A House Vote This Month Could Decide Who's Liable for Your Franchise's Labor Claims

The Vote That Could Settle a Decade-Long Fight

If you own a franchise — a sandwich shop, a gym, a hotel, a cleaning service — there's a bill moving through Congress right now that could finally answer a question that's been shifting under franchisees for ten years: when is your franchisor legally on the hook alongside you for labor violations, and when are you on your own?

The American Franchise Act, H.R. 5267, cleared the House Education and Workforce Committee on July 21, 2026, on an 18-15 party-line vote, and it's now positioned for a full House floor vote as soon as this month, now that Congress is back from its August recess.

What the Bill Actually Changes

At the center of the fight is a legal concept called the "joint employer standard" — the test used to decide whether a franchisor (say, a national restaurant chain) can be held legally responsible, alongside a franchisee, for things like wage violations, safety issues, or unfair labor practice claims tied to the franchisee's own employees.

The American Franchise Act would set a single, fixed definition: a franchisor could only be considered a joint employer if it exercises "substantial, direct, and immediate control" over essential terms of employment — hiring, firing, setting wages, or discipline. Under that standard, a franchisor providing brand guidelines, marketing materials, or general operational standards — the normal stuff of running a franchise — would not, by itself, be enough to trigger joint liability.

That might sound like a technical distinction, but it has real financial consequences for the roughly 800,000 franchise establishments operating in the U.S. today, a large share of which are independently owned small businesses.

Why the Standard Keeps Changing

The joint employer test has been rewritten at least four times over the past decade, largely tracking which party controls the White House and the National Labor Relations Board. A broader 2015 NLRB standard expanded joint employer liability significantly; subsequent administrations have narrowed it, only for the pendulum to swing back. Franchise industry groups argue this back-and-forth has made it nearly impossible for business owners to plan with confidence, since the legal exposure of buying into a franchise can change depending on which administration is in office when a labor dispute arises.

The International Franchise Association, which supports the bill, points to industry-funded research estimating that the more expansive 2015 standard cost franchise businesses over $33 billion a year and contributed to roughly 376,000 lost job opportunities, along with a 93% increase in franchise-related lawsuits. Those figures come from advocacy-funded studies rather than a neutral government source, and they're disputed by critics — but they capture why franchise owners have been pushing for a permanent, statutory fix rather than another regulatory reversal.

Not Everyone Agrees This Helps Small Business Owners

The bill's opposition is just as organized. Labor-aligned groups, including the Economic Policy Institute and the Center for American Progress, argue the narrower standard would let franchisors escape responsibility for labor law violations happening inside their own branded locations, while leaving individual franchisees — who often operate on thin margins dictated by the franchisor's own fee structure — to absorb the full legal and financial risk alone.

Their argument cuts in an important direction for small business owners to understand: many franchisees say they have little real control over wages, scheduling software, or operational systems, because the franchisor mandates all of it through the franchise agreement. Critics argue that a joint employer standard requiring "direct and immediate control" lets franchisors have it both ways — dictating the terms of the business while disclaiming legal responsibility when something goes wrong.

What Franchise Owners Should Do This Month

Regardless of which side of the debate you find more persuasive, a House floor vote this month means the legal ground under franchise ownership could shift within weeks. A few things worth doing now if you own or are considering buying a franchise:

• Review your franchise agreement's indemnification language — the clause that spells out who pays if a labor claim arises — since that contractual language matters regardless of what the joint employer standard ends up being
• Talk to your insurance broker about whether your current business insurance coverage, particularly employment practices liability coverage, assumes a particular joint employer standard, and whether a change in the law would affect your premium or coverage gaps
• If you're structured as a sole proprietorship rather than a separate legal entity, this is a good moment to reconsider — forming an LLC creates a layer of separation between your personal assets and claims tied to your franchise location, independent of how the joint employer fight resolves

It's also worth revisiting how your franchise handles worker classification generally. Whether staff are treated as employees or contractors is a separate legal question from joint employer status, but the two issues often surface together in labor disputes — so it's worth understanding the difference between an independent contractor and an employee before a dispute forces the issue.

The Senate Path Is Less Clear

Even if the American Franchise Act passes the House this month, it still needs to clear the Senate, where a companion bill, S.3525, has been introduced but hasn't moved through committee at the same pace. Given the party-line committee vote in the House, the bill's prospects in an evenly divided Senate are genuinely uncertain, and it's plausible this becomes a multi-year fight rather than a fall 2026 resolution.

Franchise owners should treat a House vote as one step in a longer process, not a final answer. But it's the most concrete legislative movement this issue has seen in years, and it's worth watching closely if your business model depends on a franchise relationship.

What "Substantial, Direct, and Immediate Control" Would Mean in Practice

Employment attorneys who've reviewed the bill's language say the practical test would likely turn on day-to-day decision-making rather than brand standards. A franchisor requiring a specific point-of-sale system, uniform design, or marketing calendar would almost certainly not meet the bar. A franchisor that personally approves individual hiring decisions, sets specific wage rates location-by-location, or directly issues disciplinary write-ups to a franchisee's staff would be much closer to the line.

That distinction matters because most franchise agreements today are written carefully to avoid the second category — franchisors generally want operational influence without the legal exposure that comes with direct control over staffing decisions. The American Franchise Act would essentially write that existing industry practice into federal statute, which is part of why franchisor trade groups support it so strongly and worker advocacy groups oppose it with equal intensity.

If You're Considering Buying a Franchise This Year

Prospective franchise owners evaluating a Franchise Disclosure Document right now should pay close attention to the sections describing the franchisor's control over labor practices, since that language could carry more legal weight — in either direction — depending on how this bill and its Senate companion resolve. It's also a good time to make sure your business formation paperwork is in order before you sign a franchise agreement; most franchisors require proof of a formed entity, complete with an EIN and a dedicated business bank account, before finalizing a franchise purchase.

Bottom Line

Whether the American Franchise Act ultimately becomes law or stalls in the Senate, the vote expected this month is a real signal of where federal policy on franchise liability is heading. If you own a franchise, understanding your current exposure — through your franchise agreement, your business structure, and your insurance coverage — is worth doing now, before the legal standard shifts again.

Photo by Eugene Zhyvchik on Unsplash