Labour Ruling Sends Shudder Through McDonald's

A US workplace watchdog has said parent companies such as McDonald's can be held liable for labour violations by their franchisees and contractors.

The far-reaching decision has sent a shudder through the boardrooms of fast-food chains, as well as industries from hospitality to construction.

The National Labor Relations Board's (NLRB) 3-2 ruling could enable unions to bargain directly with parent companies for better pay and working conditions on behalf of millions of workers.

The NLRB said on Thursday the existing standard that a parent company must exercise "direct and immediate" control over an employee to be considered a joint employer was outdated.

The board said it would now take into account factors such as whether the party exercised control "indirectly through an intermediary".

Unions have long argued that McDonald's and others should be considered joint employers since they hold sway over how their franchisees operate.

But the fast food giant, which runs 90% of its locations through franchises, has always countered that it is not a joint employer because it doesn't hire and fire those workers or control decisions about pay.

Unions have struggled to organise workers at fast-food franchises, whose owners consider themselves small businesses.

The franchises pay fees and adhere to standards set by companies such as McDonald's Corp, Wendy's and Yum Brands (Swiss: YUM.SW - news) , which owns KFC, Pizza Hut and Taco Bell.

The Service Employees International Union is bringing other NLRB cases that refer to McDonald's as a joint employer and allege labour violations at the burger chain's locations around the US.

The Competitive Enterprise Institute, a right-wing think tank, warned the ruling would have a "devastating economic impact".

But the Teamsters Union cheered Thursday's decision, which came in the case of a waste management company, Browning-Ferris Industries, and its staffing company, Leadpoint Business Services.