The American Franchise Act: A Narrower Standard for Joint Employment

Introduction

On September 10, 2025, a bipartisan group in the U.S. House of Representatives introduced the American Franchise Act (H.R. 5267). The proposal would directly amend the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) to create a clear standard for when franchisors can be deemed joint employers of franchisee employees. The legislation holds out the promise of stability in an area of law long marked by volatility.

The Twists and Turns in the Law of Joint Employment

The definition of “joint employer” has swung dramatically over the past decade. At times, courts and federal agencies have applied a narrow test, asking whether a franchisor exercised “direct and immediate control” over essential employment terms. At other moments, the definition expanded to capture situations where a franchisor merely retained the right to control employment conditions or exerted influence indirectly even if it did not actually exercise such control. Each change in presidential administration has often meant another reversal in approach.

These shifts create practical difficulties for franchise systems. When the standard is broad, franchisors risk being pulled into collective bargaining disputes or wage-and-hour lawsuits simply for maintaining brand standards—standards that are inherent to franchising and often required to protect reputation and uniformity. The instability complicates compliance planning, risk assessment, and the drafting of franchise agreements which require franchisors to reevaluate their standards regularly.

What Does the American Franchise Act Propose?

The Act attempts to settle this debate by anchoring the definition of joint employment in a single, narrow rule. Under the proposed statute, a franchisor could only be considered a joint employer when it both possesses and exercises substantial direct and immediate control over at least one essential term or condition of employment. The law would define “essential terms” as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. Importantly, “substantial direct and immediate control” means control that has a regular or continuous consequential effect—not merely isolated or de minimis involvement.

The bill  further explains what does and does not constitute such control. For example, a franchisor would be deemed to exercise control by setting the wage rates of franchisee employees. By contrast, actions such as enforcing brand standards, offering training materials, or establishing minimum qualifications for safety reasons would not trigger joint employer status. The legislation also provides that proceedings already underway at the time of enactment would not be affected, limiting retroactive disruption.

Why Does the Act Matter for Franchisors?

If enacted, the American Franchise Act would bring welcome clarity for franchisors. By codifying a narrow test, the bill would reduce the risk that the definition of joint employment flips with each administration. This would mean more predictable liability exposure and the ability to design compliance systems without constant recalibration to new regulatory pronouncements.

Still, the Act would not eliminate every ambiguity. Specific terms will inevitably require interpretation, and courts may differ on how much influence over scheduling or discipline is enough to qualify. Even if the Act narrows federal liability, franchisors remain subject to state labor laws, tort theories, and contractual obligations that may define responsibility differently.

Strategic Implications for Franchise Systems

Franchise agreements, operations manuals, and oversight programs should be reviewed with an eye toward whether any provisions cross into “actual determinations” of wages, benefits, hours, hiring, or discipline. Documentation practices will also matter: if litigation arises, franchisors will need to be able to demonstrate that their involvement in employment matters was incidental or tied to brand standards, rather than continuous control of essential terms.

The legislation also carries relational implications. Franchisees may resist provisions in contracts that look like employment control, particularly if counsel flags them as riskier under the Act. Balancing brand consistency with legal compliance will remain a delicate exercise.

Finally, the Act’s passage is not assured. The bill has been introduced and referred to committee, but legislative negotiations could reshape definitions or expand coverage. Close monitoring of amendments, committee reports, and eventual agency interpretations will remain necessary.

Conclusion

The American Franchise Act represents a significant attempt to resolve a decade of instability in joint-employer law in the franchising industry. For franchisors, it would create a statutory shield against liability arising from brand protection measures that do not directly dictate franchisee employees’ wages, hours, or working conditions. The bill offers a potential roadmap to reduced risk and clearer compliance strategies—but it also underscores the need for vigilance as Congress, agencies, and courts continue to refine the boundaries of the franchisor-franchisee relationship.