This bill, the American Franchise Act, changes how federal labor laws decide when a franchisor is a "joint employer" of a franchisee's workers. It adds a new Section 20 to the National Labor Relations Act and a matching section to the Fair Labor Standards Act. The bill defines "essential terms and conditions of employment" as wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. It says a franchisor can be a joint employer only if the franchisor possesses and exercises "substantial direct and immediate control" over one or more of those essential terms. The bill gives detailed examples of what counts as direct and immediate control for each category (for example, actually setting wage rates counts, while setting brand standards or offering training generally does not). It also says the franchise, franchisor, and franchisee have the meanings in 16 C.F.R. §436.1 as of the bill's enactment. The bill does not apply to cases started before it becomes law.
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Supporters say franchising is an important business model that creates jobs and economic output. The bill's findings cite a 2023 Oxford Economics report saying franchise establishments had about $825,000,000,000 in economic output in 2022 and employed about 8,400,000 workers (about 5 percent of U.S. workers). Proponents say unclear or broad joint-employer tests have harmed franchising and that the bill preserves the independent status of franchisees while allowing franchisors to set uniform brand standards.
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