H.R. 5267: American Franchise Act

The American Franchise Act aims to clarify the legal relationship between franchisors and franchisees, particularly concerning employment practices. It recognizes the franchise model as a structured business relationship where franchisees operate as independent businesses using the franchisor's operational system and brand. The bill outlines several significant points:

Findings

• Franchises allow independent business owners (franchisees) to sell goods and services under the franchisor’s brand and system.
• Franchisors maintain certain quality and operational standards to ensure brand consistency, which helps meet consumer expectations and increases business value.
• Franchisees independently manage their operations and labor relations.
• The franchise model has a substantial economic impact, generating around $825 billion in output and employing approximately 8.4 million workers in the U.S. as of 2022.
• Uncertainty over "joint employer" status has created challenges for franchising, leading to potential liabilities for franchisors based on their brand management activities.

Definitions and Clarifications

The bill introduces definitions related to the concept of "joint employment" in franchising. It specifies:

• Joint Employer: A franchisor will be considered a joint employer only if it possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment at the franchisee's location.
• Direct and Immediate Control: This term refers to the franchisor's authority to determine various employment aspects, such as wages, benefits, work hours, hiring practices, discipline, and supervision of franchisee employees.

Joint Employment Standards

For the purpose of assessing joint employer status, the franchisor must show significant control over essential employment terms, which include:

• Wages
• Benefits
• Hours of Work
• Hiring
• Discipline and Discharge
• Supervision
• Direction

Amendments to Existing Labor Laws

The Act amends the National Labor Relations Act and the Fair Labor Standards Act to include these clarifications regarding joint employment specifically in the context of franchising.

Applicability

The provisions of this Act would not retroactively apply to legal proceedings that started before its enactment.

Relevant Companies

• MCD - McDonald's Corporation: As a major franchisor in the fast-food industry, this legislation could influence its legal liabilities regarding franchising operations and employment practices.
• DNKN - Dunkin' Brands: Similar to McDonald's, Dunkin' operates extensively through franchises, and the bill’s changes concerning joint employer liability may affect its operational standards and control over franchisees.
• PZZA - Papa John's International: As a franchisor, Papa John's may also face alterations in liability concerning how it manages its franchisees in terms of hiring and employment conditions.