Joint Employer Liability in Franchising: The Insurance Gap No One Knows How to Fix (And How to Fix It for Real)
- Wade Millward
- Nov 17
- 20 min read
Key Takeaways (Read This First)
“Joint employer coverage” does not exist. It’s not a real insurance product, not a General Liability endorsement, and not something any agent can simply “add.”
Joint-employer exposure is unavoidable in franchising. Plaintiffs regularly name franchisors in lawsuits involving franchisee employees.
EPLI is the only place joint-employer-type protection is insurable, and only through two specific, rare endorsements.
Most franchisees do not carry the right EPLI policy, leaving franchisors completely exposed—even when the FA/FDD requires “joint employer coverage.”
General Liability, BOP, Workers’ Comp, Umbrella—all deny joint-employer claims. Every time.
Attorneys often include insurance requirements that are not insurable.
Without proper EPLI structure, franchisors face six-figure defense costs, even when they did nothing wrong.
With the correct EPLI endorsement, the insurer defends both franchisor and franchisee, often eliminating legal cost entirely.
One joint-employer claim can turn into a system-wide crisis if plaintiffs’ attorneys realize the franchisor is vulnerable.
Franchisors must specify the correct EPLI structure at the franchisee level, monitor policy copies (not certificates), and choose carriers who actually offer franchise endorsements.
Joint Employer Liability in Franchising: The Hidden Insurance Crisis No One Is Really Talking About (And How to Fix It Before It Blows Up Your System)
If you’ve been anywhere near franchising over the past few years, you’ve felt the tension around joint-employer liability. Not because franchisors suddenly decided to micromanage franchisee employees — they didn’t. And not because franchisees suddenly stopped hiring good people — they haven’t. The tension exists because everyone is operating inside a legal environment that keeps shifting under their feet.
One month, the joint-employer standard seems narrow and predictable. The next month, a court decision or agency ruling expands it so broadly that franchisors start wondering whether helping franchisees with basic HR questions is going to drag them into lawsuits. And just when everyone starts adjusting to the new rules, the rules flip again.
That back-and-forth has created a lot of anxiety. But it has also created something more dangerous — a false sense of security around insurance requirements. For years, franchisors have been told, “Make sure your franchisees carry joint-employer coverage.” Attorneys put that phrase in franchise agreements. Consultants echoed it. Franchisees passed the request to their insurance agents. And little by little, that phrase — “joint-employer coverage” — became part of the franchising vocabulary.
There is only one problem.
Joint-employer coverage doesn’t exist.
There is no insurance policy called that.
There is no endorsement with that name.
There is no carrier that sells it.
There is no agent who can add it.
It’s like asking a franchisee to buy a unicorn. They’ll nod and say sure, but they can’t deliver it — because it isn’t a real thing.
This misunderstanding isn’t harmless. It’s not a small detail that gets cleaned up at renewal. It’s a gap big enough to pull franchisors into six-figure legal bills when they had every reason to believe franchisees’ insurance would step in. It’s the kind of misunderstanding that only becomes obvious in the worst possible moment: when a lawsuit lands, and the franchisor finds out they’re on their own.
To see how we got here, and how to fix it, you have to understand the journey franchising has been on — legally, practically, and operationally — over the past decade.
How Franchisors Ended Up in the Crossfire
Let’s start with something that rarely gets said out loud: franchisors didn’t create this problem. The joint-employer debate didn’t begin because franchisors wanted to control employment. It began because plaintiffs’ attorneys discovered something very useful.
Franchisees don’t always have the money to defend big employment lawsuits. Franchisors usually do. And if you’re a plaintiff’s attorney trying to put pressure on a brand, it’s much easier to name both parties, force them into a defensive posture, and let the case develop from there.
This is how a typical employment claim plays out:
A franchisee employee feels mistreated or terminated unfairly.
They find an attorney who specializes in employment law.
The attorney reviews the situation and notices the business is a franchise.
They add the franchisor to the lawsuit — not because the franchisor did anything wrong, but because doing so adds leverage.
Why leverage? Because franchisors have:
More money
More brand reputation at stake
More sensitivity to public criticism
More incentive to settle quickly
More fear of setting a precedent
More concern about systemic risk
Franchisees cannot be “canceled.”
Franchisors can.
So even if the franchisor never hired, fired, supervised, trained, scheduled, or spoke with the employee, they may still end up named in the claim. When that happens, the first question franchisors ask is simple: “Won’t the franchisee’s insurance take care of this?”
And from a logical standpoint, that feels like the right question. If the claim is about what happened inside the franchisee’s business, shouldn’t the franchisee’s insurance step in? If the franchisor was named only because of branding, shouldn’t that be considered part of the franchisee’s exposure?
This is where the disconnect becomes painfully clear.
The policies most franchisees carry don’t protect franchisors in these claims. Certificates of Insurance don’t show the coverage that actually matters. And the franchisor’s own EPLI policy doesn’t apply — because it only covers the franchisor’s employees, not franchisee employees.
So the franchisor ends up stuck in a limbo where:
They are being sued.
They did nothing wrong.
The franchisee’s insurance denies coverage.
Their own insurance denies coverage.
And the legal fees start immediately.
Once you go through that once, you never forget the feeling. But the deeper question is why this happens so frequently — and why nobody warned franchisors about it.
The Regulatory Rollercoaster That Made Everyone Nervous (Including Insurers)
If you look back at the timeline of joint-employer changes over the last ten years, it reads like whiplash. One administration expands the definition, and franchisors panic. The next narrows it, and everyone breathes a sigh of relief. Then it broadens again, and brands freeze hiring support. Courts weigh in, rules get vacated, and new proposals appearout of nowhere.
This instability didn’t just create legal uncertainty — it created operational hesitation across the entire industry. Franchisors started stepping back from anything that could be perceived as controlling employment practices. Things like:
Providing HR templates
Offering recruiting support
Recommending scheduling software
Giving feedback on management decisions
Weighing in on disciplinary action
Helping franchisees navigate employee conflict
These used to be normal parts of franchisor support. Today, many franchisors second-guess them because they’re worried about the optics: “If we help too much, will someone argue we’re a joint employer?”
But here’s the twist. Pulling back didn’t actually reduce franchisor litigation. It just reduced franchisor visibility into what was happening inside franchisee operations.
Meanwhile, plaintiff’s attorneys continued naming franchisors in lawsuits because brand standards still exist. Manuals still exist. Training still exists. Customer experience still matters.
And the franchisor is still the most recognizable entity in the franchise system.
Insurance carriers watched this unfold, and from their perspective, the risk looked messy. Unpredictable. Hard to model. Hard to price. Harder to control.
They started tightening EPLI policies.
They excluded franchisors by default.
They limited endorsements.
They restricted coverage for systemic risk.
They became cautious about anything that looked like “shared employment exposure.”
And this is where the industry really entered dangerous territory.
Franchisors were being told to require something that didn’t exist.
Franchisees were being instructed to buy something they couldn’t buy.
Insurance agents were being asked to provide something they couldn’t provide.
Carriers had no incentive to create it.
Yet the lawsuits kept coming.
Where the Insurance Advice Went Completely Off the Rails
Most franchisors rely heavily on their attorneys when it comes to insurance requirements. And most attorneys do a great job structuring the legal relationship around insurance obligations. But here’s the truth that rarely gets acknowledged: attorneys are not insurance specialists. Their job is to protect you contractually — not to negotiate coverage terms with insurance carriers or design franchise-specific insurance structures.
So when attorneys started inserting “joint-employer coverage” into agreements, the assumption was that the insurance industry offered something that matched the language. It looked like a clean solution to a complicated legal risk.
But because the product didn’t exist, franchisees had to interpret the requirement through the lens of generalist insurance agents. Those agents, in turn, had to interpret a phrase they’d never heard before. And since the phrase didn’t match any real product, agents defaulted to the closest thing they recognized:
General Liability
Umbrella
Workers’ Comp
The BOP
None of these cover employment-related claims between franchisee employees and franchisors.
The only policy that matters is EPLI — and even then, only if it has very specific endorsements.
But franchisees don’t know that.
Agents don’t know that.
Many franchisors don’t know that.
And most attorneys aren’t trained to know that.
This is why so many franchisors think they’re protected when they aren’t.
A franchisee hands over a COI. It lists EPLI. Everyone checks the box. Everyone moves on. And the franchisor remains exposed without realizing it.
This is also why, when the tender comes in after a lawsuit, the denial letter feels so shocking. It’s the first time anyone in the system realizes there was a blind spot.
And it’s a big one.
Why EPLI Is the Only Place This Coverage Can Live (And Why So Few Franchisees Carry the Right Version)
This brings us to the heart of the matter.
Employment Practices Liability Insurance is the only policy designed to cover:
Harassment
Discrimination
Wrongful termination
Retaliation
Hostile work environments
Wage-related disputes
Third-party harassment or discrimination
EPLI is where employment-related risk lives. It is where employment lawsuits are defended. It is where employment settlements are paid.
But standard EPLI policies only cover the franchisee. They do not cover the franchisor. They do not automatically extend to anyone who is “tangentially involved.” They do not automatically protect business partners, affiliates, licensors, or parent companies.
This is why everything hinges on endorsements. Franchise-specific endorsements. The kind most franchisees don’t even know exist.
There are only two in the marketplace that matter — and both are misunderstood, extremely rare, and usually absent from the average policy.
The Endorsements That Actually Protect Franchisors (And Why Almost No One Uses Them)
If you’ve made it this far, you already understand the core truth: “joint-employer coverage” is a phantom. It’s a phrase that circulated through franchising because it sounded like a clean solution to a messy legal problem. But the insurance industry never built a product to match it, and franchisors have been operating with a false sense of protection ever since.
To move from false security to real protection, we need to look at the only place in the insurance ecosystem where franchisor protection can live: inside very specific versions of the franchisee’s EPLI policy.
This is where the conversation stops being theoretical and becomes intensely practical. Because EPLI is not structured like General Liability or Workers’ Compensation. It’s not standardized. It’s not predictable from one carrier to the next. And unlike GL, where additional insured endorsements are routine, EPLI is much more restrictive.
Most EPLI policies are designed around a simple, straightforward idea: “We insure the company that purchased the policy and the wrongful acts of their employees.” That’s it. There is nothing about “affiliated entities” or “upstream brand partners” or “parties named in the same suit.” In other words, the standard EPLI contract assumes the insured entity is a single, standalone business with employees who only report to that business.
But franchising doesn’t work like that. Franchising creates a unique structural situation. There are employees at the unit level. There is a franchisor above them who controls the brand but not the employment relationship. And there is a legal ecosystem that sometimes connects the two whether anyone likes it or not.
Insurance carriers didn’t front-load EPLI policies with franchisor protection because the risk was too unpredictable. If a carrier extended automatic coverage to franchisors, the carrier would be exposed every time a franchisee employee filed a lawsuit — even if the franchisor had thousands of units. That’s not a risk any insurer would willingly take.
But over time, as franchising grew and employment litigation increased, insurers began to see a small but important pattern: certain franchisors were consistently being named as co-defendants in employment cases involving franchisee employees. And some of these franchisors were willing to pay more for protection — especially as the regulatory environment became more chaotic.
So a small handful of carriers created endorsements to address this very specific need. Not “joint employer coverage.” Not “brand protection coverage.” Not “operational oversight coverage.”
Just a narrow, carefully defined, highly controlled mechanism for sharing risk when the franchisor is named in a claim that originates from the franchisee’s employment practices.
And that led to the birth of two endorsements that matter more than anything else in this entire conversation.
The First Real Solution: The Franchise Endorsement (Reimbursement Coverage)
The first endorsement carriers created was the franchise-specific reimbursement endorsement. It’s not glamorous. It doesn’t fully protect the franchisor. And it doesn’t behave like a true co-defendant solution. But it was the insurance industry’s initial way of acknowledging the reality that franchisors were being named in lawsuits they didn’t initiate and couldn’t control.
The logic was straightforward: if the franchise agreement required the franchisee to indemnify or defend the franchisor — which many do — then the insurer could reimburse the franchisee for money the franchisor spent defending itself. In other words, the franchisee had a contractual obligation to cover the franchisor, and the policy could help the franchisee fulfill that obligation.
In practice, it worked like this:
The franchisee gets sued by an employee.
The franchisor gets named alongside the franchisee.
The franchisor hires its own attorney.
The franchisee pays the franchisor’s legal bills because the FA requires it.
The insurer reimburses the franchisee — up to a very specific sublimit.
This is better than nothing, but it has limitations that franchisors don’t always realize.
For example, the franchisor still has to hire counsel, negotiate rates, manage the defense, track expenses, coordinate timelines, and stay involved in discovery — because the insurer isn’t defending the franchisor directly. They’re only reimbursing expenses after the fact, not guiding the defense.
The other limitation is psychological. It forces the franchisee to front the cost of the franchisor’s defense, which can strain the relationship at the exact moment when both parties should be unified. Franchisees don’t like paying legal bills for something they didn’t personally cause. Franchisors don’t like feeling as though they’re an unexpected drain on the franchisee’s resources. And insurers don’t like watching their sublimits evaporate in cases they aren’t directly managing.
But the biggest limitation is structural: this endorsement doesn’t prevent the franchisor from being dragged deep into litigation. It simply softens the financial blow for the franchisee. The franchisor still carries the burden of being a named defendant.
Even so, compared to the nightmare scenarios franchisors face without any endorsement, this version is progress. A small step. But not a solution.
The real solution — the one that materially changes the outcome of these claims — is a different endorsement entirely.
The Second (and Far More Powerful) Solution: Co-Defendant Coverage
If the franchise endorsement is the insurance industry saying, “We acknowledge your problem,” then co-defendant coverage is the insurance industry saying, “Fine — we’ll help you fix it.”
Co-defendant coverage is the closest thing franchising has to a true safety net against joint-employer exposure. It doesn’t cover everything. It doesn’t apply in every situation. And it isn’t available from every carrier. But when it is present and properly structured, it changes the entire dynamic of an employment-related lawsuit involving both the franchisee and franchisor.
Here’s how it works.
In a co-defendant structure, the insurer directly extends defense coverage to the franchisor when:
the franchisor and franchisee are named in the same claim,
the claim arises from the franchisee’s operations,
the franchisor doesn’t have independent liability, and
the franchisor agrees to participate in a joint defense.
Instead of reimbursing the franchisee after the fact, the insurer steps in from day one. They appoint counsel for the franchisor. They coordinate the joint defense. They guide the strategy. They take control of the case in a way that protects both parties efficiently. And their goal is simple: get the franchisor out of the lawsuit as quickly as possible.
When this endorsement is present, everything changes.
The franchisor doesn’t have to hire their own attorney.
They don’t have to manage discovery.
They don’t have to navigate unfamiliar employment law issues.
They don’t have to negotiate coverage.
They don’t have to fight with the franchisee about indemnification.
They don’t have to pay out of pocket for a claim they didn’t cause.
They simply have to cooperate with the defense strategy — and the insurer takes it from there.
This is the closest the insurance industry has come to solving joint-employer litigation for franchisors. It doesn’t prevent the franchisor from being named, but it dramatically reduces the damage and friction that typically follow.
Yet despite how powerful this endorsement is, very few franchisees purchase it, and very few agents even know it exists.
Why Franchisees Almost Never Have the Right Endorsements (Even When They Think They Do)
If you’ve ever wondered why franchisees don’t show up with the right EPLI coverage — even when they’re well-intentioned — the answer is simple: the insurance distribution chain isn’t designed to catch this nuance.
Franchisees usually purchase insurance from generalist agents. These agents are often fantastic at what they do — commercial lines for small businesses, construction, retail operations, property exposures, and local general liability policies. But franchising is a different ecosystem. Franchise risk isn’t like running a single-location restaurant or a small retail store. Franchise risk involves a multi-party structure where brand ownership, employee management, and system-wide operations create a unique legal profile.
Generalist agents don’t understand that nuance because they don’t see it often enough. So when a franchisee walks in with an insurance requirement that mentions joint-employer coverage, they interpret it through the lens of the policies they already know:
“Joint employer? Must be GL.”
“Maybe Employment Practices Liability covers it?”
“Let’s check the box for EPLI just to be safe.”
To an agent, adding EPLI feels like compliance. To the franchisor, it looks like compliance. To the franchisee, it feels like they met the requirement.
But the actual endorsement — the thing that matters — never makes it onto the policy.
Even worse, the certificate of insurance gives franchisors a dangerous illusion of safety. Certificates don’t reveal endorsements. They don’t show whether the franchisor is covered. They don’t reveal whether co-defendant protections exist. They simply show that the policy exists — not what the policy actually does.
And because freight brokers, commercial landlords, and vendors often rely on COIs, franchisors mistakenly assume COIs are useful for EPLI too. They aren’t.
This creates the perfect storm: an endorsement that matters, an agent that doesn’t know it exists, a certificate that doesn’t show it, and a franchisor who thinks they’re protected until a lawsuit proves otherwise.
Why Carriers Make This So Difficult
It’s easy to assume the issue is ignorance — that if agents knew the right endorsement existed, they would add it, and the problem would go away.
But the truth is more complicated.
Many EPLI carriers refuse to offer franchisor-protection endorsements at all. The reasoning is straightforward: systemic risk.
If a franchisor with 100 units buys into an EPLI program where every franchisee’s policy extends coverage to the franchisor, the insurer is suddenly exposed to defending the franchisor potentially hundreds of times — even if the franchisor did nothing wrong in any of those cases.
From the carrier’s perspective, that kind of exposure is dangerous. A single pattern of employment-related allegations could trigger dozens of related claims. Each of those claims could involve the franchisor. And even if the franchisor gets dismissed early, the insurer has to pay for that dismissal.
So carriers carefully decide which brands they are willing to extend these endorsements to. They evaluate system quality, litigation history, operational consistency, employee count per location, and the franchisor’s own infrastructure. And even then, they may only offer the endorsement “within limits” — meaning the franchisor’s defense costs share the same pool of coverage as the franchisee’s.
This is why only certain carriers — and often only certain underwriters within those carriers — will attach these endorsements. It requires them to be both confident in the brand and comfortable with the risk.
Given this complexity, it makes sense why franchisors rarely end up with the right EPLI structure. Without clear guidance, consistent carrier relationships, and a rigorous annual verification process, things almost always fall through the cracks.
How Franchisors Actually Fix the Problem (And Why It Has to Happen Now)
If you’ve been in franchising long enough, you’ve probably heard something like this from an attorney, consultant, or fellow founder:
“Just make sure your franchisees carry the right insurance.”
It sounds like good advice—simple, high-level, reasonable. But when you translate it into the real world of employment litigation, insurance markets, carrier appetites, and unit-level realities…it collapses.
Because what does “the right insurance” even mean?
Franchisees think it means checking a box on a certificate.
Generalist agents think it means adding EPLI.
Attorneys think it means adding the words “joint employer coverage.”
Carriers think it means avoiding systemic exposure.
Franchisors think it means “we’re protected if anything goes wrong.”
But all of that breaks down the moment an employee files a lawsuit that pulls the franchisor into a claim originating from a franchisee’s operations.
So let’s remove the ambiguity.
Let’s remove the hopeful thinking.
Let’s remove the illusion that a line in an FA or an insurance requirement magically makes the risk go away.
And instead, let’s walk through what actually works.
Start With the Real Risk, Not the Imagined One
You can’t fix joint-employer exposure by focusing on the phrase “joint employer.” You fix it by understanding why franchisors get named in employee lawsuits in the first place.
Here’s the uncomfortable truth most founders eventually realize:
You don’t get named because you’re doing anything wrong. You get named because you exist.
Plaintiff attorneys understand franchising dynamics extremely well. They understand brand power, operational guidelines, and perceived control. They know that even when the franchisor isn’t technically an employer, the franchisor still influences standards, training materials, marketing guidelines, brand audits, approved vendors, and the operational framework that shapes the employee experience.
So their logic is simple:
“If the franchisor helps shape the system, maybe they helped shape the environment that caused the problem.”
That doesn’t mean they’re right.
But it does mean they can name you in the lawsuit.
And once you’re named, you’re in the game—at least until the court dismisses you.
That’s the actual risk.
Not misclassified employees.
Not rogue operators.
Not operational missteps.
But systemic naming.
And because the naming is systemic, the solution has to be systemic too.
Fixing the Risk Begins at the Franchisee Level (And Nowhere Else)
A franchisor’s insurance program matters.
Your own EPLI matters.
Your own D&O matters.
Your own legal defense matters.
But none of that is the lever that solves the joint-employer problem system-wide.
The only lever that works is the structure of the franchisees’ EPLI coverage—because that’s where the wrongful act originates. That’s where the employment relationship lives. And that’s the policy that can either:
Extend protection to the franchisor, or
Leave the franchisor completely unprotected.
There is no middle ground.
If the franchisee’s EPLI policy doesn’t include one of the two franchise-specific endorsements—the reimbursement version or the co-defendant version—then no matter how carefully you word your insurance requirements, the franchisor is still exposed.
It doesn’t matter what the FA says.
It doesn’t matter what the COI shows.
It doesn’t matter what the franchisee believes they purchased.
Insurance only protects what the contract actually covers.
That means the path to real protection is narrow but achievable:
Identify the carriers willing to offer these endorsements.
Ensure franchisees purchase from those carriers.
Verify the endorsements appear on the declarations page—not just the agent’s email.
Re-verify at renewal every single year.
This is where most franchise systems collapse.
Not philosophically, but operationally.
The franchisor assumes insurance compliance is happening. The franchisee assumes their agent took care of it. The agent assumes the requirement was standard. The carrier assumes the franchisor will read the policy. The plaintiff attorney assumes you’ll be caught unprepared.
And in most cases…they’re right.
The only way to shift this dynamic is by building the correct structure into the franchise system intentionally—not passively.
But what does “correct structure” actually look like?
Let’s go deeper.
The Blueprint for Structuring EPLI Correctly Across a Franchise System
This is where the franchisor has three responsibilities—not contractually, but strategically.
Because the truth is, you can’t force franchisees to buy good insurance. But you can design the system so that it becomes the path of least resistance.
Here’s what that structure looks like when done right:
1. Choose the carriers that offer the needed endorsements. Not all do. Many won’t. But the ones that do become your strategic partners.
2. Embed clear insurance requirements in the Franchise Agreement, but written plainly. Avoid vague terms like “joint employer coverage.” Specify “Franchise EPLI endorsement extending defense protection to the franchisor.”
3. Provide franchisees with access to agents who specialize in franchising. Not to mandate a provider, but to avoid misinterpretation.
4. Monitor EPLI policies annually—not certificates. The endorsement has to be verified directly from the declarations, schedule of forms, or full policy.
5. Flag franchisees that lose coverage or switch carriers mid-term. The right endorsement one year doesn’t guarantee the right endorsement the next.
6. Consider endorsing one carrier program for the entire system—if appropriate. Not mandatory, but operationally cleaner.
7. Educate franchisees. Not with legal jargon, but with real examples and case studies, because fear-based learning sticks.
When a system operates like this, the franchisor moves from reactive liability management to proactive risk engineering. And it shows up in real ways:
Fewer claims.
Faster dismissals.
Lower defense costs.
Less system-wide disruption.
More consistency in insurance procurement.
Stronger carrier relationships.
This isn’t theory.
This is what happens when the system runs correctly.
But the opposite is also true.
The Claim Scenario No Franchisor Wants to Think About (But Every Franchisor Should)
Here’s a scenario that has played out in the franchise industry more than people like to admit.
A franchisee fires an employee for performance issues. The employee alleges discrimination. The attorney files suit naming both the franchisee and the franchisor. That’s not unusual.
But here’s where things take a turn.
Another employee at another unit sees the lawsuit and calls the same attorney. Then a third employee at a third location gets wind of it too. Suddenly the attorney realizes the system may have repeatable patterns—and a simple, contained unit-level lawsuit begins to morph into a multi-unit litigation scenario.
It’s not a class action.
It’s not a representative action.
It’s not a system-wide employment crisis.
It’s something more subtle—and more dangerous: systemic attention.
When franchisors don’t have the right EPLI endorsements at the unit level, they get pulled into each of these cases individually. And because there’s no co-defendant protection, they have to hire counsel for each one, duplicating the work, escalating costs, and burning time.
The franchisee’s policy doesn’t help.
The franchisor’s corporate policy might not respond.
The FA’s indemnification clause becomes irrelevant.
The litigation spreads unit by unit, and the system gets more vulnerable with each new claim.
But here’s the painful reality most franchisors learn only after the damage is done:
With the right EPLI structure, those cascading lawsuits die early.
Without it, they multiply.
This is not exaggeration.
It’s pattern recognition.
But let’s go even further and play out two full scenarios—one with coverage, one without—and let the difference speak for itself.
Scenario 1: The Franchisee Has No EPLI (A Disaster in Slow Motion)
A unit-level employee sues for harassment.
The franchisor gets named.
There is no EPLI.
There is no endorsement.
There is no co-defendant protection.
The franchisee can’t afford meaningful defense.
The franchisor’s legal team has to step in.
The carrier denies the franchisor’s claim.
The franchisor spends heavily on defense.
The plaintiff’s attorney realizes the franchisor is vulnerable.
More employees come forward.
Within months, the franchisor is fighting multiple suits across the system, all with similar fact patterns.
This is how single-claim events snowball into valuation-impacting risks.
It’s not always the claim itself.
It’s the signal it sends.
Scenario 2: The Franchisee Has Standard EPLI (Better, But Still Bad)
In this version, the franchisee thinks they’re protected. They have a general EPLI policy that covers employment-related wrongful acts. But there’s no endorsement extending coverage to the franchisor.
The franchisee is protected.
The franchisor is not.
Once again, the franchisor has to hire their own attorney, manage their own defense, and burn time and resources on a case they didn’t create.
The only difference between having no EPLI and having general EPLI is that the franchisee, not the franchisor, gets some help.
But from the franchisor’s perspective, the outcome is similar: they still pay. they still spend time. they still face risk. they still get named.
Scenario 3: Franchise Endorsement (Reimbursement Coverage)
The franchisee gets sued.
The franchisor gets pulled in.
The franchisor hires their own defense counsel.
The franchisee reimburses the franchisor (because the FA requires it).
The insurer reimburses the franchisee.
This removes friction.
It protects the relationship.
It protects the cash flow.
It makes the process smoother.
But the franchisor is still in the lawsuit longer than necessary because the insurer’s obligation is financial—not strategic.
It’s solid protection.
It’s the first step.
But it’s not a full solution.
Scenario 4: Co-Defendant Coverage (The Scenario Every Franchisor Wants)
This is where the story changes completely.
A unit-level employee files suit.
Both the franchisee and franchisor get named.
The insurer steps in immediately.
The insurer appoints counsel for the franchisor.
The joint defense is executed efficiently.
The franchisor is dismissed early.
The franchisee continues the case with protection.
Additional claims don’t snowball because the franchisor is not seen as vulnerable.
The franchisor doesn’t pay defense costs.
The franchisor doesn’t manage competing counsel.
The franchisor doesn’t fight the plaintiff alone.
The franchisor doesn’t get dragged into extended discovery.
The franchisor doesn’t repeat the process at scale.
The difference isn’t theoretical.
It’s operational.
It’s financial.
It’s strategic.
This is the version that works.
The Most Important Shift Franchisors Must Make
If there is one theme that underpins this entire conversation, it’s this:
Certificates of Insurance mean nothing in EPLI. Endorsements mean everything.
Most franchisors don’t make this shift until it’s too late. They rely on certificates, forms, and checklists—because that’s how GL and Auto and Workers’ Comp work. But employment litigation lives in the endorsements, not the certificate.
Once you understand that, the path forward becomes obvious:
You have to get out of the certificate game.
You have to get into the policy game.
You have to verify the actual endorsements.
You have to verify them annually.
You have to guide franchisees toward the carriers that offer them.
And you have to view EPLI not as a box to check, but as a systemic risk control that protects the entire brand.
Franchising is too interconnected for anything less.
The Final Word
If you take one thing from this entire article, let it be this:
Joint-employer exposure is not an insurance problem.
It’s a system-structure problem.
You can’t insure your way out of operational entanglement.
You can’t wordsmith your way out of employment influence.
You can’t pretend a made-up endorsement solves a real legal risk.
And you can’t rely on certificates or vague requirements to keep you safe.
But you can build a system where franchisee EPLI policies:
extend defense to the franchisor,
are monitored annually,
come from carriers who offer the correct endorsements, and
eliminate the cascading litigation that ruins brands.
That’s how smart franchisors manage the modern joint-employer environment.
Not with fear.
Not with guesswork.
Not with imaginary coverage.
But with clarity.
With structure.
With intentional design.
And with the right insurance architecture behind every location.
This is how you actually protect the brand you worked so hard to build. And it starts by teaching your franchisees how to protect themselves—and, by extension, you.
Sources
Franchising & Joint Employer Landscape
American Franchise Act Overview – National Law Reviewhttps://natlawreview.com/article/american-franchise-act-narrower-standard-joint-employment
International Franchise Association (IFA) – Joint Employer Updates https://www.franchise.org/advocacy/joint-employer/
Legal Perspective on Joint Employer Concerns – Reid & Hellyer LLPhttps://reidellawfirm.com/can-you-explain-how-joint-employer-liability-might-affect-a-franchisor/
Industry Commentary & Litigation Trends
Distinguished Programs – Joint Employer Liability & Recent Actionshttps://distinguished.com/blog/how-the-latest-joint-employer-liability-action-impacts-franchisors-franchisees/
Insurance Framework & Technical Alignment
General EPLI coverage conventions from major carriers (e.g., Travelers, Chubb, CNA)
Industry employment-practices litigation trends from EEOC & court data
Best practices in franchise risk transfer and indemnification structuring
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