There’s a big debate happening in Washington right now. When it comes to local franchises, who’s truly running the show? The company whose name is on the door, or the local entrepreneur whose feet are on the ground?

A law proposed by Representative Kevin Hern could answer that question, completely redefining what the joint employer standard looks like for thousands of franchise businesses across the country.

The American Franchise Act is proposed federal legislation to enforce a strict joint employer standard under the National Labor Relations Act and the Fair Labor Standards Act. The legislation specifies that a franchisor is a joint employer only if it exercises "substantial, direct, and immediate control" over essential employment terms like hiring, firing, wages, and supervision. In other words, corporate brands can continue supplying training, tools, and support to locally owned franchisees without being exposed to potential lawsuits from the local owners’ employees.

According to Representative Virginia Foxx, the American Franchise Act clarifies that the actual employer – the local franchisee – remains responsible for their own employment decisions. This independence gives local owners the flexibility to manage their own teams based on local market conditions, not top-tier corporate PR mandates.

“When franchisors are held responsible for employment decisions they do not make or control, it discourages investments, increases costs, and makes it harder for entrepreneurs to open or expand their business,” Foxx said. “The bill preserves independence of locally owned franchise businesses, while ensuring that the actual employer remains responsible for employment decisions.”

Proponents further argue the American Franchise Act makes it easier for everyday entrepreneurs to secure financing, open new locations, and create local jobs.

On the other side, the bill has received heavy pushback from labor organizations and worker advocacy groups who argue that it protects big corporate franchisors from liability while harming workers and small franchisees.

Representative Bobby Scott says it would “radically rewrite” longstanding law by narrowing the joint employer standard too much.

“This bill would severely curtail workers’ ability to enforce their rights under the Fair Labor Standards Act and the National Labor Relations Act, and frustrate the ability of workers’ unions to bargain with the companies that control their working conditions. It would also harm small business franchise owners, leaving franchisees liable for unlawful practices and procedures that are outside of their control and set by large corporate franchisors.”

What’s our take?

At FranSource, we side with the bill’s proponents. The joint employer standard ensures that the people at the local level – the franchise owners – remain in control of their establishments, determining hiring, firing, and wages that best work for their business, and their market. We believe the bill also encourages growth within the industry, as everyday entrepreneurs are more likely to buy into a franchise concept when they have a clear rule book of where their liabilities start and where they end. The American Franchise Act delivers just that.

For almost 30 years, FranSource has been helping businesses expand and scale their operations into national and international franchise systems. If you’re looking to ensure your business stays compliant with the American Franchise Act and joint employer legalities, contact us today.