American Franchise Act: New Rules Make It Harder to Hold Corporations Accountable for Wage Theft

The American Franchise Act is here to redefine a critical piece of the employment puzzle: when a corporate brand (the franchisor) is legally responsible for the workers employed by its local store owners (the franchisees).

This bill sets a drastically higher bar for establishing a “joint employer” relationship, which is a big deal for labor rights. Essentially, it says that the corporate parent is only responsible for the local workers if they have “substantial direct and immediate control” over seven specific areas, like setting specific wages, deciding who gets hired or fired, or setting work schedules. If they don't, the liability for things like wage theft or unfair labor practices stays strictly with the local owner, not the big corporation. This new, narrow definition applies directly to the two biggest federal labor laws: the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA).

The Corporate Shield: What No Longer Counts as 'Control'

If you’ve ever worked at a franchise—say, a fast-food joint or a gym—you know the corporate brand dictates a lot: the uniforms, the menu, the hours the store is open, and the standards for customer service. The bill explicitly states that many of these standard quality-control actions do not count as control over the employees. This is the core of the change.

For example, a franchisor can require the local owner to use their specific payroll system, or mandate minimum staffing levels for safety, or even set general standards for employee conduct and training materials—none of that is enough to make them a joint employer. This means a corporate entity can dictate nearly every aspect of the business operation that affects the workers, yet legally wash their hands of responsibility for those workers' pay or working conditions, according to this new framework.

What This Means for the Worker on the Floor

For the roughly 8.4 million people working in franchise businesses across the country, this bill could significantly complicate seeking justice for labor violations. Let's say a local franchisee is consistently shorting paychecks or violating overtime laws. Under previous interpretations, workers could potentially sue the deep-pocketed franchisor (the corporate brand) alongside the local owner, especially if the franchisor was heavily influencing employment decisions. That option becomes much harder now.

Why? Because the worker now has to prove the corporate headquarters was directly setting their specific wage rate or actually making the final decision to fire them. If the corporate office simply mandates staffing levels that force the local owner to cut corners on breaks or overtime, the liability remains with the local owner, who may not have the resources to cover large labor settlements. The corporate entity gets the benefit of brand consistency without accepting the corresponding legal risk.

The Fine Print: Setting a High Bar

The bill tries to provide clarity for the industry, which is a potential benefit. It aims to reduce the regulatory uncertainty that franchisors complain about, theoretically encouraging more growth and investment. However, the language used to define this high bar is still somewhat vague. To be a joint employer, the control must be “substantial” and have a “regular or continuous consequential effect.”

While the bill lists seven specific areas of control (Sec. 3), terms like “substantial” and “consequential effect” are subjective. This means that while the intent is to protect franchisors, we could still see complicated, expensive legal fights over whether the corporate brand’s influence on, say, employee discipline was “consequential” enough to trigger liability. In the meantime, the burden of proof for the employee trying to hold the corporation accountable just went through the roof.