The U.S. franchise sector is a cornerstone of the American economy, supporting over 800,000 small businesses, millions of jobs, and generating approximately $896 billion in annual economic output. However, the industry has faced significant uncertainty in recent years due to shifting federal labor regulations—particularly around the “joint employer” standard. In response, a bipartisan group of lawmakers has introduced the American Franchise Act (AFA), aiming to bring stability and clarity to the franchise business model. Here’s what you need to know about this landmark legislation and its potential impact.
What Is the American Franchise Act?
The American Franchise Act is a bipartisan bill introduced in the U.S. House of Representatives in September 2025 by Representatives Kevin Hern (R-OK) and Don Davis (D-NC), along with a coalition of 12 other lawmakers from both parties. The Act is designed to codify a clear, consistent definition of the “joint employer” standard specifically for franchising, addressing a decade of regulatory whiplash that has left both franchisors and franchisees in a state of uncertainty.
Why Was the Act Proposed?
Over the past ten years, the joint employer standard, which determines when a franchisor can be held liable for labor law violations at a franchisee’s business, has changed multiple times, depending on which political party controlled the White House and the National Labor Relations Board (NLRB). These swings have made it difficult for franchise businesses to plan for the future, increased litigation, and raised costs for small business owners.
For example, the 2015 NLRB decision in Browning-Ferris Industries expanded the joint employer definition to include indirect control, making franchisors potentially liable for employment decisions made by franchisees. The standard was narrowed in 2020, then broadened again in 2023, only to be struck down by a federal court in 2024. This back-and-forth has created a regulatory rollercoaster for the industry.
Key Provisions of the American Franchise Act
The AFA seeks to end this uncertainty by:
- Defining Franchisor and Franchisee Roles: The Act clarifies that franchisors and franchisees are independent employers. A franchisor would only be considered a joint employer if it possesses and exercises “substantial direct and immediate control” over essential terms and conditions of employment, such as hiring, firing, setting wages, and disciplinary actions.
- Limiting Liability: By establishing a clear standard, the Act protects franchisors from being held liable for employment decisions made independently by franchisees, unless the franchisor directly controls those decisions.
- Providing Stability: The Act would prevent future regulatory swings by codifying the joint employer standard into federal law, giving franchise businesses the certainty they need to invest, grow, and create jobs.
Industry Support and Impact
The American Franchise Act has received strong support from major industry groups, including the International Franchise Association (IFA) and the American Hotel & Lodging Association. Advocates argue that the Act will:
- Protect Small Businesses: By clarifying the employer relationship, the Act allows franchisees to operate as true independent business owners, free from the threat of being treated as employees of the franchisor.
- Encourage Entrepreneurship: The franchise model has long been a pathway to business ownership for entrepreneurs, women, and minorities. The AFA aims to preserve this opportunity by reducing legal and regulatory risks.
- Safeguard Workers: While protecting franchisee independence, the Act maintains established labor standards and workers’ rights under existing federal law.
What’s Next?
The American Franchise Act is currently under consideration in the House of Representatives. Its bipartisan support and targeted approach—applying only to the franchise relationship—give it a strong chance of advancing, especially compared to broader labor reform bills that have stalled in Congress.
If enacted, the AFA would mark a significant step toward restoring stability and confidence in the franchise sector, benefiting franchisors, franchisees, and workers alike.
Conclusion
The proposed American Franchise Act represents a pivotal moment for the U.S. franchise industry. By providing a clear, consistent legal framework, it aims to end years of regulatory uncertainty and empower small business owners to thrive. As the bill moves through Congress, stakeholders across the franchise community will be watching closely and advocating for a future where the franchise model remains a powerful engine of opportunity and economic growth.
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