Franchise Law Update: Where the American Franchise Act Stands and Why It Matters to Franchisors

Executive Summary

• The American Franchise Act (AFA) proposed nationwide rules to increase transparency, fairness, and consistency in franchising, introducing new franchisee protections and expanding FTC oversight.
• A key provision sought to clarify the “joint employer” standard, ensuring franchisors aren’t held liable for franchisees’ employment decisions simply for enforcing brand standards or training.
• Although the AFA has not passed, it continues to influence how regulators, courts, and states interpret franchise relationships and compliance obligations.
• Franchisors should act now by reviewing FDDs, updating agreements, and partnering with experienced franchise counsel to stay compliant and protect future growth.

In recent years, franchise law has faced increasing scrutiny from both regulators and legislators. For franchisors expanding in 2025 and beyond, understanding the proposed American Franchise Act (AFA) is essential, not only for compliance but for anticipating how federal oversight might reshape the franchisor–franchisee relationship.

While the American Franchise has not yet become law, its intent and potential impact reveal a clear message: the federal government is paying closer attention to how franchise systems operate.

Let’s break down what the American Franchise Act was designed to do, what’s driving the conversation around it, and where things stand today.

What the American Franchise Act Was Designed to Do

The American Franchise Act was a proposed federal law introduced in the U.S. House of Representatives with the goal of protecting franchisees from perceived legal imbalances in franchise relationships. However, many franchisors and industry leaders voiced concern that it would significantly limit how franchisors could operate, grow, and enforce their contracts.

In essence, the AFA sought to create a nationwide baseline of “fair dealing” rules between franchisors and franchisees, something that, until now, has primarily been governed by state law and private contracts.

Here are the key elements the Act proposed:

1. Create a Federal “Franchisee Bill of Rights”

The American Franchise Act proposal included new legal rights for franchisees, such as:

• Greater protection against termination or non-renewal of franchise agreements without “good cause.”
• Enhanced transparency on supplier rebates, fees, and royalties.
• More leeway for franchisees to sell or transfer their businesses without franchisor interference.
  

While these points sound balanced on the surface, franchisors argued they would erode brand consistency, limit operational control, and create costly litigation risks.

2. Shift in Power Over Contract Terms

The AFA proposed to restrict many common clauses that franchisors use to maintain quality control and consistency, such as arbitration requirements, venue selection, or restrictions on public statements about the brand.

For franchisors, these clauses are essential tools that protect brand reputation and ensure uniformity across locations. Under the proposed law, enforcing them could have become much more difficult.

3. Federal Oversight and Enforcement

Perhaps most significantly, the American Franchise Act would have allowed the Federal Trade Commission (FTC) and state attorneys general to enforce franchise relationship laws, not just disclosure violations under the existing Franchise Rule.

That change would represent a major expansion of federal authority into day-to-day franchise relationships, giving regulators more power to intervene when disputes arise.

4. Clarifying the Joint Employer Standard

Another major feature of the American Franchise Act is its effort to clarify what the “joint employer” standard is, defining when franchisors can be held responsible for the employment actions of their franchisees. For years, shifting federal interpretations have created uncertainty, leaving franchisors unsure about potential liability for wages, hiring, or workplace policies.

The AFA sought to establish a consistent, narrower definition, ensuring franchisors would not be deemed joint employers simply for enforcing brand standards or providing training. This clarification would help protect franchisors from unexpected labor disputes while maintaining operational consistency across locations. Even without the American Franchise Act’s passage, the joint employer question remains central to franchise law and one that franchisors should continue to watch closely.

Why the American Franchise Act Gained Momentum

The AFA was introduced amid a larger national discussion around labor classification, gig economy regulation, and franchise fairness. Policymakers expressed concern that some franchisees were entering agreements without fully understanding the long-term financial and legal implications.

Advocates for the Act cited examples of franchisees who felt “locked in” by restrictive contracts or suffered significant financial losses during the pandemic.

But from the franchisor’s perspective, the proposed law misunderstood the business model itself. Franchising is not a traditional employment relationship, it’s a licensing partnership. Franchisors argued that by overregulating these agreements, Congress would unintentionally:

• Discourage franchise investment and expansion;
• Increase compliance costs for emerging franchisors; and
• Reduce opportunities for entrepreneurs who rely on franchise systems to grow.
  

Industry organizations like the International Franchise Association (IFA) led a strong campaign opposing the Act, warning that it would create confusion, deter growth, and conflict with existing state franchise laws.

Where the American Franchise Act Stands Now

As of late 2025, the American Franchise Act has not passed and remains stalled in committee. While it attracted attention during hearings and advocacy efforts in Washington, it has not advanced to a vote in Congress.

That doesn’t mean the issue is over. The broader franchise law fairness movement continues to influence state legislatures. Several states, including California, Illinois, and New York, have explored or passed their own franchise relationship laws echoing parts of the AFA’s intent.

For franchisors, this means the regulatory landscape is still shifting. Even if a federal version never becomes law, many of its principles could appear in new state-level regulations or FTC guidance.

What Franchisors Should Take Away

Even though the American Franchise Act hasn’t passed, its introduction serves as a wake-up call for franchisors to ensure they are operating with transparency and proactive compliance.

Here’s what franchisors can do now:

1. Review Franchise Disclosure Documents (FDDs) Annually
   Stay ahead of regulatory scrutiny by ensuring your FDD is fully compliant, clear, and transparent about fees, renewal terms, and territorial rights.
2. Audit Franchise Agreements for Flexibility
   Clauses that restrict transfers, control supplier choices, or determine jurisdiction should be reviewed to ensure they align with both federal and state-level trends.
3. Strengthen Franchisee Relations
   Regulators often step in when relationships deteriorate. A proactive franchisor builds trust through education, open communication, and responsive support, reducing the risk of disputes escalating into legal challenges.
4. Partner with Experienced Franchise Counsel
   As legislative and regulatory landscapes evolve, having a franchise lawyer on your side before issues arise, not after, is the best safeguard. A law firm that specializes in franchise law can help franchisors draft strong, compliant agreements that protect their interests while maintaining fairness and transparency.

How Franchisors Can Always Be Ready

Whether or not the American Franchise Act resurfaces in the future, its influence will continue shaping how regulators and courts view the franchisor–franchisee relationship. The proposal spotlighted a growing federal interest in franchise practices, particularly around transparency, fairness, and accountability. That means franchisors should expect more oversight and evolving standards, even if the law itself doesn’t pass.

For franchisors, the best defense is preparation: ensuring compliance, modernizing agreements, and engaging legal counsel that understands how to navigate both the business realities and the legal complexities of franchising. A proactive approach today can prevent costly disputes, protect brand integrity, and keep expansion plans on track.

Partnering with a strong legal expert can help franchisors build strong, scalable systems that withstand scrutiny, because waiting until regulations change is always more costly than preparing for them now. The peace of mind of having the right legal partner allows franchisors to stay focused on growth, knowing their business is protected from whatever comes next.