American Franchise Act Redefines 'Joint Employer,' Shielding Franchisors from Labor Liability

The American Franchise Act is here to clean up the messy legal question of who is actually the boss when you work at a franchised location—think your local McDonald’s or Anytime Fitness. Essentially, this bill amends the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) to make it much harder to hold a large, national franchisor responsible for the employment practices of its local franchisee.

The New Rule: Substantial Control Only

Right now, legal views on 'joint employment' are all over the place, creating massive uncertainty for franchisors. This bill aims to fix that by setting a very high bar. Under Section 3, a franchisor (the parent company) can only be considered a joint employer of a franchisee’s staff if it possesses and exercises “substantial direct and immediate control” over one or more “essential terms and conditions of employment.” These essential terms include things like wages, benefits, hours, hiring, and discipline.

Crucially, "substantial direct and immediate control" means the control has a regular and continuous effect, not just something sporadic or minor. This is where the bill gets specific—and where the real-world impact hits.

What Franchisors Can Still Do (Without Being the Boss)

The bill goes out of its way to list common franchisor activities that do not count as “direct and immediate control.” This is the fine print that protects the brand while limiting liability. For example, a franchisor can still set a franchise’s operating hours or minimum staffing levels to meet service standards without being considered in control of employee hours. They can set minimal legal, safety, or brand-related hiring standards without being responsible for who the franchisee hires.

Think about the typical fast-food worker. If the franchisor provides required training materials, sets the standards for how a burger should look, or even reports employee misconduct to the franchisee, the bill explicitly says this is not enough to make them a joint employer. The franchisee still has to be the one making the final decision on hiring, firing, or setting the specific wage rate.

The Real-World Stakes for Workers and Owners

For the busy person running a small franchise—say, a coffee shop owner—this bill is a win for certainty. It reinforces the idea that they are truly independent business owners responsible for their own labor decisions, shielded from the parent company’s deep pockets being dragged into every employment dispute. The findings in Section 2 emphasize that franchisees are independent and control their own day-to-day operations.

However, for the millions of employees working at these franchised locations, the picture is different. If you, as an employee, have a wage claim or believe your rights were violated, this bill channels your ability to seek remedy almost exclusively toward the local franchisee. It significantly limits the ability to hold the much larger, better-funded franchisor accountable—even if the franchisor’s brand standards or operational requirements indirectly contributed to the problem. If a franchisor provides operational guidance that results in understaffing or pressure to cut corners, this bill makes it clear that the liability remains with the local owner, not the national brand.

By narrowly defining joint employment, the American Franchise Act provides massive legal clarity and protection for large franchisors, preserving their business model. But it does so by tightening the legal avenue for employees to seek accountability from the parent company, potentially leaving workers with fewer options when labor disputes arise.