Who is really the “employer” in a franchise system? Washington may finally settle it.

On September 10, 2025, a bipartisan group in the U.S. House of Representatives introduced H.R. 5267 — the American Franchise Act (AFA) — now under review by the House Committee on Education and the Workforce. If passed, the AFA would mark a major shift in how federal labor law defines “joint employer” liability in franchise operations, potentially affecting over 8.4 million franchise workers nationwide.

If your business needs support with federal labor law compliance, franchise structuring, or multi-state employment risk management, please contact the ILS legal team at contact@consultils.com. Our attorneys offer practical, strategic solutions to help employers reduce liability and navigate complex regulatory landscapes.

Key Provisions of the AFA

The AFA proposes a unified and narrow federal standard under both the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) for determining when a franchisor can be deemed a joint employer of its franchisee’s employees.

Under the bill, a franchisor would not be considered a joint employer by default. They would only be held jointly liable if they directly control one or more of the following six key employment conditions:

• Wages: Setting specific pay rates constitutes control; offering non-binding guidelines does not.

• Benefits: Providing or mandating benefit plans (e.g., health insurance, retirement) counts as control.

• Scheduling: Directly assigning work hours or shifts constitutes control; setting store hours does not.

• Hiring: Making hiring decisions or approvals counts as control; setting minimum qualifications does not.

• Discipline: Making disciplinary decisions counts; setting brand standards or offering input does not.

• Supervision: Directly instructing how work is performed or issuing performance reviews counts as control.

  
  

Susan Shu, Esq.'s Insights

In short, only direct involvement in personnel decisions would trigger joint employer liability. General brand guidelines, quality standards, or training programs — even if they indirectly affect employment — would not.

Potential Impact for Franchisors

If passed, the AFA would deliver significant benefits for franchisors:

• Greater Legal Predictability: A consistent federal rule would end years of regulatory back-and-forth and allow franchisors to manage risk more effectively.

• Reduced Liability: Day-to-day brand enforcement and operational guidance would no longer be considered “control” under labor laws, shielding franchisors from being held liable for franchisee employment issues.

• Preservation of Franchise Model: The AFA protects core franchise practices — such as branding, training, and quality assurance — ensuring franchisors can maintain brand consistency without being legally treated as employers.

Susan Shu, Esq.'s Insights

Even if the AFA becomes federal law, state-level laws may impose broader standards. For example, California law uses a more expansive test for joint employment. Franchisors operating across multiple states must continue to navigate varying legal thresholds.

Compliance Tips for Franchisors

• Review Franchise Agreements & Manuals: Identify any language that may imply control over franchisee employees. Modify provisions to align with AFA’s stricter definitions.

• Document Brand Protection Purpose: Keep clear records showing that operational standards serve brand consistency — not direct control of employees.

• Account for Multi-State Variations: If operating in states like California, tailor your compliance practices to meet more aggressive local standards.

If your business needs support with federal labor law compliance, franchise structuring, or multi-state employment risk management, please contact the ILS legal team at contact@consultils.com. Our attorneys offer practical, strategic solutions to help employers reduce liability and navigate complex regulatory landscapes.

Disclaimer: The materials provided on this website are for general informational purposes only and do not, and are not intended to, constitute legal advice. You should not act or refrain from acting based on any information provided here. Please consult with your own legal counsel regarding your specific situation and legal questions.

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As Managing Partner at ILS, Richard Liu ranks among the leading U.S. attorneys in corporate, employment, and regulatory law. He is known for crafting legal strategies aligned with clients’ business objectives and advising Fortune 500 companies, startups, and executives on corporate transactions, financing, privacy, and employment matters across the technology, healthcare, and financial sectors.

Before founding ILS, Richard practiced at top defense firms, where he developed a reputation for anticipating risks and designing strategies that balance protection with growth. He has secured favorable outcomes in contract and intellectual property disputes, represented clients in state and federal courts, and is recognized for combining large-firm expertise with boutique-firm agility. Richard is also a frequent speaker at industry and legal conferences.

Email: contact@consultils.com | Phone: 626-344-8949

Susan is specialized in employment law and compliance, with additional experience in cross-border investments. With years of experience advising multinational clients, Susan focuses on employment-related matters, including workforce structuring, employee transfers, terminations, compensation and benefits, and workplace policies. She has extensive experience assisting companies in navigating complex labor regulations, managing cross-border employment issues, and resolving workplace disputes.

In addition to her employment law practice, Susan advises on M&A, private equity, venture capital, and cross-border investments. She has assisted international investors with complex deal structures, including VIE frameworks, and prepared due diligence reports and transaction documents.

Email:  contact@consultils.com | Phone: 626-344-8949