Hotel franchising has been a pathway to success for small-business owners for more than 80 years. The brand standards that accompany a hotel franchise are a win-win for both guests and operators: they build trust by ensuring a consistent guest experience, drive repeat visits through loyalty programs, and offer support at strategic and operational levels.
Franchising is also great for the economy. At year-end 2024, 57 percent of U.S. hotels were franchised, supporting 2.8 million jobs. The number of franchised hotels has increased by 35 percent over the last 10 years. These hotels generated more than $35 billion in state and local tax revenue and more than $97 billion in economic output.
The critically important piece of this is hotel ownership. Franchisees own their hotels (and most American hotels are minority-owned). For these hoteliers, franchising has been a key to the American dream. As owners, they’re responsible for hiring employees, managing schedules, administering payroll, and the rest of a hotel’s daily operations.
Until 2015, it was accepted that employees of a franchised business were employees of that business alone for purposes of the Fair Labor Standards Act (FLSA). That year, the National Labor Relations Board (NLRB) created an overly broad standard that could be misapplied to suggest that franchisors would somehow be responsible for a franchisee’s workers. The Coalition to Save Local Businesses, which includes AHLA, has been fighting for clarity ever since—before the NLRB, in courtrooms, and on Capitol Hill.
Since 2015, we’ve seen five different standards for the definition of “joint employer,” and the issue is still pending before the D.C. Court of Appeals. We have won multiple victories in court, but it is past time to end this uncertainty. The solution is federal legislation—specifically, the American Franchising Act (AFA) to be introduced this month.
The AFA will codify a clear, permanent standard for franchising by narrowly amending the National Labor Relations Act (NLRA) and FLSA to clarify that a franchisor may be considered a joint employer only if the franchisor exercises “substantial direct and immediate control” over one or more essential terms of a franchisee’s employee—such as wages, benefits, hiring, firing, and supervision. Training in brand standards would not amount to “direct and immediate control.” As long as a franchisee controls the business’s day-to-day operations, including labor relations, the franchisor will not be considered a joint employer.
We might call the effects of this clarity immeasurable, but in fact, we have a good idea of how expensive these regulatory fluctuations have been. The overly broad 2015 standard cost American franchises more than $33 billion a year, eliminated 376,000 job opportunities, and generated 93 percent more lawsuits. The multiple changes have created legal confusion, eroded trust between employers and employees, and stifled growth for thousands of businesses.
Arguments over the joint employer standards became unnecessarily partisan over the past 10 years, but bipartisan common sense is emerging. The American Franchising Act is bipartisan as well as bicameral, consistent with historical precedent and current NLRB policy. Getting it enacted into law will be an AHLA priority in the remaining months of this Congress.
