Why Congress should preserve the legal foundation of the franchise economy

“The distinction between a franchisor and an employer is not a loophole in American law. It is the legal foundation upon which one of the nation’s most effective engines of entrepreneurship has been built.”

By Michael Seid, Managing Director, MSA Worldwide

Introduction

23 July 2026 — The subject of this article series is joint-employer liability in franchising. The practical question is not complicated: when a local franchise owner hires, pays, schedules, supervises, and disciplines a workforce, when should the franchisor also be treated as that workforce’s employer? The American Franchise Act answers that question by looking for substantial, direct, and immediate control over essential employment decisions — not merely the standards and support that make a franchise a franchise.

PART ONE: The American Franchise Act Is About Who Owns the Business

Franchisors own brands. Franchisees own businesses. The law should not erase that distinction merely because a good franchise system has standards.

On 21 July 2026, the House Committee on Education and the Workforce approved H.R. 5267, the American Franchise Act, as amended, by a vote of 18–15.[1] The bill has a bipartisan history in the House, and a Senate companion — S. 3525 — has been introduced and referred to the Senate Committee on Health, Education, Labor, and Pensions.[2] That sounds like ordinary legislative process. The issue underneath it is not ordinary at all.

Congress is being asked to decide whether a franchise relationship will continue to be treated as a relationship between independent businesses, or whether the presence of a national brand, operating standards, technology, training, and commercial influence will increasingly be enough to turn the franchisor into the employer of people hired by someone else.

I have spent most of my professional life working with franchise systems — some excellent, some average, and some that should never have been franchised in the first place. The structures vary, but one principle remains basic: franchisors own brands; franchisees own businesses.

The franchisor develops and protects the trademark, designs the operating system, establishes the consumer promise, provides training and support, conducts system-wide marketing, and works to keep the brand recognizable from one location to the next. The franchisee invests personal capital, signs the lease, guarantees the debt, hires the employees, makes payroll, sets schedules, supervises the work, pays the local taxes, and lives with the consequences of local management decisions. Those are not interchangeable roles. They are the architecture of the model.

What the bill actually says

The committee-approved substitute would allow a franchisor to be treated as a joint employer under the National Labor Relations Act only when it possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of a franchisee’s employees. It would apply the same criteria under the Fair Labor Standards Act.[3]

The listed terms are familiar employment decisions: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction. The bill does not ask whether the franchisor is influential, economically important, or capable of making life difficult for a franchisee. Those may be legitimate subjects for other laws. It asks whether the franchisor is acting as an employer.

That distinction matters. A franchisor that actually chooses individual employees, fixes their wages, assigns their schedules, disciplines them, or directs their daily work can cross the line. The bill does not provide immunity for that conduct. It draws the line at the conduct itself.

It is also fair to say that the legislation is franchise-specific. Pretending otherwise does not help the argument. A franchise-specific rule is justified because standards, training, inspections, software, operating requirements, and trademark controls are not incidental to franchising. They are inherent in it. Without a clear rule, the normal features of the model can be mistaken for evidence that the franchisor has taken over the franchisee’s workforce.

Influence is real. Employment is something more.

Franchisors influence franchisees. Of course they do. So do lenders, landlords, insurers, suppliers, licensors, payment processors, and large customers. Commercial influence is common. Employment is a legal relationship with a more specific content.

The useful question is not whether the brand affects the local business, because it plainly does. The useful question is who made the employment decision that produced the legal obligation.

Who selected the worker? Who set the pay? Who decided the schedule? Who supervised the shift? Who issued the discipline? Who had the practical and exercised authority to change those terms?

These questions are not anti-worker. They are how responsibility is assigned honestly. A worker should be able to recover from the employer that violated the law. But the presence of a larger and more recognizable company in the commercial chain is not, by itself, proof that the larger company was also the employer.

Why the economic stakes are large

The International Franchise Association’s 2026 economic outlook projects approximately 845,000 franchised establishments, nearly 8.9 million jobs, $921.4 billion in output, and $558.4 billion in franchise-related GDP during 2026.[4] Those are industry-sponsored estimates and are useful in showing the scale of the system Congress is regulating.

The number that matters most to me is not the national total. It is the local owner. The person whose name is on the note — the person who has to make payroll on Friday — the person who cannot call a national headquarters and ask it to absorb a bad month.

Franchisees choose a system because they want the benefit of an established brand and operating method without giving up ownership of the local business. Consumers choose the brand because they expect a consistent product or service. Trademark law that is nearly eighty (80) years old and ordinary brand economics both require the franchisor to protect that consistency.[5]

A rule that treats brand protection as presumptive employment control puts the franchisor in an impossible position: protect the brand and increase legal exposure, or reduce standards and support to reduce risk. And this was not the intent of Congress when they passed the Lanham Act back in 1946.

It does not make workers safer. It does not make franchisees stronger. It mainly makes lawyers more cautious and operating systems less useful.

The vote Congress is actually taking

The American Franchise Act does not settle every dispute between franchisors and franchisees, and it should not be sold as though it does. It does not excuse wage violations. It does not eliminate collective-bargaining rights. It does not protect a franchisor that genuinely controls the employment relationship.

It answers a narrower question: should a franchisor become a joint employer because it operates a franchise system, or because it actually exercises the authority of an employer?

Congress should choose the second answer. A vote for the American Franchise Act is a vote to preserve the legal identity of the independent franchise owner while retaining liability when a franchisor truly steps into the employer’s role. That is not a loophole. It is a line — and it is one the law needs to draw clearly.

This is the first in a series of articles about the American Franchise Act. The next article will drill down into why brand standards are neither employment decisions, nor optional.

Michael Seid is Managing Director of MSA Worldwide. You can reach him at mseid@msaworldwide.com or 860-523-4257.

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[1]  U.S. House Committee on Education and the Workforce, “Record of Committee Vote: H.R. 5267, Motion to Report Bill as Amended,” July 21, 2026 (18–15); Amendment in the Nature of a Substitute to H.R. 5267, offered by Rep. James Moylan, July 17, 2026.

[2]  H.R. 5267, 119th Cong. (introduced Sept. 10, 2025); S. 3525, 119th Cong. (introduced Dec. 17, 2025). Congress.gov lists the Senate measure as referred to the Senate Committee on Health, Education, Labor, and Pensions.

[3]  Amendment in the Nature of a Substitute to H.R. 5267, § 3(a) (proposed NLRA § 20(a)(4), (b)) and § 3(b) (July 17, 2026).

[4]  International Franchise Association, 2026 Franchising Economic Outlook (study conducted by FRANdata, 2026). The report is industry-sponsored and projects 845,000 establishments, nearly 8.9 million jobs, $921.4 billion in output, and $558.4 billion in franchise-related GDP for 2026.

[5]  See 15 U.S.C. §§ 1055 and 1127 The Federal Lanham Trademark Act addressing controlled use of marks and related – company use in federal trademark law.