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Companies liable for labor violations by franchises, says U.S. labor board

August 27, 2015, 6:56 PM UTC
Signs are posted on the exterior of a McDonald's restaurant on April 22, 2015 in San Francisco, California.
Photograph by Justin Sullivan — Getty Images

Aug 27 (Reuters) – Companies can be held liable for labor violations committed by franchisees and contractors even when they have only indirect control over working conditions, the National Labor Relations Board ruled on Thursday in a closely-watched case that business groups say could harm successful business models.

The board in a 3-2 decision that will likely be appealed in U.S. court said the existing standard, under which companies had to have “direct and immediate control” over employment matters such as hiring and firing to be considered employers, was outdated and did not reflect the realities of the 21st century workforce.

Business groups have said such a ruling, which came in the case of California waste management company Browning-Ferris Industries Inc, would discourage franchising and the use of staffing agencies and subcontractors, potentially killing jobs.

But unions and others who support the change say it is necessary to bring companies that indirectly control working conditions to the bargaining table and to curb the use of “permanent temps” who are paid less and do not get the same benefits as ordinary employees.

(Reporting by Daniel Wiessner in Albany, New York; Editing by Bernard Orr)