The American Franchise Act amends the National Labor Relations Act and the Fair Labor Standards Act to limit when a franchisor can be treated as a joint employer of a franchisee’s workers. The bill creates a statutory definition of ‘‘direct and immediate control’’ over specific ‘‘essential terms and conditions of employment’’ and requires that any such control be both substantial and regular before joint-employer liability attaches.
For professionals advising franchisors, franchisees, worker-plaintiffs, unions, or enforcement agencies, the bill replaces judicial and agency fact-pattern tests with a narrower, example-driven statutory standard. That change alters litigation risk, compliance checklists, contract drafting, and how the NLRB and Department of Labor evaluate joint-employer claims going forward—and it applies only to claims filed after enactment.
At a Glance
What It Does
Adds a new Section 20 to the NLRA defining 'direct and immediate control' across enumerated employment terms and requires 'substantial direct and immediate control' for a franchisor to be a joint employer. Mirrors that standard into the FLSA and adopts the CFR definition of franchise terms.
Who It Affects
Franchisors and franchisees across sectors that operate under trademarked systems, employers defending joint-employer claims, attorneys handling labor and wage litigation, the NLRB and DOL when investigating joint-employer allegations, and unions and worker-plaintiffs seeking remedies.
Why It Matters
The bill narrows the factual bases on which franchisors can be held jointly responsible for franchisee employees—reducing exposure where a franchisor sets brand standards, provides training, or participates in benefits plans without 'actually determining' employment terms. That alters bargaining leverage and litigation strategies and will prompt contract and operational changes in franchise networks.
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What This Bill Actually Does
The heart of the bill is a statutory gatekeeper: a franchisor is a joint employer of a franchisee’s workers only if it both possesses and exercises 'substantial direct and immediate control' over one or more enumerated employment terms. The statute lists those "essential terms and conditions of employment"—wages, benefits, hours, hiring, discharge, discipline, supervision, and direction—and then defines what 'direct and immediate control' looks like for each term.
For several categories the text draws line-drawing examples that exclude ordinary brand and system controls (for example, setting operating hours, offering training, establishing minimum staffing, or selecting benefit-plan options under arm’s-length agreements).
The bill distinguishes between ordinary franchisor activities that preserve brand uniformity and actions that actually make employment decisions. Words like 'actually determines' and the carve-outs for routine or limited instructions signal that issuing standards, training materials, or expressing opinions about employee performance will typically not create joint-employer status.
At the same time, the statute makes clear that if a franchisor truly sets wage rates, hires, fires, or directly disciplines workers, that level of involvement can establish joint-employer liability—provided the control is regular and consequential rather than sporadic or de minimis.Mechanically, the bill achieves this by inserting a new Section 20 into the NLRA with detailed definitions and then adding a comparable Section 20 to the FLSA that incorporates the NLRA standard and cross-references statutory definitions of 'employee' and 'employer.' The bill also adopts the federal regulatory definition of 'franchise' found at 16 C.F.R. §436.1 for purposes of identifying franchisors and franchisees. Finally, it contains an explicit non-retroactivity clause: these rules do not apply to proceedings begun before enactment.Practically, the Act moves the inquiry from multi-factor, sometimes amorphous tests developed by courts and agencies to a more categorical, examples-driven statute.
That shift will change what fact-finders look for in investigations and litigation—focusing attention on whether the franchisor actually and routinely exercised specified forms of control. Counsel will need to audit franchise agreements, operational manuals, and business practices for any conduct that could meet the 'actually determines' and 'substantial' thresholds, while unions and claimants will need new evidentiary strategies to show regular, consequential control.
The Five Things You Need to Know
The bill adds a new Section 20 to the NLRA that defines 'direct and immediate control' across eight specific employment terms: wages, benefits, hours, hiring, discharge, discipline, supervision, and direction.
For each employment term the statute specifies what 'actually determines' counts as control and lists common franchising activities that do not—e.g.
providing training, setting brand standards, or permitting franchisee participation in a franchisor benefits plan.
A franchisor qualifies as a joint employer only if it possesses and exercises 'substantial direct and immediate control'—control that is regular or continuous and has a consequential effect, not sporadic or de minimis.
The FLSA is amended to use the same joint-employer criteria as the NLRA; the bill also adopts the definition of 'franchise', 'franchisor', and 'franchisee' from 16 C.F.R. §436.1 as of the date of enactment.
The Act is explicitly non-retroactive: it does not apply to proceedings commenced before the date of enactment.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Short title
Designates the bill as the 'American Franchise Act.' This is purely formal but signals the bill’s policy focus on protecting the franchise model; it has no substantive legal effect beyond identifying the statute's name for citation.
Findings supporting the statutory change
Sets out Congress’s factual and policy bases for intervention: defines franchising, emphasizes the need for uniform brand standards, quantifies franchising’s economic footprint, and states that expansive joint-employer doctrines have harmed franchising. While not legally operative, the findings frame interpretive context that courts and agencies may reference when applying the new rules.
Statutory definitions and joint-employer test for franchising under the NLRA
Adds Section 20 to the NLRA that (1) defines 'direct and immediate control' with tailored examples for each essential employment term; (2) enumerates 'essential terms and conditions of employment' (wages, benefits, hours, hiring, discharge, discipline, supervision, direction); (3) imports the regulatory definition of 'franchise' from 16 C.F.R. §436.1; and (4) sets a 'substantial' threshold—control must be regular/continuous and consequential. The provision also includes numerous exclusions (e.g., offering training, setting brand standards, or allowing franchisee participation in franchisor benefit plans under arm’s-length contracts) to limit when franchisor practices trigger joint-employer status.
Parallel joint-employer standard for wage-and-hour enforcement
Adds a Section 20 to the FLSA that adopts the NLRA’s joint-employer criteria for franchising, with cross-references to the FLSA’s own statutory definitions of 'employee' and 'employer.' By synchronizing the tests across the NLRA and FLSA, the bill aims to produce consistent outcomes in collective-bargaining disputes, NLRB matters, and DOL wage-and-hour investigations and litigation.
Applicability / non-retroactivity
Provides that the Act and its amendments apply only to proceedings commenced after the date of enactment. This preserves existing cases and final determinations while applying the new statutory standard prospectively, reducing immediate disruption to pending litigation.
This bill is one of many.
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Explore Employment in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Franchisors — The statute narrows circumstances where courts or agencies can treat franchisors as joint employers, reducing direct legal exposure for brand-level activities such as system standards, training, and limited operational guidance.
- Franchise industry associations and investors — Less joint-employer risk improves predictability of liability, potentially lowering compliance and litigation costs and making franchise investments more attractive.
- Corporate legal and compliance teams for franchisors — The clearer, example-driven statutory rules simplify auditing and compliance playbooks because the text identifies specific permissible and impermissible conduct.
Who Bears the Cost
- Franchise employees and worker-plaintiffs — The higher statutory threshold raises the evidentiary bar for holding franchisors responsible for labor violations or for obtaining remedies from deeper-pocket franchisors.
- Unions and labor organizers — Narrower joint-employer liability reduces leverage to pattern bargain or target franchisors as collective-bargaining partners, forcing organizers to focus on individual franchisees.
- Some franchisees — If franchisors are insulated from joint liability, franchisees may face greater responsibility for compliance costs, enforcement penalties, or settlements without recourse to franchisor contribution.
Key Issues
The Core Tension
The central dilemma is balancing predictability for the franchise business model against access to remedy for workers: a high statutory threshold protects brand consistency and investment in franchising but risks leaving employees without a path to hold franchisors accountable when those franchisors structure or effectively control key employment conditions through operational systems.
The bill trades open-ended, multi-factor inquiry for a defined statutory checklist and illustrative exclusions. That clarity benefits franchisors but creates several implementation questions.
First, the statute relies on evidentiary terms such as 'actually determines' and 'substantial' that will require courts and agencies to develop new standards of proof and fact-finding practices—so litigation may focus on those thresholds and the line between 'routine' brand controls and decisive operational control. Second, many franchisor activities sit near the statute’s carved lines: setting minimum staffing levels, approving schedules, or selecting benefit-plan vendors could be framed either as brand protection or as employment control depending on contract language and documented practices.
Third, synchronizing NLRA and FLSA standards reduces inconsistency between labor- and wage-and-hour enforcement, but it also imports the same definitional ambiguities into two different enforcement regimes. Agencies will need to adapt investigation protocols, and plaintiffs’ counsel may respond with more targeted discovery to demonstrate regularity and consequence.
Finally, the statutory adoption of the FTC/CFR franchise definition narrows the class of relationships covered, but state law tests or other federal statutes may still reach different outcomes—creating potential forum-shopping and a patchwork of available remedies for workers in different contexts.
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