Lusthaus Law offers insights into the regulations and legislation affecting franchising at the state, federal, and industry levels. As Q3 2025 closes, let’s explore recently introduced federal legislation that seeks to clarify the joint employer rule, an update to the noncompete rule care of the Federal Trade Commission (FTC), and how both could influence New York franchisors, franchisees, and multi-unit operators.
The American Franchise Act Addresses Joint Employer Liability
The American Franchise Act (AFA) was introduced to Congress on Sept. 10, 2025 by Rep. Kevin Hern (OK-01), co-lead with Rep. Don Davis (NC-01). The goal of the AFA is to provide regulatory stability to the franchise business model by codifying a clearer joint employer standard under federal labor law.
Under the AFA, franchisors would only be considered joint employers of a franchisee’s employees if they exercise “substantial and immediate control” over essential terms and conditions of employment—such as hiring, firing, wages, discipline, etc.
Current law has been plagued by changes in National Labor Relations Board (NLRB) rules and court decisions shifting the “joint employer” standard multiple times. The AFA is intended as a narrow, franchise-specific clarification that does not extend to non-franchise joint employer determinations. It has support from the International Franchise Association, the Coalition to Save Local Businesses, and other professional associations.
What This Means for Franchisors and Franchisees
More predictability & reduced legal risk. If signed into law, the AFA would reduce regulatory uncertainty around when a franchisor might be held liable for labor law violations at a franchisee’s location. Franchisors would have clearer boundaries of responsibility. This helps in drafting contracts, insurance, and compliance planning.
Franchisee independence protected. The AFA would protect small business owners who should not be treated like employees of the franchisor. It would preserve autonomy for things like payroll, staffing, and operations, except where franchisors directly exercise control over those essential terms.
Franchisors and franchisees should consult their NY franchise lawyers to review their franchise agreements. They may need to be revised to ensure that franchisor obligations, training, and oversight do not cross into territories that could be viewed as “substantial direct control.”
Federal Noncompete Rule Vacated
Lusthaus Law has followed the FTC’s developments on the Noncompete Rule for years. On Sept. 5, 2025, the FTC formally filed to accede to the vacatur of its Noncompete Clause Rule. This means the FTC is dropping its appeals in two major cases — Ryan, LLC v. FTC (5th Circuit) and Properties of the Villages v. FTC (11th Circuit).
The underlying court, the U.S. District Court for the Northern District of Texas, had already ruled that the FTC lacked the statutory authority to issue the rule and that it was invalid. With the FTC’s appeals dropped, the Noncompete Clause Rule is no longer on the table — it is vacated; it will not go into effect, and companies are not required to comply with it.
Though it appears that the final chapter in the story has been written, an epilogue exists. The FTC also signaled that it intends to shift to “case-by-case enforcement” under existing authorities (like Section 5 of the FTC Act, which declares “unfair methods of competition in or affecting commerce” to be unlawful) rather than trying for another broad regulatory ban.
What This Means for Franchisors and Franchisees
No blanket ban, but risk remains. Franchisors who use noncompete agreements in their franchise agreements or employment contracts can no longer assume the ban will protect them. The rule is gone, but overly broad or unjustified noncompetes are still susceptible to legal challenge.
State laws still matter. Even though the federal rule is vacated, many states have their own laws or court decisions limiting or prohibiting certain noncompetes. Franchise systems operating in multiple states should ensure compliance not just with federal standards but with state rules.
Read the FTC’s full statement here.
Your NY franchise lawyer should review your contracts to ensure compliance. Read more about another item impacting franchising, the FTC’s “Click To Cancel” Rule.
Contact Lusthaus Law
Lusthaus Law’s website is a resource for New York franchisors and franchisees. You can read our consistent coverage of the legal and regulatory updates that impact franchising – such as the FTC’s “Click-To-Cancel” Rule and updates from Q2 and Q1 of 2025.
We have published two downloadable and complimentary e-books and our Insights blog is regularly updated to reflect industry trends and recent achievements in client representation.
Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path for your franchise’s successful future.
