As franchise systems enter 2026, they should anticipate ongoing challenges and emerging trends. Key areas of focus include the American Franchise Act, FDD comments, and enforcement issues such as fees and changing economics, continued focus on international expansion, post‑term restraints, and franchise brokers.
Joint Employer & The American Franchise Act
Federal efforts to stabilize the joint employer standard may dominate 2026 planning, even if ultimate passage or timing of the American Franchise Act (AFA) remains uncertain. The AFA would narrow joint employer exposure by tying joint employer status to franchisors who exercise “substantial, direct and immediate” control over franchisee employees’ essential employment terms, while explicitly insulating many brand‑standard and training activities. But the AFA would not preempt broader state joint employment tests.
From a practical perspective, multi‑state systems may want to continue to structure operations, manuals, and system‑wide initiatives for a dual regime: a narrower federal joint employer standard if the AFA advances, layered on top of more expansive state rules (for example, in California) and existing vicarious liability doctrines.
FDD Updates, Economic Volatility & Fees
NASAA’s 2025 guidance on “shifting market and economic factors” signals more aggressive regulator expectations around how quickly and specifically franchisors update FDDs when inputs like construction, labor, financing, and technology costs move. The guidance emphasizes Item 5 (Initial Fees), Item 6 (Other Fees, including technology and data‑related charges), and Item 7 (Estimated Initial Investment), pushing franchisors toward clear formulas or low‑high ranges instead of static numbers and away from generic “market uncertainty” disclaimers.
For 2026, one trend to watch is how examiners convert that guidance into comment‑letter practice: scrutiny of pass‑through technology fees, supplier rebates, and advertising funds, and pressure to reconcile Item 19 financial performance data with rapidly changing unit‑level economics.
NASAA’s Labor-Style Lens On Non-Competes & Brokers
NASAA’s 2025 advisory urging registration states to scrutinize post‑term franchise non-competes for scope, duration, and geography reflects a broader “labor‑rights” framing of franchise restrictions that will likely intensify in 2026. Registration states may increasingly ask for narrowing language, additional risk factors, or even disclosure of when non-competes have been enforced, pulling noncompete review into the franchise regulatory arena rather than leaving it solely to courts.
In parallel, NASAA’s proposed Model Franchise Broker Registration Act would, if adopted by states, potentially create a more formal registration and disclosure regime for brokers and FSOs, which has implications for franchisors that outsource lead generation and sales. We anticipate 2026 developments around which states move first, what they demand by way of broker disclosures, and how far regulators push franchisors to police broker conduct in the sales process.
Focus On International Expansion By U.S. Franchisors
As a result of stagnating growth and revenue in the U.S. market, 2026 may see U.S. franchisors accelerate their focus on international expansion as a key growth strategy. Many brands are seeking opportunities abroad, targeting regions with rising consumer demand and favorable regulatory environments.
As cross-border transactions increase, clients may want to be prepared to address intellectual property protection, and adapt their models to accommodate local preferences, supply chain nuances, and evolving legal frameworks.
Restaurant Chain Challenges
Restaurant franchising continues to face significant headwinds heading into 2026. Persistent inflation and labor shortages remain core challenges for operators and franchisees alike. Additionally, shifting consumer preferences toward healthier options and digital ordering platforms are forcing brands to innovate and adapt their offerings.
Clients in the restaurant sector should anticipate ongoing changes in consumer preferences, compliance requirements and increased pressure to modernize operational models to remain competitive.
Technology, Data & Monitoring Obligations
Emerging franchise sectors built on digital data, video monitoring, and app‑based service models already face additional compliance layers tied to privacy, biometric data, and surveillance rules, which may spread as more traditional brands adopt similar tools. Between expanding state privacy statutes and evolving expectations around disclosure of monitoring practices, system‑wide tech standards increasingly raise not only consumer‑privacy risk but also workplace‑monitoring and labor‑law questions.
Regulators and plaintiffs are also tying technology fees, data‑sharing, and mandatory vendors to theories around hidden margins, unfair practices, and unconscionability, making the structure and disclosure of these arrangements a continuing 2026 hot spot.
Franchisors Are Embracing AI — And Navigating New State Regulations
Franchisors are rapidly adopting AI to streamline development, training, and operations. Brands are using AI‑driven tools to identify stronger franchise leads, automate early prospect engagement, personalize training modules that adapt to franchisee performance, and interact with customers. Operational platforms now forecast inventory and staffing needs, monitor unit‑level metrics, and generate localized marketing content while maintaining brand standards.
As AI becomes embedded across franchise systems, states are moving quickly to regulate its use. New and proposed laws in Colorado, California, Utah, and others impose requirements around transparency, automated decision‑making, and the use of AI in employment‑related processes. Many of the AI tools being utilized by franchise systems, such as for franchisee recruitment, employee screening, or customer interactions, may fall within these frameworks.
The result is a dual trend: franchisors are accelerating AI adoption to drive efficiency and growth, while simultaneously needing governance structures that keep pace with a fast‑evolving patchwork of state AI laws.