The American Franchise Act and Joint Employer Liability: Part 2
The American Franchise Act (H.R. 5267) is proposed federal legislation that would create a franchise-specific joint employer test under the NLRA and FLSA.
A franchisor would be a joint employer only if it possesses and exercises substantial direct and immediate control over wages, hours, hiring, or another essential term of employment, with the bill borrowing its franchise definitions from the FTC Franchise Rule.
As of October 2026, the American Franchise Act has been reported favorably by the House Committee on Education and Workforce, but is not yet law. If enacted, it would draw specific lines between brand standards and employment control, without granting blanket immunity from joint employer liability. Understanding those distinctions can help franchisors and franchisees follow the legislation as it moves through Congress and evaluate what the proposed standard would, and would not, change.
Part 1 of this series on the American Franchise Act covered the joint employment definition. Read more here.
Executive Summary
- The American Franchise Act is proposed federal legislation, not current law. H.R. 5267 would establish a franchise-specific joint-employer standard under the National Labor Relations Act (NLRA) and Fair Labor Standards Act (FLSA).
- The reported bill requires a franchisor to possess and exercise substantial direct and immediate control over at least one essential employment term. It defines eight terms and specific exclusions from employment control.
- The proposal distinguishes operating hours from individual schedules, training standards from ongoing supervision, and reporting misconduct from making employment decisions. These are defined boundaries, not blanket immunity.
- The bill would not amend the FMLA, Title VII, ADA, or ADEA. It also excludes proceedings commenced before enactment. Franchise businesses should not treat proposed protections as current compliance rules.
Why the American Franchise Act Matters to Both Sides of the Franchise Relationship
Franchising is built on a balance between consistency and independence. Without standards, there is no system, but without independence, there is no franchise model.
That balance reflected in the findings accompanying the American Franchise Act. The bill recognizes that franchisors set and enforce uniform quality, marketing, and operational standards, while franchisees control day-to-day operations and labor relations.
For franchisors, the question is how system support and brand protection interact with employment responsibility. For franchisees, the question is how that support interacts with their authority over their businesses.
In Part 1, we examined how and why joint-employer rules have changed. Part 2 addresses the proposed legislative response: what the bill would do, what it would leave untouched, and why those details matter.
What Is the American Franchise Act?
The American Franchise Act, H.R. 5267, is a bill introduced on September 10, 2025. It would add franchise-specific joint-employer provisions to the NLRA and FLSA. Its definitions of franchise, franchisee, and franchisor incorporate the federal franchise definitions in 16 C.F.R. § 436.1 as in effect on enactment.
It is not a general rewrite of every joint-employer relationship. Instead, its operative provisions address when a franchisor can be considered a joint employer of a franchisee’s employees under the NLRA and FLSA statutes.
Has the American Franchise Act Become Law?
No. As of October 2026, H.R. 5267 has been reported by the House committee, but has not yet been enacted.
Why Seek Legislation Instead of Relying on an Agency Rule?
The American Franchise Act is moving through Congress while the U.S. Department of Labor is separately considering a proposed joint-employer rule under the FLSA. The DOL proposal would also use its FLSA joint-employer analysis under the FMLA and MSPA.
The two efforts take different approaches. The DOL proposal would establish a regulatory standard, while the American Franchise Act would place a franchise-specific joint-employer standard into the NLRA and FLSA.
The bill’s findings identify inconsistent and expansive joint-employer interpretations as a concern for the franchise model. Its proposed solution is to put a franchise-specific boundary in federal statutory text.
That is a different approach from relying on an agency’s interpretation. The statutory language is intended to make the boundary more durable. The goal of the proposed framework is to define what counts as employment control, and what does not, under the covered laws.
What Joint-Employer Standard Would the American Franchise Act Establish?
Under the reported bill, a franchisor could be considered a joint employer only if it possesses and exercises substantial direct and immediate control over one or more of the essential employment terms:
Possesses and Exercises Control
The proposed threshold requires both authority and actual exercise of substantial direct and immediate control. Reserved authority alone would not meet that stated threshold.
Substantial Control
The bill defines substantial control as having a regular or continuous consequential effect on an essential employment term. Control exercised only on a sporadic, isolated, or de minimis basis is excluded.
One Employment Term Can Be Enough
The bill does not require control over every employment function. Substantial direct and immediate control over one or more covered terms can meet the threshold. The bill does not create immunity for franchisors. It establishes a particular control test.
Which Employment Decisions Would the American Franchise Act Cover?
The reported bill defines eight essential employment terms. Each definition focuses on particular conduct, and most include specific exclusions. Paraphrased, these eight terms are:
1. Wages
Control includes actually determining wage rates, salary, or other pay rates for individual employees or job classifications. The definition does not list a separate wage-specific exclusion. The overall substantial-control threshold still applies.
2. Benefits
Control includes actually determining fringe benefits, including selecting benefit plans or benefit levels. Permitting a franchisee to participate in a franchisor benefit plan under an arm’s-length contract is excluded.
3. Hours of Work
Control includes actually determining employee schedules or hours, including overtime. Establishing the franchise location’s operating hours or minimum staffing levels to satisfy service standards is excluded.
4. Hiring
Control includes actually determining which particular employees will or will not be hired. Encouraging, recommending, or requesting staffing-level changes is excluded, as are minimum recruiting and hiring standards for legal compliance, safety, or brand protection.
5. Discharge
Control includes actually deciding to terminate an employee. Reporting misconduct or poor performance when the franchisee makes the discharge decision is excluded. The definition also excludes negative opinions and specified minimum performance or conduct standards.
6. Discipline
Control includes actually deciding suspension or other discipline. Exclusions include reporting concerns when the franchisee decides, negative opinions, specified minimum standards, and refusing to allow an employee to perform work under a franchise offer or contract. That last exclusion is specific; it should not be treated as a general permission to make termination decisions.
7. Supervision
Control includes consistently and directly instructing employees how to perform their work or actually issuing employee performance appraisals. Exclusions include brand standards, training materials and demonstrations, minimum training requirements, and limited routine instructions primarily about what, where, or when to perform work rather than how.
8. Direction
Control includes assigning particular employees individual schedules, positions, and tasks. Offering resources and tools for a franchisee to consider using to direct that work is excluded.
Brand Standards vs. Employment Control: What Would the Difference Look Like?
The reported act makes several distinctions that are useful for understanding the proposal, including:
- Setting when the location opens is different from deciding when a particular employee works.
- Requiring minimum training is different from consistently directing how an employee performs work.
- Reporting a performance concern to franchisee management is different from making the disciplinary or termination decision.
- Offering a scheduling tool is different from assigning individual schedules, positions, and tasks.
These distinctions paraphrase specific definitions in the bill. They are not a standalone safe harbor for every operational requirement, technology platform, or contract provision. The relevant conduct and overall threshold still matter.
How Would the American Franchise Act Affect Wage-and-Hour Liability?
The FLSA provision would require a franchisor to meet the same franchise-specific joint-employer criteria set out in the proposed NLRA provision. However, it retains the FLSA definitions of employee and employer.
That makes the proposal more than a response to NLRB rule changes. It would also establish a statutory threshold for determining franchisor joint-employer status in federal wage-and-hour matters.
The proposal concerns who qualifies as an employer. It does not repeal minimum-wage or overtime protections. Its text amends joint-employer status, not the underlying wage standards.
What Stays the Same for Franchise Businesses in the American Franchise Act?
It Would Not Cover Every Employment Statute
The reported bill amends the NLRA and FLSA. It does not amend the Family and Medical Leave Act, Title VII, Americans with Disabilities Act, or Age Discrimination in Employment Act. Those frameworks remain outside the amendments described here.
It Does Not Expressly Preempt State Law
The reported text contains no express state-law preemption provision. It does not expressly state that it is replacing state employment standards or resolving every jurisdiction’s employer-status analysis.
It Would Not Apply to Proceedings Already Commenced
Section 4 excludes proceedings commenced before enactment. That is a proceeding-based limitation. It is not the same as a blanket statement that all claims involving earlier conduct would be excluded.
It Would Not Protect Every Activity Labeled a Brand Standard
The bill lists particular exclusions within particular control definitions. The applicability of those exclusions depends on the conduct described in the proposed statutory definitions, rather than simply how an activity is characterized.
What Does the American Franchise Act Mean for Franchisors and Franchisees?
The bill would provide more explicit boundaries for certain forms of franchise-system oversight and support. Operating hours, training requirements, and certain resources could be evaluated against defined exclusions rather than a generalized description of franchise oversight.
The proposed definitions also illustrate how the bill distinguishes between system-level requirements and individual employment decisions. Relevant areas include:
- Whether authority appears in agreements and manuals and how employment-related authority is exercised in practice
- Whether field teams communicate standards to franchisee management or make individual personnel decisions.
- Whether technology offers tools or allows franchisor personnel to assign and change individual work.
These examples illustrate distinctions reflected in the reported bill; they are not themselves statutory requirements. The bill is not law, and the legal framework governing a particular practice depends on the law currently applicable to that practice.
Final Thoughts
The American Franchise Act attempts to preserve both consistency and independence. Its significance is not simply would establish a statutory rule. It proposes specific boundaries for employment control under two federal statutes.
For franchisors, the important question is how those proposed boundaries would apply to franchise-system oversight and support. For franchisees, it is how the proposed framework would distinguish franchisor involvement from employment decisions made by the franchisee. For both, the bill’s limits matter as much as its protections.
FAQs
Q: What is the American Franchise Act?
A: H.R. 5267 is proposed legislation establishing franchise-specific joint-employer criteria under the NLRA and FLSA. The reported bill requires substantial direct and immediate control that the franchisor possesses and exercises.
Q: Has the American Franchise Act passed?
A: As of October 2026, the American Franchise Act has been reported by the House committee, but has not been enacted.
Q: Would the American Franchise Act eliminate franchisor joint-employer liability?
A: No. A franchisor could still meet the proposed threshold by possessing and exercising substantial direct and immediate control over at least one covered employment term. For more information on joint-employer liability, read Endereza Law’s blog covering the topic.
Q: Would the changes proposed by the American Franchise Act apply to an existing lawsuit or agency proceeding?
A: Section 4 of the proposed American Franchise Act excludes proceedings commenced before enactment. The precise limitation concerns when the proceeding begins, not simply when the underlying conduct occurred.
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