American Franchise Act 2025 And The Federal Trade Commission's Franchise Rule: What Franchisees Need To Know

44% of franchise brands surveyed use franchise brokers in their recruitment process, which means many franchisees first hear the sales pitch before they see the real legal risks hiding in the documents. That’s where the federal trade commission's franchise rule and new proposals like the American Franchise Act 2025 come in.

If you’re already a franchisee—or seriously considering investing—your bottom line depends on understanding how the Federal Trade Commission’s (FTC) Franchise Rule protects you today, and how the proposed American Franchise Act (H.R. 5267) could expand your rights and increase franchisor liability tomorrow. This guide breaks it down in plain English and shows where strategic legal help makes a real difference.

You’ll learn what the FTC Franchise Rule guarantees now, what a proposed Federal Franchisee Bill of Rights could change, how the “joint employer” standard affects your day‑to‑day operations, and practical steps to protect yourself in negotiations and disputes.

Table of Contents

• What Is The Federal Trade Commission's Franchise Rule?
• Overview Of The Proposed American Franchise Act (H.r. 5267)
  • Core Goals Of The Act
• How The Act Would Change Franchisee Rights
  • Proposed Federal Franchisee Bill Of Rights
  • New Ability To Sue Under The Ftc Franchise Rule
• Joint Employer Standard: What It Means For Your Daily Operations
• Interaction With State Franchise Laws
• Practical Implications For Franchisees
  • Negotiating Your Franchise Agreement
  • Monitoring Ongoing Compliance And Support
• Step-By-Step: How To Protect Yourself Now
• Common Mistakes Franchisees Make Around The Ftc Rule
• Estimated Costs And Timelines For Getting Legal Help
• How Aircounsel Can Help You Navigate Franchise Law
• Frequently Asked Questions
• Recommended

Quick Summary

Takeaway	Explanation
The FTC Franchise Rule is already in force	It requires franchisors nationwide to give you a detailed Franchise Disclosure Document (FDD) at least 14 days before you sign or pay anything.
The American Franchise Act is still a proposal	H.R. 5267 has not yet become law; it would add new franchisee protections on top of the existing federal trade commission's franchise rule.
A Federal Franchisee Bill of Rights is on the table	The Act would formalize rights around disclosures, good faith, termination, and renewal, limiting one‑sided franchisor behavior.
Franchisees could gain a federal right to sue	One key idea is letting franchisees sue franchisors directly for FTC Franchise Rule violations, instead of relying only on government enforcement.
Joint employer rules affect control and liability	The Act would clarify when franchisors are treated as “joint employers,” impacting how much control they can exercise over your staff and operations.
State laws still matter a lot	Registration and “relationship” states will continue to overlay their own rules on disclosure, renewal, and termination even if the Act passes.

---

What Is The Federal Trade Commission's Franchise Rule?

The Federal Trade Commission’s Franchise Rule (the FTC Franchise Rule) is the core federal regulation that governs how franchises are sold in the United States.

At a high level, it:

• Defines what a “franchise” is for federal law purposes.
• Requires franchisors to provide a Franchise Disclosure Document (FDD) containing 23 specific items of information.
• Sets timing rules: you must receive the FDD at least 14 calendar days before signing or paying a fee.
• Prohibits deceptive or unfair practices in the sale of franchises.

According to the FTC, franchisors must include detailed information in the FDD about fees, litigation, bankruptcy, territory, trademarks, financial performance representations (if any), and more so prospective franchisees can make informed decisions before committing their savings or taking on debt.¹

For franchisees, this means:

• You have a right to detailed disclosures before buying.
• You can compare what was promised in sales talks to what’s actually in the FDD and franchise agreement.
• You’re protected from some types of misrepresentations and omissions.

The proposed American Franchise Act does not replace the FTC Franchise Rule. Instead, it attempts to add new rights and enforcement tools on top of this existing framework.

Overview Of The Proposed American Franchise Act (H.r. 5267)

The “American Franchise Act” (often cited as H.R. 5267) is a proposed federal law, not yet enacted, aimed at rebalancing power between franchisors and franchisees.

While the text and political prospects can change, the bill generally focuses on:

• Strengthening franchisee protections in the franchise relationship.
• Clarifying franchisor liability, including the joint employer standard.
• Creating a Federal Franchisee Bill of Rights.
• Expanding enforcement avenues for franchisees, especially around FTC Franchise Rule violations.

Core Goals Of The Act

In plain English, the Act is intended to:

• Make disclosures more meaningful by tying violations to real consequences, not just theoretical ones.
• Give franchisees more leverage when franchisors act unfairly but hide behind contract wording.
• Clarify who is responsible for what (franchisor vs. franchisee) when it comes to employees and operations.
• Align federal rules with evolving state laws and policy concerns about one‑sided franchise agreements.

If passed, the Act would likely trigger updates to standard franchise agreements and FDDs across the country. That’s why understanding it now is important—even if your brand hasn’t mentioned it yet.

How The Act Would Change Franchisee Rights

The most important question for you: What would actually change in your day‑to‑day reality as a franchisee?

Here’s a simplified comparison.

Topic	Current Law Under FTC Franchise Rule	If The American Franchise Act Passes (Conceptual)
Disclosure rights	You must receive an FDD with 23 items at least 14 days before signing/paying.	Same baseline disclosures, but violations could trigger stronger, franchisee‑initiated remedies.
Ability to sue under FTC Rule	Generally, only the government (FTC or state AGs) can enforce the Rule directly.	Franchisees could gain a private right of action—the right to sue franchisors in court for FTC Rule violations.
Relationship protections	Relationship issues (good faith, termination, nonrenewal) mostly governed by contract and state law.	A Federal Franchisee Bill of Rights could set minimum relationship standards nationwide.
Joint employer uncertainty	Liability can be murky; standards bounce between agencies and courts.	Clearer statutory rules could define when franchisors are joint employers, affecting control and liability.

None of this is automatic yet. But it signals where franchise law is heading—and how you should approach new deals and renewals.

Proposed Federal Franchisee Bill Of Rights

One of the headline features of the American Franchise Act is a proposed Federal Franchisee Bill of Rights. While the exact language can shift, expect it to focus on areas like:

• Clear, accurate disclosures and marketing claims that match the FDD.
• Good‑faith and fair‑dealing obligations in the franchise relationship.
• Reasonable termination and nonrenewal standards, preventing purely arbitrary terminations.
• Transparency on fees and required vendors, including any rebates or kickbacks franchisors receive.
• Protection against retaliation for franchisees who join associations, speak with regulators, or assert rights.

For franchisees, a Bill of Rights would create baseline protections that franchisors cannot contract around—similar to how some state franchise “relationship laws” already work.

New Ability To Sue Under The Ftc Franchise Rule

Right now, the FTC Franchise Rule is mainly enforced by:

• The FTC itself, and
• State attorneys general or regulators.

You, as an individual franchisee, generally don’t have a direct federal claim labeled “FTC Franchise Rule violation.” You may rely instead on:

• State franchise statutes,
• State unfair trade practices laws,
• Common law claims (fraud, negligent misrepresentation, etc.).

The American Franchise Act aims to change this by giving franchisees a private right of action. That would mean:

• If a franchisor lied, omitted key facts, or violated disclosure rules, you might sue based directly on the FTC Franchise Rule violation.
• You could potentially seek damages, rescission (undoing the deal), or other remedies, depending on the final statute.
• The risk profile for franchisors would increase, motivating better compliance and clearer documents.

This change would significantly shift leverage toward franchisees—especially those in states without strong franchise laws of their own.

Joint Employer Standard: What It Means For Your Daily Operations

The “joint employer” standard asks: When is a franchisor also considered the employer of your workers?

Why it matters:

• If a franchisor is a joint employer, it may share responsibility for:
  • Wage‑and‑hour violations,
  • Discrimination or harassment claims,
  • Unionization and collective bargaining obligations.
• If a franchisor is not a joint employer, you as franchisee carry more of the direct legal risk, but the franchisor may have more flexibility in how it supports and oversees your operations.

The American Franchise Act seeks to clarify this standard for franchises by:

• Defining what level of control over employees (hiring, firing, scheduling, pay, training, policies) triggers joint employer status.
• Giving franchisors more certainty about what they can do (e.g., brand standards, safety protocols) without automatically being deemed joint employers.
• Potentially making it easier for franchisees to know who is on the hook in employment disputes.

For you, the practical questions are:

• Does my current franchise agreement give the franchisor control over my HR decisions, or just set standards?
• If an employee sues, could the franchisor be pulled in—and how would that impact my defense and relationship?
• Would the Act make it easier or harder to get franchisor support in employment‑law compliance?

These details will depend on final statutory language and how agencies and courts apply it.

Interaction With State Franchise Laws

Even with strong federal rules, state franchise laws still matter a lot, especially in:

• Registration states (like California, New York, Illinois, and others) that require franchisors to register their FDDs and meet state‑specific standards.
• Relationship states that regulate termination, nonrenewal, transfers, and good‑faith obligations.

Key points for franchisees:

• The FTC Franchise Rule is a baseline; states can add extra protections.
• If the American Franchise Act passes, it would layer additional federal rights on top of both FTC and state rules.
• You may end up with overlapping remedies—for example, a federal claim under the FTC Rule plus a state franchise law claim for the same conduct.

This is powerful when used well, but confusing without legal guidance. In multi‑state brands, franchisors often tailor the FDD and franchise agreements by state; the Act could force another round of changes.

Practical Implications For Franchisees

So what does all this theory mean when you’re signing, renewing, or operating a franchise?

Negotiating Your Franchise Agreement

Even in a “take‑it‑or‑leave‑it” franchise system, you usually have more negotiation room than you think—especially on:

• Personal guarantees and limiting your personal exposure.
• Renewal conditions, including what counts as “good standing” and fees.
• Transfer rights, including sale approval and conditions.
• Territory protections, encroachment rules, and multi‑unit options.
• Vendor and purchasing requirements, including the right to use equivalent products or local suppliers.

With the American Franchise Act on the horizon:

• Franchisors may be more willing to adjust riskier clauses now than after courts start interpreting new federal rights.
• You’ll want contract language that preserves your ability to use new legal tools, rather than waiving them by accident.
• Any disclaimers or integration clauses (e.g., “you are not relying on any promises outside this agreement”) will be even more critical to review.

A targeted legal review—like AirCounsel’s flat‑fee Franchise Agreement and FDD Review—can flag where your particular agreement interacts with the FTC Franchise Rule and anticipated reforms.

Monitoring Ongoing Compliance And Support

Your legal risk doesn’t end once you sign. You should also:

• Compare ongoing conduct to the FDD: Are fees, required purchases, or marketing programs evolving in ways that no longer match the disclosures?
• Document franchisor promises: Keep emails, portal messages, and recordings of webinars where performance, territories, or support are discussed.
• Track system changes: New technology mandates, remodels, or branding initiatives can have serious cost impacts that may raise disclosure or fairness questions.
• Coordinate with other franchisees: Patterns of behavior matter—what seems like a one‑off issue can become legally significant when many owners share the same experience.

If the Act passes with a private right of action, a well‑organized paper trail will be invaluable if you need to assert your rights.

Step-By-Step: How To Protect Yourself Now

You don’t have to wait for Congress to act to strengthen your position as a franchisee.

1. Get a clean, complete copy of your FDD and agreement

   • Make sure you have the latest version and all exhibits, riders, and state addenda.
   • Confirm when you received it relative to when you signed or paid your initial fee.

2. Have a franchise attorney review your documents

   • Ask for a review that covers:
     • Compliance with the FTC Franchise Rule and relevant state laws.
     • High‑risk clauses (termination, nonrenewal, transfer, fees, dispute resolution).
     • Areas most affected by the proposed American Franchise Act.
   • A fixed‑fee review like AirCounsel’s Franchise Agreement and FDD Review can give you clear, prioritized action items.

3. Map out your risk exposure

   • Identify:
     • Personal guarantees and collateral.
     • Minimum royalty or purchasing obligations.
     • Remodel or brand‑standard requirements.
   • Note where franchisor discretion is very broad; these are likely friction points if laws change.

4. Plan for renewal, transfer, or exit early

   • Review renewal conditions well before your term expires.
   • If you may sell, clarify transfer conditions and approval rights now, while you still have leverage.

5. Stay informed on legal developments

   • Monitor updates from:
     • The FTC on Franchise Rule guidance and enforcement.
     • Your state regulator (if in a registration state).
   • Consider periodic check‑ins with counsel, or using an all‑in‑one legal plan, to keep your documents current with changing law.

6. Use negotiation and dispute support when needed

   • If issues arise (encroachment, under‑disclosure, unfair terminations), targeted Negotiation Support can often resolve disputes faster and cheaper than full‑blown litigation.

Common Mistakes Franchisees Make Around The Ftc Rule

Many franchisees assume that “the franchisor has already taken care of compliance.” That’s not always true. Common missteps include:

• Not reading the FDD carefully

  • Skimming the summary pages and ignoring critical items like litigation history, fees, and financial performance representations.

• Relying on sales talk instead of disclosures

  • Trusting verbal earnings claims or rosy projections that don’t appear in Item 19 (or contradict it).

• Ignoring timing rules

  • Signing or paying before the 14‑day FDD waiting period fully runs, which can undercut your ability to raise FTC Rule issues later.

• Missing state‑specific protections

  • Assuming the federal rule covers everything and overlooking stronger rights provided by your state.

• Failing to document concerns

  • Not keeping notes when disclosure mismatches or pressure tactics arise—making it harder to prove a pattern.

The American Franchise Act is, in part, a response to these recurring problems. But even with new rights, franchisees who don’t organize their documents and understand their agreements will still be at a disadvantage.

Estimated Costs And Timelines For Getting Legal Help

Every situation is different, but here’s a realistic expectation of what franchise‑focused legal help looks like in practice.

Need	Typical Timeline	How AirCounsel Can Help
Pre‑purchase or renewal FDD and franchise agreement review	1–3 business days for focused review and recommendations	Use our flat‑fee Franchise Agreement and FDD Review service to spot red flags and negotiation points.
Customizing a new franchise program (if you’re also a franchisor)	7–14 business days for first drafts	Get a compliant Custom Franchise Disclosure Document (FDD) and Custom Franchise Agreement tailored to your brand.
Multi‑state FDD registration or amendments	Varies by state; often 2–8 weeks after filing	Our FDD Filing Service manages registrations, renewals, and amendments for you.
Targeted dispute or negotiation support	As needed; often within days	With Negotiation Support, you purchase flexible attorney time to assist with letters, calls, and redlines.

The earlier you involve experienced franchise counsel, the more options you typically have—and the cheaper it is to steer things in a better direction.

How Aircounsel Can Help You Navigate Franchise Law

Franchise law is shifting fast—but your decisions on signing, renewing, or exiting a franchise are long‑term. AirCounsel connects you with experienced, US‑licensed franchise attorneys who focus on clarity, speed, and transparent fixed pricing, so you’re not guessing about either your rights or your legal bill.

If you’re evaluating a new franchise or trying to understand how the proposed American Franchise Act and the federal trade commission's franchise rule affect your existing agreement, our team can:

• Review your FDD and franchise agreement in detail.
• Flag high‑risk clauses and where your rights may expand under new law.
• Provide practical, business‑minded negotiation tips you can use immediately.
• Draft or revise letters, amendments, or proposals to your franchisor.

Explore these next steps:

• Get a plain‑English risk map with our Franchise Agreement and FDD Review.
• Build or overhaul your franchise program with a Custom Franchise Disclosure Document (FDD) and Custom Franchise Agreement.
• Need quick, focused guidance on one issue? Use Ask a U.S Attorney a Question for a fast, written legal answer.

Frequently Asked Questions

What rights will franchisees gain under the proposed American Franchise Act?

If enacted in its current form, franchisees could gain a Federal Franchisee Bill of Rights and a private right of action to sue franchisors for violations of the FTC Franchise Rule. That would add nationwide baseline protections on disclosures, good faith, termination, and renewal, and give franchisees more direct enforcement tools alongside existing state‑law remedies.

How does the joint employer standard affect franchisor liability?

The joint employer standard determines when a franchisor is also considered an employer of your staff. If deemed a joint employer, the franchisor could share liability for wage‑and‑hour, discrimination, and labor‑relations issues. The American Franchise Act aims to clarify when franchisor control over hiring, firing, scheduling, and HR policies crosses the line into joint employment, which in turn affects how much operational control franchisors feel comfortable exercising.

What changes will the American Franchise Act introduce to the FTC Franchise Rule enforcement?

The Act would not replace the FTC Franchise Rule, but it would likely enhance enforcement by giving franchisees a direct ability to sue for violations, rather than relying solely on the FTC or state regulators. This could make franchisors more cautious about their disclosures, financial performance representations, and sales practices, because non‑compliance would create more immediate litigation risk.

How do state franchise registration laws interact with the new federal franchise regulations?

State franchise registration laws would continue to operate alongside federal rules. Franchisors in registration states would still need to file and clear their FDDs with state regulators and comply with any state‑specific disclosure or relationship requirements. The American Franchise Act would add another federal layer, giving franchisees additional rights and remedies that sit on top of both the FTC Franchise Rule and applicable state statutes.

Do current franchisees benefit from the American Franchise Act, or only new buyers?

That will depend on final statutory language and any retroactivity provisions. However, even if some rights apply only prospectively, existing franchisees may benefit through revised FDDs and agreements at renewal, stronger disclosure standards for system‑wide changes, and increased franchisor caution around practices that could trigger federal claims. Reviewing your current contract now positions you to take advantage of new rights when they become available.

Recommended

• Learn how to spot hidden risks before you sign with a detailed Franchise Agreement and FDD Review.
• If you are (or plan to become) a franchisor, protect your brand with a Custom Franchise Disclosure Document (FDD) and Custom Franchise Agreement.
• For ongoing negotiation and dispute support with your franchisor, consider flexible Negotiation Support.

Footnotes

1. See the FTC’s official Franchise Rule overview. ↩