Not legal advice: This is a franchise diligence guide, not a legal opinion. Joint-employer status depends on statute, agency rule, court precedent, contract language, and actual operating conduct. Have qualified franchise counsel review your documents.
What the American Franchise Act actually does
H.R. 5267, introduced in September 2025 by Rep. Kevin Hern with bipartisan cosponsors, is titled the American Franchise Act. Its purpose is blunt: preserve the franchise business model by separating legitimate brand control from employment control.
The bill starts from a basic premise every franchise buyer understands: franchisors need to protect trademarks, recipes, service standards, uniforms, marketing, and quality control. Without uniformity, the brand loses value. But franchisees are supposed to be independent business owners who run the unit, employ the workers, and make day-to-day labor decisions.
The legal problem is the gray zone between those two ideas. If a franchisor tells the franchisee how the brand must operate, when does that become control over the franchisee's employees? The American Franchise Act answers: not unless the franchisor has direct and immediate control over essential employment terms.
What the bill protects
Brand standards, quality rules, marketing requirements, operational systems, training materials, and normal franchise support.
What can still create risk
Direct control over wages, benefits, hiring, discipline, firing, supervision, scheduling, or other core labor decisions.
Why this matters: the joint-employer whipsaw
Joint employer rules determine when two separate businesses can both be treated as employers of the same workers. In franchising, that question has enormous leverage. If a franchisor is treated as a joint employer, it can face bargaining obligations, unfair-labor-practice exposure, and litigation risk for workers it does not directly hire.
Over the past decade, the standard has swung between broader and narrower interpretations. The 2015 Browning-Ferris approach put more weight on indirect and reserved control. The 2020 NLRB rule narrowed the test to substantial direct and immediate control. The 2023 rule tried to broaden it again, then was struck down in court. By 2026, the franchise industry's argument is simple: agency rules can flip every administration; a statute would be harder to reverse.
Who supports it — and who opposes it
The International Franchise Association supports the Act because it gives franchisors room to help franchisees without accidentally creating labor liability. The Coalition to Save Local Businesses frames it as a permanent fix for local franchise owners facing regulatory whiplash. Hotel groups, including AHLA, have also backed clearer joint-employer limits because hotel franchising depends heavily on brand standards plus local ownership.
The Problem Solvers Caucus endorsement matters because it signals bipartisan cover. This is not merely a Republican deregulatory bill; supporters are trying to position it as a small-business certainty bill for franchisees, lenders, landlords, and multi-unit operators.
Labor groups oppose the bill for the opposite reason. Their concern is that a narrow direct-control rule makes it harder for workers to bargain with or sue the entity that may economically shape the workplace through brand systems, technology, pricing, and operational mandates. That is the core political fight: brand protection versus worker leverage.
Brand control vs. employment control
The practical diligence question is not whether the franchisor has standards. Every real franchisor does. The question is whether those standards cross into direct control over people.
| Area | Usually brand-control territory | Joint-employer danger zone |
|---|---|---|
| Brand standards | Menu specs, operating manuals, food safety rules, signage, uniforms, approved vendors, customer-service standards. | Using standards to dictate staffing levels, shift schedules, individual discipline, or who must be hired or fired. |
| Training and guidance | Training materials, recommended practices, field coaching, systemwide playbooks, and optional benchmarks. | Mandatory employment scripts, required discipline steps, approval rights over managers, or required payroll practices. |
| Technology systems | POS, brand apps, reporting dashboards, quality audits, customer-feedback systems. | Labor-management tools that effectively set wages, approve schedules, allocate hours, or manage employee performance. |
| Local labor relations | Franchisee retains day-to-day authority over pay, hiring, firing, supervision, scheduling, and workplace policies. | Franchisor directly controls essential employment terms or uses contract rights to override franchisee discretion. |
Practical impact for franchisors
If enacted, the Act would make it easier for franchisors to support franchisees without fearing that every manual, field visit, or training module becomes evidence of joint employment. That could encourage more operational support, stronger brand enforcement, and clearer systemwide playbooks.
But franchisors still need discipline. The safest systems will separate brand compliance from employment decisions in contracts, field-ops scripts, software design, audit reports, and email trails. A statute helps most when the facts match the statutory theory.
Practical impact for franchisees and buyers
For buyers, the Act would reduce one category of systemic franchisor liability, but it does not make the franchisee's labor obligations disappear. If you own the unit, you still own payroll, hiring, supervision, scheduling, wage-and-hour compliance, and manager training.
The bigger buyer signal is operational intensity. A franchisor that gives excellent tools but preserves franchisee discretion is usually lower risk. A franchisor that controls the labor stack while pretending the franchisee is independent is a diligence red flag — whether or not the American Franchise Act passes.
Buyer diligence checklist
- ✓Read the franchise agreement for franchisor rights over staffing, training, technology, payroll, discipline, scheduling, and manager approval.
- ✓Ask current franchisees whether brand support feels like guidance or mandatory employment control.
- ✓Check whether the franchisor requires specific labor-management software, wage ranges, scheduling templates, or discipline workflows.
- ✓Review Item 3 litigation for labor, wage-and-hour, union, discrimination, or joint-employer claims involving the system.
- ✓Model downside even if federal law narrows: state labor law, wage statutes, and actual conduct can still create exposure.
- ✓Treat intense operational support as a double-edged sword: useful for execution, but problematic if it crosses into employment control.
How to read this in the FDD
Start with Item 3 for litigation history, then Item 11 for franchisor assistance, advertising, computer systems, training, and operations manuals. Item 11 is where helpful brand support can quietly become heavy operational control. Then read the franchise agreement alongside the FDD: approval rights, audit rights, software mandates, employment-policy language, indemnities, and default provisions matter.
If the franchisor has labor-related claims in Item 3, or if Item 11 describes deep control over workforce systems, ask whether the Act would actually protect the system. A legal standard is useful, but the actual operating model is what litigants fight over.
Bottom line
The American Franchise Act is a meaningful pro-franchise bill because it tries to turn a fragile agency rule into a durable statutory standard. If passed, it would likely lower franchisor joint-employer anxiety and make brand support safer.
For franchise buyers, the right takeaway is narrower: do not confuse legal clarity with low operating risk. The franchisee still runs the labor model. The diligence question is whether the franchisor's control stops at the brand — or reaches the people.