American Franchise Act

Key Points

• This bill sets a strict legal standard for when a franchisor can be considered a joint employer of a franchisee's workers. A franchisor would only count as a joint employer if it has "substantial direct and immediate control" over key employment decisions like pay, hiring, and firing.
• The bill carefully defines what does NOT count as "direct and immediate control." Setting store hours, providing training materials, establishing brand standards, or setting minimum staffing levels would not make a franchisor a joint employer. This shields franchisors from liability for most typical franchise oversight activities.
• The franchise business model is significant to the U.S. economy. According to findings cited in the bill, franchise businesses generated about $825 billion in economic output in 2022 and employed roughly 8.4 million workers, or about 5% of all U.S. workers.
• The new rules would apply to both the National Labor Relations Act and the Fair Labor Standards Act, covering both union-related labor law and wage/hour protections. However, the changes would not apply retroactively to any legal proceedings already underway.
• Congress found that inconsistent legal interpretations of "joint employer" status have threatened the franchise model by holding franchisors liable for employment decisions that are inherent to any franchise relationship, like setting quality and marketing standards.