contracting company controls methods, scheduling, and supervision
- You communicate needs and expectations to the contracting company's management, not directly to workers
The Consequences: What Joint Employment Costs You
When joint employment is found, the financial exposure is significant:
Wage and Hour Violations
Under the FLSA, both joint employers are liable for:
- Back wages for unpaid overtime or minimum wage violations
- Liquidated damages equal to the back wages (effectively doubling the amount)
- Attorney's fees and costs for the employee's lawyer
- Civil penalties of up to $2,510 per violation for repeated or willful violations
Because liability is joint and several, an employee can collect the full amount from either employer. If the staffing agency or franchisee has no assets, the host employer or franchisor may end up paying everything.
Discrimination and Retaliation Claims
Both joint employers can be liable under Title VII, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) for:
- Discriminatory hiring, firing, or advancement decisions
- Harassment by supervisors or coworkers
- Retaliation against employees who complain about violations
- Failure to provide reasonable accommodations
Recent guidance shows courts are increasingly willing to find joint employer status for discrimination claims, particularly when both entities participated in the challenged decision.
OSHA Violations and Workplace Injuries
For workplace safety, OSHA can cite both joint employers for violations. If a worker is injured:
- Both employers may be responsible for workers' compensation coverage
- Both can be cited for failing to provide proper training or PPE
- Both can face increased inspections and penalty assessments
- Both may be named in personal injury lawsuits if gross negligence is alleged
Employee Benefits and Leave Obligations
Joint employment can create obligations under:
- ERISA: The 1,000-hour rule for retirement plan eligibility may apply based on total hours across all joint employers
- FMLA: While usually only the "primary employer" has leave obligations, disputes about who's primary can create liability for both
- Health insurance: Determining which employer is responsible for ACA coverage requirements becomes complex
How to Minimize Joint Employment Risk
While you can't always avoid joint employment (particularly with staffing agencies), you can reduce exposure:
1. Carefully Structure Relationships
For franchisors:
- Focus franchise agreements on brand standards and quality outcomes, not specific employment practices
- Allow franchisees discretion in hiring, scheduling, wage setting, and discipline
- Provide sample policies but don't mandate specific employment practices
- Avoid direct involvement in franchisee employee issues
For businesses using contractors:
- Ensure the contractor maintains supervision and control of their workers
- Communicate needs to the contractor's management, not individual workers
- Let the contractor determine how work gets done
- Avoid setting worker schedules or evaluating individual performance
2. Put Agreements in Writing
While contracts don't prevent joint employment, clear written agreements help by:
- Defining each party's safety training responsibilities
- Specifying who handles wage payments, tax withholding, and compliance
- Documenting which entity controls hiring, firing, and scheduling
- Establishing communication protocols and escalation procedures
For temporary workers and PEO relationships, OSHA specifically recommends written agreements that delineate safety responsibilities.
3. Train Your Managers
Your managers and supervisors must understand:
- Which workers they can directly supervise and which they cannot
- How to communicate with contract companies without creating control relationships
- Never to make hiring, firing, or compensation decisions for workers employed by other entities
- How to report issues to the appropriate employer rather than handling them directly
4. Audit Your Current Relationships
Review existing arrangements for joint employment red flags:
- Are your managers directly supervising contract workers or temps?
- Do you set schedules or wages for workers employed by others?
- Are there workers who've been "temporary" for extended periods?
- Do you handle complaints or discipline for workers not on your payroll?
If you find concerning practices, restructure to reduce control or acknowledge the joint employment relationship exists and ensure compliance.
5. Assume Joint Employment with Temps and PEOs
Don't pretend you're not a joint employer when you clearly are. With temporary workers and PEO relationships:
- Accept joint employment exists
- Ensure both entities are complying with wage and hour laws
- Coordinate on safety training and OSHA compliance
- Maintain proper insurance and indemnification agreements
- Track hours and treat workers in accordance with FLSA requirements
The Bottom Line for Multi-Location Businesses
Joint employment is a fundamental redefinition of who your "employees" are under the law. For restaurants, retail chains, and service businesses that operate through franchises, use temporary workers, partner with PEOs, or contract for labor, understanding joint employment is critical.
The key takeaway: you can be fully liable for wage violations, safety issues, and discrimination claims involving workers you never hired, never paid, and don't appear on your payroll.
Joint employment is complex, fact-specific, and subject to changing regulations. But for businesses that rely on franchising, staffing agencies, or contracted services, ignoring it isn't an option. Be prepared for the potential liability that comes with this scenario.
This article is for informational purposes only and does not constitute legal advice. Joint employment determinations are highly fact-specific and vary by law and jurisdiction. Consult with an employment attorney for guidance specific to your business relationships.
