Last October, we published an article discussing the introduction of the American Franchise Act in the U.S. House of Representatives. As we said then, the bill seeks to codify the joint employer standard established by the National Labor Relations Board (NLRB) in 2020, which prevents franchisors from being classified as co-employers of franchisees’ workers in the vast majority of circumstances. So, where does the American Franchise Act stand in 2026? National franchisee attorney Jeffrey M. Goldstein explains.
American Franchise Act Remains Pending in the U.S. House of Representatives
The NLRB’s joint-employer standard that the American Franchise Act seeks to codify is widely viewed as a favorable approach for the franchising industry. If franchisors have the potential to be classified as co-employers of franchisees’ workers, this can pose a host of legal issues and risks—and it is, in general, inconsistent with the nature of the franchise model.
The International Franchise Association (IFA) advocated for the introduction of a law codifying the NLRB’s joint employer standard, and it praised the American Franchise Act’s introduction last year. At the time, it issued a press release stating that it would be “spearheading a full-scale national and regional advocacy push for the legislation.”
Unfortunately, the American Franchise Act hasn’t made any progress since our last report. It remains pending before the House Committee on Education and Workforce, where it has been sitting since its introduction on September 10, 2025.
Does this mean the American Franchise Act is dead? While this isn’t necessarily the case, it certainly looks like a possibility. Similar legislative efforts have failed in the past, and without any progress on the bipartisan bill in roughly four months, it certainly doesn’t appear to be a priority within the chamber.
What if the American Franchise Act Doesn’t Pass?
With the American Franchise Act stalled in committee, what happens if the bill doesn’t pass? The short answer is, “Nothing.” At least not right away.
As discussed above, the American Franchise Act does not seek to change the current joint employer standard as it applies to franchising, but instead to codify it. While the joint employer standard has changed multiple times over the past two decades, the American Franchise Act simply seeks to codify the current standard into federal law so it is less prone to change in the future.
Of course, this means that without legislation, the standard could change again at any time. As the IFA reports, before the NLRB adopted its current standard, the previous standard, “cost franchise businesses over $33 billion per year, resulting in 376,000 lost job opportunities, and led to 93% more lawsuits,” in addition to, “creating legal confusion, eroding trust, and stifling growth for thousands of small businesses across America.” So, while the current NLRB standard is favorable for the franchise industry, if it changes again, this could have very real consequences.
What is the Current Joint Employer Standard in Franchising?
Under the current NLRB standard, a franchisor is considered a co-employer of a franchisee’s workers only if the franchisor asserts “direct and immediate control” over the workers’ terms and conditions of employment. Franchisors rarely do this—partially because they don’t want to be held liable as an employer, but mainly because this is inconsistent with franchisees’ independence, which is a hallmark of the franchise model.
While the current joint-employer standard protects franchisors, it also benefits franchisees. It helps confirm franchisees’ independence and gives franchisors an incentive not to interfere with franchisees’ employment-related matters. Even if a franchisor were to be held jointly liable for an employment-related liability, this joint liability would not eliminate the franchisee’s obligation to pay.
If enacted, the American Franchise Act would go a step further by requiring “substantial direct and immediate control” over a franchisee’s employment practices. The bill lists several “essential terms and conditions of employment” over which a franchisor would need to exercise this level of control in order to be classified as a joint employer, and it specifically states that, “setting minimal recruiting and hiring standards, such as those required by law, for consumer or employee safety, or for brand protection,” would not amount to substantial direct and immediate control.
What Do Franchisees Need to Know Going Forward?
With all of this in mind, what do franchisees need to know going forward? As with all aspects of operating a franchise, effectively managing employment-related risk is important. As employers, franchisees can face several liability risks if they aren’t careful. These include, but are by no means limited to, risks involving:
- Employment discrimination claims
- Sexual harassment claims
- Employee classification claims
- Equal pay claims
- Family and Medical Leave Act (FMLA) claims
- Minimum wage and overtime claims
- Retaliation claims
- Workers’ compensation and workplace safety claims
- Wrongful refusal to hire claims
- Wrongful termination claims
Franchisees must comply with a host of federal and state laws when hiring employees and managing their workforces, and, as independent business owners, franchisees generally cannot rely on their franchisors for advice or recommendations. Instead, franchisees must ensure they have their own documented employment policies and procedures, and that their managers (and other personnel) comply with them consistently.
For those who are facing employment-related claims, time is of the essence. Employers must promptly investigate their employees’ allegations in good faith and make informed, strategic decisions about their defenses. If your franchise is facing litigation with a current or former employee, we encourage you to contact us promptly for more information.
Request a Call with National Franchisee Attorney Jeffrey M. Goldstein
Do you have questions (or concerns) about your employment-related responsibilities as a franchisee? If so, we can explain everything you need to know and help you take the necessary steps to protect your franchise going forward. To request a call with national franchisee attorney Jeffrey M. Goldstein, call us at 202-293-3947 or tell us how we can help online today.
