U.S. labor ruling raises risks for staffing firms

(Reuters) - A U.S. labor ruling that companies can be held liable for labor violations committed by franchisees and contractors creates risks for a swath of staffing firms that provides temporary workers to a broad range of industries, although some analysts doubted the ruling would significantly hurt the sector.

The National Labor Relations Board ruling on Thursday found that companies can be held liable for labor violations committed by franchisees and contractors even when they have only indirect control over workers, a decision that could give unions greater bargaining power.

The ruling has the potential to upend the economic models for staffing companies, subcontractors and franchises, according to the National Federation of Independent Businesses.

If these firms' clients are responsible for subcontractors' employees, "there’s very little reason to hire staffing companies for personnel reasons," said Jack Mozloom, national media director for the NFIB, most of whose members employ fewer than 20 workers.

"They will bring the work in house and the subcontracting jobs will vanish -- that’s really a concern for our members," Mozloom said.

Following the ruling, shares of major workforce companies Swiss-based Adecco SA and Dutch-based Randstad Holding NV each fell more than 3 percent on Friday. Thursday's ruling involved recycling plant workers, and Adecco and Randstad are the market leaders in the United States in providing industrial temporary staffing, according to Randy Reece, an analyst at Avondale Partners.

Shares of U.S. workforce companies Robert Half International , ManpowerGroup Inc , and TrueBlue Inc , also fell on Friday, but less sharply.

Still, the American Staffing Association, which represents large staffing companies, said the decision "may not significantly impact" the use of staffing services or client relations.

"Although we cannot definitively predict the long-term impact of the decision, prior board decisions that effectively made it easier for temporary workers to unionize did not demonstrably result in increased unionization of such workers," ASA General Counsel Stephen Dwyer said in a statement.

Temporary help services workers make up 2 percent of the nonfarm workforce, the group said, citing government data.

Spokespeople for Randstad, TrueBlue and ManpowerGroup referred questions to the American Staffing Association. Adecco did not immediately respond to a request for comment.

Wall Street analysts said they do not expect the ruling to significantly hurt the large staffing companies in part because of the challenges of unionizing that workforce.

"They can attempt all the tactics that they want to try to encourage unionization among temporary workers," said Reece, the Avondale Partners analyst, "but temporary workers are inherently difficult to unionize."

Jefferies analyst Dan Dolev said that even if clients of the staffing agencies saw higher costs, it would not lead them to significantly turn to permanent workers in favor of temporary ones. Permanent workers come with added costs, such as a more intensive process to find them and to lay them off.

"There’s a reason they are using temporary staffing and if they have to pay a little bit more for it, they’ll pay a little bit more," Dolev said. "There’s a point at which it becomes too expensive, but I doubt that it gets there."

(Reporting by Lewis Krauskopf in New York; Editing by Eric Effron and Christian Plumb)