Congress Introduces The "American Franchise Act" To Clarify Joint Employer Liability

On September 10, 2025, Representative Kevin Hern (OK-01), together with Democrat co-lead Representative Don Davis (NC-01), introduced the American Franchise Act (H.R. 5267, hereinafter "AFA"). The AFA is designed to provide consistency and clarity on when a franchisor may be considered a "joint employer" of a franchisee's employees under the National Labor Relations Act ("NLRA" or the "Act"). Aimed at curtailing joint employer liability and stopping the see-saw rulemaking that has plagued the National Labor Relations Board ("Board") in recent years, this legislation would potentially govern the rights of approximately five percent of all workers in the United States, or approximately 8,400,000 individuals.

Under the prior two Administrations, competing Boards sought to establish joint employer standards through the agency's decisions and rule making process. The result was a back-and-forth swing between narrow and broad definitions of "joint employer" status. For example, in 2015, the Democratically-controlled Board issued its decision in Browning-Ferris Industries of California, Inc., 362 NLRB 1599 (2015) ("BFI"), upending years of precedent by dramatically expanding the definition of a "joint employer" and categorizing many more independent companies as joint employers. Under BFI, two entities were deemed joint employers based on the mere existence of reserved joint control, indirect control, or control that was limited and routine. In 2020, the Republican-controlled Board released its long-awaited final rule regarding joint-employer status ("2020 Rule"). Under the 2020 Rule, one is considered a "joint employer" under the Act only where it exercises "substantial direct and immediate control" over the essential terms and conditions of another company's employee. In September 2022, a new Board proposed revised regulations that would have repealed the 2020 Rule (the "2023 Rule"). Under the 2023 Rule, any entity that exercised—or even reserved the right to exercise—control, directly or indirectly, over at least one essential term of employment was considered a joint employer. On March 8, 2024, a federal judge in the United States District Court for the Eastern District of Texas struck down the 2023 Rule. We discussed that ruling in detail here.

That AFA seeks to end the inconsistent rulemaking of the past decade. If enacted, the AFA would codify a uniform, narrow definition of "joint employer"—limiting franchisor liability to circumstances where the franchisor actually exercises substantial, direct, and immediate control over a franchisee's workers. According to the AFA's authors, "inconsistent and expansive views of what constitutes a 'joint employer' have impacted the viability of franchising by creating joint employer liability based on the franchisor's exercise of control that is inherent in franchise relationships." The AFA's authors further contend the bill seeks to codify a predictable standard and aligning the NLRA and FLSA tests.

Under the terms of the AFA, a franchisor is deemed a joint employer only if it possesses and exercises "substantial direct and immediate control" over one or more "essential terms and conditions of employment." The AFA provides the following "essential terms and conditions of employment," and gives examples of what does and does not constitute "substantial direct and immediate control." Examples include:

• Benefits: Control exists only if the franchisor determines which benefit plans or levels of benefits are provided; allowing participation in the franchisor's plan under an arm's-length contract does not constitute direct and immediate control of benefits.
• Hours Worked: Control exists only if the franchisor actually determines work schedules or hours; setting a franchise's operating hours or minimum staffing levels does not constitute direct and immediate control of hours of work.
• Hiring: Control exists only if the franchisor determines who is hired or not hired; merely recommending staffing changes or setting minimal recruiting standards does not constitute direct and immediate control of hiring.
• Discipline: Control exists only if the franchisor decides to suspend or discipline an employee; expressing opinions or setting brand-protection standards does not constitute direct and immediate control of discipline.
• Supervision: Control exists only when the franchisor directly and consistently instructs employees how to perform work or issues performance appraisals; providing routine directions, brand standards, or training materials does not constitute direct and immediate control of supervision.

The AFA explicitly excludes typical brand-protection activities from triggering joint-employer status. Examples of activities that do not trigger joint-employer status include:

• Setting operating hours for the franchise location;
• Establishing quality or marketing standards; and
• Providing training materials or operational manuals.

The bill applies prospectively and would not affect pending proceedings.

Practical Implications

If enacted, the AFA would narrow potential joint-employer exposure for franchisors, provide greater autonomy to franchisees in managing their employees, and reduce litigation risk stemming from varying agency interpretations.

Importantly, however, franchisors must remain mindful that the AFA would not preempt broader state laws, such as California's expansive joint-employment standards, nor does it alter obligations under other federal statutes, such as Title VII. Franchisors who operate in multiple states should continue to evaluate joint-employment risk under all applicable laws.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.