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. It establishes a single statutory test requiring that a franchisor both possess and exercise "substantial direct and immediate control" over one or more essential terms and conditions of employment before joint‑employer liability can attach.
For franchisors and franchisees, the bill translates long‑running doctrinal disputes into a concrete list of employment dimensions (wages, benefits, hours, hiring, discharge, discipline, supervision, and direction) and describes types of ordinary franchisor conduct that will not by themselves create joint‑employer status. For labor advocates, employers, and in-house counsel, the measure reshapes litigation risk, administrative enforcement, and contract drafting around franchise operations.
At a Glance
What It Does
The bill creates a statutory definition of when a franchisor is a joint employer: only when it possesses and exercises substantial direct and immediate control over one or more essential employment terms. It enumerates those essential terms and lists specific acts that do not qualify as direct and immediate control.
Who It Affects
National and regional franchisors, multiunit franchisees, labor unions, labor litigators, the NLRB and DOL, and franchises operating under federal franchise disclosure and petroleum marketing rules. It also affects counsel who draft franchise agreements and benefits arrangements.
Why It Matters
The statute replaces a flexible, fact‑intensive joint‑employer inquiry with a narrower, enumerated test—reducing uncertainty for franchisors but shifting the battleground to interpreting what counts as 'substantial' control and to the administrative application of the new criteria.
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What This Bill Actually Does
The Act adds a targeted, statutory joint‑employer standard that applies only to franchising relationships. Instead of leaving joint‑employer questions to administrative adjudication and common‑law tests, Congress instructs that a franchisor is a joint employer only when it both possesses and actually exercises substantial direct and immediate control over one or more of the specific employment dimensions the statute lists.
Those dimensions are the statute’s focal point: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
The bill also defines what counts as direct and immediate control in each of those areas and enumerates conduct that does not qualify. For example, a franchisor that sets brand operating hours, offers training materials, establishes minimal hiring criteria for safety or brand protection, or allows a franchisee to join a franchisor benefits plan under an arm’s‑length contract will not be treated as exercising direct and immediate control in those respects.
By contrast, actions like actually setting individual wage rates, determining which specific employees are hired or fired, or consistently instructing franchise employees on how to perform their jobs would meet the statutory standard.Congress applies this test to both the National Labor Relations Act and the Fair Labor Standards Act. The FLSA amendment incorporates the NLRA criteria but cross‑references the FLSA’s definitions of employer and employee.
The bill imports existing federal franchise definitions (16 C.F.R. § 436.1) and the Petroleum Marketing Practices Act definitions to limit ambiguity about what relationships qualify as franchising.Finally, the Act contains a single temporal limitation: it does not apply to proceedings already underway on the date of enactment. That preserves the status of active cases while changing the law for new claims and administrative actions going forward.
Practically, franchisors will likely revisit franchise agreements, training, and operational oversight to ensure necessary brand protections remain effective without creating the kind of control that the statute treats as joint employment.
The Five Things You Need to Know
The statute lists eight 'essential terms and conditions of employment': wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.
A franchisor is a joint employer only if it both possesses and exercises 'substantial direct and immediate control'—defined to mean a regular or continuous consequential effect on an essential term, not sporadic or de minimis acts.
The bill enumerates specific exclusions: permitting a franchisee to join a franchisor’s benefits plan under an arm’s‑length contract, setting operating hours, offering routine training materials, or recommending hiring changes generally do not count as direct and immediate control.
The Act amends both the National Labor Relations Act and the Fair Labor Standards Act and cross‑references 16 C.F.R. § 436.1 and the Petroleum Marketing Practices Act to define 'franchise,' 'franchisor,' and 'franchisee.', Section 4 makes the new standard nonretroactive: the Act does not apply to proceedings that began before the date of enactment.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Short title
Designates the measure as the 'American Franchise Act.' This is purely formal, but the title signals the bill’s focus on protecting the franchise business model and frames the statutory amendments that follow.
Findings framing congressional intent
Lists Congress’s factual and policy findings—how franchises operate, why uniform standards matter for brand value, employment size, and the problem the bill responds to: inconsistent joint‑employer tests. Those findings are not operative law but provide interpretive context; courts and agencies often cite such findings when resolving ambiguities about statutory purpose and may use them to construe the new joint‑employer language narrowly.
NLRA amendment—statutory joint‑employer test for franchising
Adds a new section to the NLRA that (1) defines 'direct and immediate control' across the enumerated employment elements, (2) defines 'essential terms and conditions of employment,' and (3) creates the 'substantial direct and immediate control' threshold (regular or continuous consequential effect). The provision also specifies conduct that does not qualify—examples include offering training materials, setting minimum brand standards, or expressing opinions about employees. Practically, labor boards and courts will apply this statutory text to determine whether a franchisor’s specific actions convert it into a joint employer, rather than relying solely on prior multi‑factor common law tests.
FLSA amendment—same test for wage/labor claims
Incorporates the NLRA’s franchising joint‑employer criteria into the FLSA context, instructing that joint‑employer status under the FLSA exists only if the franchisor meets the NLRA’s section 20 test. It retains the FLSA’s definitions of 'employee' and 'employer' while binding wage and hour claims to the new franchising standard—so issues like wage liability and overtime for franchise employees will be evaluated under the same statutory lens.
Applicability—no retroactive effect
States the Act and its amendments do not apply to proceedings commenced before enactment. This narrowly tailored nonretroactivity protects ongoing litigation and administrative matters from the new legal regime, while altering the law prospectively for new cases, union organizing drives, and regulatory enforcement.
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: Gains clearer statutory protection from being held a joint employer for routine brand controls—reduces litigation and agency risk tied to ordinary franchisor oversight.
- Franchise system owners and investors: Increased predictability around liability exposure should lower compliance costs and insurance premiums tied to joint‑employer claims and make the franchise model more attractive for capital deployment.
- In‑house and transactional counsel for franchisors: Obtain a defined statutory framework to rely on when drafting franchise agreements, benefits arrangements, and operational controls that stop short of the 'substantial' threshold.
- Regional/multiunit franchisees: Benefit indirectly through preserved brand consistency and potentially reduced exposure to multi‑party litigation that can disrupt operations and create cascading liability.
Who Bears the Cost
- Franchise employees and labor organizers: Lose an avenue for holding franchisors accountable when franchisee practices lead to labor violations; enforcement options may narrow, particularly where franchisors play a significant, but not 'substantial,' coordinating role.
- Labor unions and plaintiff lawyers: Face higher barriers to establishing franchisor responsibility in organizing drives and collective or class actions, shifting leverage toward franchisees and franchisors.
- Federal agencies (NLRB and DOL): Must rewrite enforcement guidance, adjust adjudicative frameworks, and may face increased litigation over how to apply 'substantial' and the enumerated exclusions.
- State attorneys general and plaintiffs pursuing state‑law joint liability claims: Although the Act governs federal statutes, state courts and agencies may see strategic shifts in case filings; states seeking broader employer accountability will be pushed into legislative or tort‑law routes, increasing enforcement burdens elsewhere.
Key Issues
The Core Tension
The bill resolves one problem—uncertainty that can chill franchising—by insulating franchisors from joint employer exposure for many supervisory or brand‑protecting activities, but in doing so it narrows workers’ and unions’ tools to hold franchisors accountable for labor law violations that occur across franchise systems; the core dilemma is choosing predictability for business over breadth of enforcement for worker protections.
The statutory text trades the flexibility of a fact‑intensive joint‑employer inquiry for presumptive bright lines. That reduces uncertainty for franchisors but creates significant interpretive pressure on two terms: 'substantial' and 'direct and immediate control.' How agencies and courts interpret 'regular or continuous consequential effect' will determine whether the new regime is genuinely narrower in practice or simply shifts dispute focus to frequency and consequence analyses.
The enumerated exclusions (training materials, minimal standards, arm’s‑length benefits participation, brand operating hours, etc.) reduce the risk that ordinary franchisor activities create liability—but they also create incentives for litigants to relabel or reframe conduct. For example, franchisors may rely more heavily on contractors or standardized corporate policies; franchisees may resist centralization that could risk liability.
Finally, because the Act governs only federal NLRA and FLSA claims and is not retroactive, a patchwork effect could emerge: older cases proceed under prior tests while new claims confront the statute, and state law theories of joint liability remain available and will likely become the new forum for contested claims.
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