Labor & Employment Law Daily Wrap Up, FEDERAL LEGISLATION—House panel advances bipartisan bill to codify franchisor joint-employer standard, (Jul 23, 2026)

By Brandi O. Brown, J.D.

By writing a specific standard into federal law, lawmakers would reduce the ability of future administrations, the NLRB, and the Department of Labor to substantially alter the rule through enforcement actions or regulatory changes.

The House Education and Workforce Committee has advanced bipartisan legislation that would write a franchisor-specific joint-employer standard into federal law, an attempt by Congress to resolve years of regulatory uncertainty that has seen federal interpretations shift repeatedly across administrations.

The committee voted July 21 to advance the American Franchise Act (H.R. 5267), a bipartisan measure that would amend both the National Labor Relations Act and the Fair Labor Standards Act to establish a uniform joint-employer standard specific to franchise relationships. The bill was subsequently ordered reported to the full House for consideration.

Provisions of the Act. At the center of the legislation is language providing that a franchisor may be considered a joint employer of a franchisee’s workers only if the franchisor “possesses and exercises substantial direct and immediate control” over one or more essential terms and conditions of employment. The bill would apply specifically to franchisor-franchisee relationships.

NLRA amendment. Specifically, if passed as-is, the National Labor Relations Act would be amended by adding at the end:

“SEC. 20. Clarification of joint employment for franchising.

“(a) Definitions.—In this section:

“(1) DIRECT AND IMMEDIATE CONTROL.—The term ‘direct and immediate control’ means the following with respect to each respective essential term and condition of employment:

“(A) WAGES.—A franchisor exercises direct and immediate control over wages if it actually determines the wage rates, salary, or other rate of pay that is paid to individual employees of a franchisee or job classifications of employees of a franchisee.

“(B) BENEFITS.—A franchisor exercises direct and immediate control over benefits if it actually determines the fringe benefits to be provided or offered to a franchisee’s employees. Such direct and immediate control—

“(i) includes selecting the benefit plans (such as health insurance plans and pension plans) or level of benefits provided to a franchisee’s employees; and

“(ii) does not include permitting a franchisee, under an arm’s-length contract, to participate in a benefits plan of the franchisor.

“(C) HOURS OF WORK.—A franchisor exercises direct and immediate control over hours of work if it actually determines work schedules or the work hours, including overtime, of a franchisee’s employees. Such direct and immediate control does not include—

“(i) establishing a franchisee’s operating hours; or

“(ii) establishing minimum staffing levels to satisfy the franchise’s service standards.

“(D) HIRING.—A franchisor exercises direct and immediate control over hiring if it actually determines which particular employees will be hired or which employees will not be hired. Such direct and immediate control does not include—

“(i) encouraging, recommending, or requesting changes in staffing levels to accomplish tasks; or

“(ii) setting minimal recruiting and hiring standards, such as those required by law, for consumer or employee safety, or for brand protection.

“(E) DISCHARGE.—A franchisor exercises direct and immediate control over discharge if it actually decides to terminate the employment of an employee of a franchisee. Such direct and immediate control does not include—

“(i) bringing misconduct or poor performance to the attention of a franchisee that makes the actual discharge decision;

“(ii) expressing a negative opinion of a franchisee’s employee; or

“(iii) setting minimal standards of performance or conduct, such as those required by law, for consumer or employee safety, or for brand protection.

“(F) DISCIPLINE.—A franchisor exercises direct and immediate control over discipline if it actually decides to suspend or otherwise discipline a franchisee’s employee. Such direct and immediate control does not include—

“(i) bringing misconduct or poor performance to the attention of a franchisee that makes the actual disciplinary decision;

“(ii) expressing a negative opinion of a franchisee’s employee;

“(iii) refusing to allow a franchisee’s employee to perform work under a franchise offer or contract; or

“(iv) setting minimal standards of performance or conduct, such as those required by law, for consumer or employee safety or for brand protection.

“(G) SUPERVISION.—A franchisor exercises direct and immediate control over supervision by consistently and directly instructing a franchisee’s employees how to perform their work or by actually issuing employee performance appraisals. Such direct and immediate control does not include—

“(i) providing instructions to a franchisee's employees that—

“(I) are limited and routine; and

“(II) consist primarily of telling a franchisee’s employees what work to perform, or where and when to perform the work, but not how to perform the work;

“(ii) setting brand standards for the performance of the work;

“(iii) offering training materials (including training demonstrations) for a franchisee to use to train the employees of the franchisee; or

“(iv) establishing minimum training requirements for the employees of a franchisee.

“(H) DIRECTION.—A franchisor exercises direct and immediate control over direction by assigning particular employees of a franchisee their individual work schedules, positions, and tasks. Such direct and immediate control does not include offering resources and tools for a franchisee to consider using to direct the work schedules, positions, and tasks of the employees of the franchisee.

“(2) ESSENTIAL TERMS AND CONDITIONS OF EMPLOYMENT.—The term ‘essential terms and conditions of employment’ means wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.

“(3) FRANCHISE; FRANCHISEE; FRANCHISOR.—The terms ‘franchise’, ‘franchisee’, and ‘franchisor’ have the meanings given such terms in section 436.1 of title 16, Code of Federal Regulations, as in effect on the date of enactment of this section.

“(4) SUBSTANTIAL DIRECT AND IMMEDIATE CONTROL.—The term ‘substantial direct and immediate control’—

“(A) means direct and immediate control that has a regular or continuous consequential effect on an essential term and condition of employment of a franchisee’s employees; and

“(B) does not include direct and immediate control that is only exercised on a sporadic, isolated, or de minimis basis.

“(b) Joint employment.—For the purposes of this Act, a franchisor may be considered a joint employer of the employees of a franchisee only if the franchisor possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of the employees of the franchisee.”

FLSA amendment. And the FLSA would be amended by adding at the end:

“SEC. 20. Clarification of joint employment for franchising.

“(a) In general.—For purposes of this Act, a franchisor may be considered a joint employer of the employees of a franchisee only if the franchisor meets the criteria for a joint employer with a franchisee under section 20 of the National Labor Relations Act, except that, for purposes of determining joint-employer status under this Act, the terms ‘employee’ and ‘employer’ referenced in section 20 of the National Labor Relations Act shall have the meanings given such terms in section 3 of this Act.”

“(b) Definitions.—In this section, the terms ‘franchisor’ and ‘franchisee’ have the meanings given such terms in section 20(a) of the National Labor Relations Act.”

The legislation’s findings contend that franchisees operate as independent business owners even while complying with brand standards established by franchisors. According to the bill, inconsistent and expanded interpretations of joint-employer status have created liability concerns for the franchise sector by treating forms of oversight inherent in franchise systems as evidence of employment control.

Supporters. Franchise industry groups hailed the committee action as a significant step toward codifying a more restrictive joint-employer standard, claiming the legislation would bring certainty to franchise businesses after years of shifting federal interpretations of joint-employer liability. The International Franchise Association said the legislation would provide long-term certainty for franchise businesses and prevent future regulatory swings tied to changes in administration. It referred to the legislation as a “top” priority for the franchise business community.

The association noted that franchise businesses employed roughly 8.8 million workers and generated more than $900 billion in economic output in 2025, arguing that stable joint-employer rules are critical to continued growth in the sector.

“America’s local franchise owners deserve certainty, and today Congress is one step closer to providing it,” said Michael Layman, IFA Chief Advocacy Officer. “After a decade of changing regulations that has put the entire franchise model at risk, the American Franchise Act is the solution hundreds of thousands of franchise owners and their employees need to end this needless whiplash which has cost jobs and Main Street business growth.”

Caucus support. The Problem Solvers Caucus, which describes itself as “a group of Members of Congress—split between Republicans and Democrats—committed to advancing common-sense solutions to key issues” facing the country, also endorsed the legislation earlier this year, stating: “The American Franchise Act would provide clear, uniform standards for franchise relationships under federal labor law. It clarifies when a franchisor can be treated as an employer—making clear that joint employer liability applies only to situations where the franchisor directly controls essential terms and conditions of employment, such as hiring, firing, compensation, or scheduling. This approach reflects how franchise relationships operate in practice, with franchisors providing brand guidance and support while local owners manage day-to-day employment decisions.”

A taxpayer advocacy organization—the National Taxpayers Union—claims the Act would protect small businesses and boost the economy. They claim, “The NLRB’s expansion of the joint employer standard through its 2015 decision cost franchise businesses over $33 billion per year, resulted in 376,000 lost job opportunities, and led to 93% more lawsuits. If this amount of uncertainty isn’t bad enough, the whipsaw effect of different administrations issuing different rules in a partisan back and forth leaves small business owners unable to plan ahead.”

Opponents. For labor and employment stakeholders, the legislation represents more than a franchise issue. If enacted, the bill would mark a rare instance of Congress stepping into an area that has largely been governed through agency interpretation and litigation. By writing a specific joint-employer standard into federal law, lawmakers would reduce the ability of future administrations, the NLRB, and the Department of Labor to substantially alter the rule through enforcement actions or regulatory changes.

The AFL-CIO issued a response back in December encouraging House members not to support the Act, stating that it “undermines workers’ rights to good faith bargaining and the effective enforcement of their rights under the National Labor Relations Act and the Fair Labor Standards Act.” They also explained that the bill “would shield franchisors from accountability even when they shape the working conditions that lead to violations or impose rules that limit the freedom to bargain.”

The union organization wrote:

“By narrowly defining a franchisor as a “joint employer” only when it has direct, hands-on control over workers’ pay, hiring, firing, or scheduling, this bill ignores the many ways franchisors effectively control day-to-day conditions through policies, software, operational rules, and brand standards they impose on franchisees.

“For example, a franchisor may impose rules on its franchisee related to operating hours and staffing levels. These rules can have a direct impact on workers’ hours and working conditions. If the employees exercise their right to bargain over hours and working conditions, good faith bargaining requires the party or parties with the authority to change those terms to show up. The American Franchise Act would shield the franchisor from that fundamental obligation, leaving the small-business franchisee holding the bag with their hands tied by the franchisor’s rules and requirements. The same franchisor-imposed rules could also lead to workers not being paid minimum wages or overtime pay. The American Franchise Act would shield the franchisor from the liability created by its own rules, leaving the small-business franchisee exclusively responsible for backpay, damages, and penalties. In sum, this bill protects corporate parents’ right to effectively control while ensuring the consequences of that control are the responsibility of the franchisee, all at the expense of workers’ rights.”

The AFL-CIO urged House members to decline any request to cosponsor the legislation.

CAP responds. Earlier this year the Center for American Progress also spoke out against the legislation, which it argued “would undo long-standing “joint-employer” protections that hold accountable corporations that cheat workers out of earned wages, violate child labor laws, or undermine workers’ union rights.”

“For more than 90 years,” CAP explained, “U.S. law has recognized that the company that signs a worker’s paycheck may not be the only company that controls workplace conditions.”

They argued:

“Contrary to supporters’ claims, the AFA’s changes go well beyond a company’s need to control brand quality; they also take control away from franchise owners in order to create a legal loophole for large corporations. The legislation would permit a corporation to act like an employer—for example, allowing franchisors to dictate minimum staffing levels, recruiting, and hiring standards; express negative opinions of franchise employees; and even refuse to allow a franchisee’s employee to perform work under a franchise contract—but escape legal consequences when the corporation violates Americans’ basic employment rights.”

The bill was introduced in September 2025 by Rep. Kevin Hern, R-Okla., along with a bipartisan group of lawmakers that included Reps. Donald Davis, D-N.C., Hillary Scholten, D-Mich., Jim Costa, D-Calif., Henry Cuellar, D-Texas, and Ami Bera, D-Calif. The measure now has more than 140 House cosponsors. Next, the bill heads to the House floor.

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