Markets | Thu Aug 27, 2015 4:09pm EDT

Companies liable for labor violations by franchisees: U.S. labor board

BY DANIEL WIESSNER AND ROBERT IAFOLLA

Companies can be held liable for labor violations committed by franchisees and contractors, the National Labor Relations Board ruled on Thursday, in a decision that could put pressure on businesses like McDonald's dependent on franchising to negotiate directly with unions.

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have "direct and immediate control" over employment matters such as hiring and firing to be considered employers, was outdated and did not reflect the realities of the 21st century workforce.

"We will no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority," Board Chairman Mark Pearce wrote.

The decision means large companies that use a franchise model or staffing agencies will in many cases be required to bargain directly with unions and employees, potentially making it easier for them to win higher wages and better working conditions.

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