The American Franchise Act: What It Means for Franchisors and Franchisees

The American Franchise Act is a bipartisan bill introduced in September 2025 that seeks to settle ongoing uncertainty around what it means to be a joint employer in a franchise relationship. The lead sponsors are U.S. Representatives Kevin Hern (R-Okla.) and Don Davis (D-N.C.), backed by lawmakers from both parties.

Over recent years, the joint employer test has shifted with changes to federal policy, National Labor Relations Board decisions and court rulings — leaving franchisors and franchisees unsure of where liability begins and ends. Under the proposed act, a franchisor would be considered a joint employer only if it has “substantial direct and immediate control” over essential employment terms such as hiring, firing, wages and discipline. 

Franchise associations, business owners and legal experts have voiced concern for years over regulatory ambiguity. At the 2025 IFA Advocacy Summit in Washington, franchise leaders made clarifying the joint employer standard a top priority. Lawmakers introduced the act after hearing from industry stakeholders who said shifting rules were harming long-term planning, raising legal risk and driving up costs. 

If passed, the act could bring several changes:

• Legal clarity. Franchisors would face less risk of being held responsible for employment issues at independently owned outlets unless they explicitly exercise direct control.
• Reduced litigation risk. Franchisees say vague standards force them into costly legal battles and unpredictable enforcement. With clearer statutory language, many of those risks may be reduced.
• Greater confidence in growth. Predictable rules could make both franchisors and franchisees feel more secure about expansion, hiring and structuring their operations. 

Even with bipartisan support, passage is not certain. Key debate will focus on how “substantial direct and immediate control” is defined and whether exceptions are made for different franchise models. Lawmakers will also weigh how to protect workers while giving autonomy to franchisees.

As the bill moves through the House Committee on Education and the Workforce, franchisors and franchisees will be watching closely. Many see clarity on joint employer rules as a turning point that could shape growth, labor management and franchise relationships for years to come.

Read the original article here.

Every great franchisee had help buying a franchise. Want to learn more about how 1851 helps franchisees find the right franchise opportunity? Visit www.1851growthclub.com and start your journey.