American Franchise Act
- Sponsor
- Sen. Marshall, Roger [R-KS]
- Committees
- Health, Education, Labor, and Pensions Committee (primary)
- Last action
- Mar 19, 2026
Bottom line
This bill aims to protect the traditional franchise business model by limiting franchisor liability as a joint employer, thereby reducing legal and regulatory risks for franchisors under federal labor laws.
What it actually does
This bill amends the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) to establish a new, stricter definition of "joint employer" specifically for franchisor-franchisee relationships. It specifies that a franchisor may be considered a joint employer of a franchisee's employees only if it exercises "substantial direct and immediate control" over one or more essential terms and conditions of employment, providing detailed examples of what constitutes such control and what does not. The bill also states that its provisions will not apply to legal proceedings commenced before its enactment date.
Proponents argue
Supporters argue the bill provides much-needed clarity and stability for the franchise business model, which contributes significantly to the U.S. economy and employment. They contend that inconsistent "joint employer" standards create undue liability for franchisors based on the necessary quality and operational controls inherent in franchising, stifling growth, and entrepreneurship.
Opponents contend
Critics might argue that this bill weakens protections for workers by making it harder to hold large franchisors accountable for labor practices across their networks. They may contend that it allows franchisors to exert significant influence over working conditions without bearing the corresponding legal responsibilities, potentially leading to lower wages or poorer working conditions for franchisee employees.
The bill is relatively short and clearly structured, making it accessible for an informed reader to understand its core provisions within a reasonable timeframe.
Section 2
Congressional Findings on Franchising
This section lays out Congress's understanding of the franchise business model, emphasizing that franchisees are independent business owners who control day-to-day operations and labor relations, even while franchisors set uniform standards to protect brand integrity. It highlights the significant economic impact of franchising and notes that inconsistent "joint employer" views threaten its viability.
Supporters argue
Supporters argue these findings accurately reflect the nature and economic importance of franchising, justifying the need for legislative clarity to protect this model from harmful interpretations of joint employment.
Critics contend
Critics might argue that these findings overemphasize the independence of franchisees and downplay the actual control franchisors can exert, potentially setting a biased foundation for the legal definitions that follow.
Tradeoffs
Balances the need for franchisor brand control with franchisee operational independence.
Section 3(a), adding Section 20 to the NLRA
New Joint Employer Standard for Franchising (NLRA)
This provision amends the National Labor Relations Act to define a franchisor as a joint employer of a franchisee's employees only if the franchisor "possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment." It then explicitly defines "direct and immediate control" and "substantial direct and immediate control" with specific examples for various employment aspects like wages, benefits, hours, hiring, discharge, discipline, supervision, and direction.
Section 3(a), new NLRA Section 20(a)(1)
Detailed Definitions of Direct and Immediate Control
This sub-provision provides granular definitions for what constitutes "direct and immediate control" over each "essential term and condition of employment" (wages, benefits, hours, hiring, discharge, discipline, supervision, direction). Crucially, it also specifies actions that do not constitute such control, such as setting operating hours, minimum staffing levels, brand standards, or offering training materials.
Section 3(b), adding Section 20 to the FLSA
New Joint Employer Standard for Franchising (FLSA)
This provision extends the same "joint employer" definition established for the National Labor Relations Act to the Fair Labor Standards Act of 1938. This means that franchisors will only be considered joint employers of their franchisees' employees under FLSA (which governs minimum wage, overtime, and child labor) if they meet the "substantial direct and immediate control" criteria defined in the NLRA amendment.
Section 4
Non-Retroactivity of Amendments
This section specifies that the Act and its amendments will not apply to any legal proceedings that commenced before the date the Act is signed into law. This means that ongoing cases or disputes initiated before enactment would still be judged under the previous joint employer standards.
Clarifies that a franchisor does not exercise direct and immediate control over benefits if it merely permits a franchisee, under an arm's-length contract, to participate in a franchisor's benefits plan (e.g., health insurance, pension, or tuition assistance).
Section 3(a), new NLRA Section 20(a)(1)(B)
Why it matters:This is standard legislative practice for providing precise legal definitions and exceptions within a complex statutory amendment. It's not necessarily evasive but requires careful reading.
Case for: Proponents argue this exclusion is essential to allow franchisors to offer beneficial programs to their franchisees' employees (e.g., better rates on health insurance due to scale) without inadvertently triggering joint employer status, which would discourage such offerings.
Case against: Critics might argue that offering such benefits could still represent a significant lever of control or influence over employees' compensation packages, and this carve-out might allow franchisors to avoid responsibility while still shaping employee benefits.
Estimated impact: Potentially affects millions of franchisee employees by allowing them access to franchisor-sponsored benefits without changing the legal relationship between franchisor and employee.