The American Franchise Act clarifies when a franchisor (the company that licenses a brand, like McDonald's) can be held legally responsible for the employment practices of franchisees (independent business owners who operate individual franchise locations). The bill protects the franchise business model by establishing that a franchisor is only a "joint employer" if it exercises substantial, direct, and continuous control over key employment decisions like wages, hiring, firing, or work schedules—not merely setting quality standards or providing training materials. The legislation defines specific employment terms and details what actions do and do not count as direct control; for example, recommending staffing changes or enforcing brand standards does not constitute control, but actually determining wage rates or work schedules does. This change applies to both the National Labor Relations Act and the Fair Labor Standards Act, and takes effect immediately upon enactment, excluding any cases already filed in court. The franchise industry employs approximately 8.4 million American workers and generates roughly $825 billion in annual economic output, making this clarification significant for both franchisors and franchisees navigating labor law compliance.
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