American Franchise Act
The American Franchise Act (H.R. 5267) is a bill introduced to clarify and limit when a franchisor can be deemed a joint employer of the employees of a franchisee under federal labor laws. It adds a new provision (Section 20) to the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) that defines “direct and immediate control” and sets a high bar for joint-employer status. In short, a franchisor would only be treated as a joint employer if it possesses and actively exercises substantial direct and immediate control over one or more essential terms of employment (such as wages, hours, hiring, discipline, etc.) of a franchisee’s employees. The bill cross-references the NLRA framework for joint-employer status to the FLSA, aligning both standards. The intent is to preserve the franchise business model by reducing franchisor liability for franchisee employment decisions, while still preserving clear standards for when a franchisor could be responsible for employees. The act also specifies it does not apply to any legal proceeding that began before enactment. It cites findings about the franchise sector’s economic importance and existing uncertainty around joint-employer interpretations.
Key Points
- 1Creates a new joint-employer standard for franchising under the NLRA (Section 20) that requires substantial direct and immediate control over one or more essential terms of employment to create joint-employer status.
- 2Defines “direct and immediate control” across eight essential employment terms: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction, with detailed qualifiers and exclusions that limit franchisor involvement (e.g., certain routine instructions or brand standards do not count as direct control).
- 3Establishes that a franchisor may be considered a joint employer of a franchisee’s employees only if it has substantial direct and immediate control over one or more essential terms.
- 4Aligns joint-employer determinations under the FLSA with the NLRA standard by cross-referencing the NLRA Section 20 framework, while using the act’s own definitions of “employee” and “employer.”
- 5Uses definitions of “franchise,” “franchisee,” and “franchisor” consistent with existing regulations (16 C.F.R. 436.1) as of the enactment date.
- 6Includes an applicability clause: the Act does not apply to proceedings commenced before enactment.
- 7Contains findings emphasizing the economic impact of franchising and the goal of preserving the franchise model.