The American Franchise Act (HR 5267) is a bipartisan bill introduced in September 2025 that would codify the 2020 NLRB joint employer standard specifically for franchise relationships, clarifying that franchisors who set brand standards are not automatically joint employers of their franchisees’ workers. At Lopes Law LLC, we advise franchise systems on employment compliance, and this legislation addresses one of the most consequential legal uncertainties in the franchise industry: when does a franchisor’s oversight of brand standards cross the line into joint employment? The answer to that question has shifted repeatedly over the past decade, costing franchise businesses an estimated $33 billion per year in legal uncertainty and triggering a 93% increase in employment-related lawsuits against franchise systems.

This guide explains the joint employer problem, the history of regulatory whiplash that created it, what the American Franchise Act would do if enacted, and how both franchisors and franchisees should prepare regardless of the bill’s outcome.

What Is the Joint Employer Problem in Franchising?

The joint employer doctrine determines when two separate entities are both considered employers of the same workers. In the franchise context, the question is whether a franchisor is the co-employer of its franchisees’ employees. The stakes are enormous.

If a franchisor is classified as a joint employer, the franchisor becomes jointly liable for:

• Wage and hour violations: Minimum wage, overtime, and timekeeping claims at the franchisee level become the franchisor’s liability.
• Workplace safety: OSHA violations at individual franchise locations can be attributed to the franchisor.
• Discrimination and harassment claims: Title VII and state anti-discrimination claims can name the franchisor as a co-defendant.
• Union obligations: The franchisor may be required to bargain with unions representing franchisee employees, fundamentally altering the franchise relationship.
• Workers’ compensation: In some states, joint employer status creates workers’ compensation liability for the franchisor.

The financial exposure is staggering. A franchise system with 500 locations and an average of 20 employees per location has 10,000 workers whose employment claims could potentially be attributed to the franchisor under a broad joint employer standard. A single wage and hour class action across the system could generate liability in the tens of millions of dollars.

How Did the Joint Employer Standard Change Over the Past Decade?

The joint employer standard has been through a cycle of expansion, contraction, and attempted re-expansion that has created significant uncertainty for franchise systems:

Pre-2015: Traditional standard. Under the longstanding NLRB standard, joint employer status required a showing that the alleged joint employer exercised actual, direct, and immediate control over the essential terms and conditions of employment. Under this standard, most franchisors were not considered joint employers because they set brand standards but did not directly hire, fire, discipline, or set wages for franchisee employees.

2015: Browning-Ferris expansion. The NLRB’s decision in Browning-Ferris Industries expanded the standard to include indirect control and even reserved but unexercised contractual control over working conditions. This decision sent shockwaves through the franchise industry because most franchise agreements reserve broad operational control rights that the franchisor rarely exercises. Under Browning-Ferris, simply having the contractual right to influence working conditions could trigger joint employer status, even if the franchisor never exercised that right.

2020: Return to direct control. The NLRB issued a final rule in February 2020 that restored the traditional standard, requiring actual, direct, and immediate control over essential employment terms. The franchise industry welcomed this clarity.

2023: Attempted re-expansion. In October 2023, the NLRB issued a new final rule that would have returned to the broader Browning-Ferris standard, including indirect and reserved control. Industry groups estimated this rule would cost franchise businesses approximately $33 billion per year.

March 2024: Rule struck down. The U.S. District Court for the Eastern District of Texas struck down the 2023 rule in Service Employees International Union v. NLRB (later consolidated with Chamber of Commerce challenges), holding that the rule was arbitrary and capricious. The 2020 standard remains in effect.

What Would the American Franchise Act Do?

HR 5267 takes a targeted approach to the joint employer issue by codifying a clear standard specifically for franchise relationships. The key provisions include:

• Direct control requirement: A franchisor is considered a joint employer only if it exercises actual, direct, and immediate control over the essential terms and conditions of employment of the franchisee’s employees. Essential terms include hiring, firing, discipline, supervision of day-to-day activities, setting wages and benefits, and establishing individual work schedules.
• Brand standards safe harbor: The bill explicitly provides that the following activities, by themselves, do not create joint employer status: setting brand standards and quality requirements, requiring adherence to operational manuals, mandating training programs, requiring specific technology or equipment, establishing health and safety standards required by the brand, and setting customer service standards.
• Contractual rights vs. actual control: The bill distinguishes between contractual rights reserved in the franchise agreement and actual exercise of control. Having the contractual right to influence employment decisions does not create joint employer status; only actually exercising that control does.
• Application across federal labor laws: Unlike the NLRB’s rulemaking (which applies only to the National Labor Relations Act), the American Franchise Act would establish the joint employer standard across all federal employment and labor laws applicable to franchise relationships, including the Fair Labor Standards Act, Title VII, and OSHA.

A Client Scenario: How Joint Employer Uncertainty Affected Franchise Operations

A franchisor client operating a 120-unit service franchise consulted our firm after receiving advice from a prior employment attorney to stop providing operational support to franchisees. The attorney had warned that the franchisor’s hands-on approach to helping franchisees with scheduling, training, and performance management could create joint employer liability under the then-pending 2023 NLRB rule.

The franchisor had been providing weekly coaching calls, sharing scheduling templates, and offering on-site training for new franchisee employees. These services were valued by franchisees and contributed to system-wide quality and consistency. After receiving the legal warning, the franchisor abruptly curtailed all operational support.

Within six months, franchisee satisfaction scores dropped 22%, customer complaint rates increased 18%, and three franchisees filed formal complaints alleging that the franchisor had violated its contractual obligation to provide operational support. The franchisor was caught between two legal risks: providing support that might trigger joint employer liability or withdrawing support and facing breach-of-contract claims from franchisees.

We reviewed the franchisor’s practices and restructured the operational support program to clearly distinguish between brand standard oversight (protected) and employment-level control (problematic). The restructured program allowed the franchisor to provide training materials, performance benchmarks, and operational best practices while ensuring that all hiring, firing, scheduling, and wage decisions remained exclusively with the franchisees. The franchisor resumed operational support, franchisee satisfaction recovered, and the compliance framework was designed to meet the 2020 NLRB standard that the American Franchise Act would codify. For more on structuring compliant franchise systems, see our guide on how to franchise your business.

What Does the $33 Billion Cost Estimate Include?

The $33 billion annual cost estimate for the broader joint employer standard, widely cited by the International Franchise Association and other industry groups, includes several categories of financial impact:

• Litigation costs: A 93% estimated increase in employment-related lawsuits against franchise systems, driven by plaintiff attorneys adding franchisors as defendants in claims that would previously have been brought only against franchisees. Average defense costs for employment litigation range from $75,000 to $250,000 per case.
• Insurance premium increases: Employment practices liability insurance (EPLI) premiums for franchisors would increase significantly as underwriters price in the expanded exposure. Industry estimates projected 30% to 50% premium increases.
• Operational restructuring: Franchisors would need to either withdraw operational support (reducing franchise value) or restructure support programs (requiring legal review, training, and documentation changes system-wide).
• Union exposure: Franchisors could be required to bargain with unions at the franchisee level, potentially altering compensation structures, work rules, and operational flexibility across the system.
• Reduced franchise growth: Uncertainty around joint employer liability reduces the willingness of prospective franchisors to enter the franchise model, slowing franchise system growth and the economic activity it generates.

Whether the $33 billion figure is precise is debatable. What is not debatable is that the regulatory uncertainty itself has already imposed significant costs on franchise systems, costs that the American Franchise Act is designed to eliminate by providing a clear, stable legal standard. For more on how legal costs affect franchise operations, see our guide on how much a franchise lawyer costs.

What Should Franchisors Do Now?

Whether the American Franchise Act passes or not, franchisors should take the following steps to protect themselves under the current 2020 standard:

1. Audit franchise agreement language. Review provisions that reserve control over employment matters. Ensure the agreement clearly states that the franchisee is the sole employer of its workers and has exclusive authority over all employment decisions.
2. Separate brand oversight from employment control. Document the distinction between brand standard requirements (which the franchisor controls) and employment decisions (which the franchisee controls). Never dictate specific wages, schedules, hiring decisions, or disciplinary actions for franchisee employees.
3. Train field representatives. Franchise business consultants and field support staff should be trained on the joint employer boundary. Coaching a franchisee on customer service standards is appropriate; instructing a franchisee to fire a specific employee is not.
4. Review training programs. Ensure that franchisor-provided training is about the franchise system and brand standards, not about general employment management. Avoid providing HR handbooks, employee discipline templates, or wage-setting guidance to franchisees.
5. Document everything. Maintain records that demonstrate the franchisor’s role is limited to brand standard oversight. If a dispute arises, documentation of the boundary between franchisor and franchisee roles is the most important evidence. For more on dispute preparedness, see our article on franchise dispute resolution.

What Should Franchisees Understand About Joint Employer Issues?

Franchisees benefit from the joint employer discussion in several ways. Understanding the issue helps franchisees:

• Maintain operational independence. Franchisees who clearly control their own employment decisions are better positioned to operate their businesses effectively and to resist franchisor overreach.
• Protect against liability shifting. If a franchisor is exercising actual control over your employees, the franchisor should share in the liability. Understanding the standard helps you identify when the franchisor has crossed the line from brand oversight into employment control.
• Negotiate appropriate support. The joint employer uncertainty has caused some franchisors to withdraw valuable operational support. Franchisees can advocate for robust operational support by helping franchisors understand how to provide it within the safe harbor boundaries. For more on franchise agreement negotiation, see our guide on franchise agreement red flags.

Frequently Asked Questions About the American Franchise Act

Reach out, we are friendly. Call now for a free consultation at (267) 777-9117 or schedule your free 20-minute consultation online.

Last updated: March 13, 2026