OSI Group, which has been at the center of a major food scandal in China, said Monday that it will lay off 340 employees at its Chinese subsidiary, Shanghai Husi Food. The unit was accused in July of supplying expired beef and chicken to local outlets of McDonald'sKFC and other major restaurant chains.

Most workers at Shanghai Husi, which reportedly employs nearly 500 people, were on paid leave since July 21, Illinois-based OSI Group said in a statement, adding that it had expected to quickly resume work at the facility. However, the supplier incurred significant losses at its Chinese unit, which lost orders and clients, after the local government launched an inquiry into the allegations, forcing it to lay off most of its local workers, according to the statement.

“It was our expectation that they could resume their work as soon as possible. Unfortunately, due to circumstances beyond our control, this will not be the case,” OSI said in the statement, adding: “It is very unlikely that production will be resumed soon.” 

OSI, which has launched its own inquiry into the allegations, said that a small number of employees will be retained at the unit until the investigation is complete. Of the 340 employees who are to be laid off, 226 workers are directly employed by Shanghai Husi while the rest are employed as contractors. OSI also said, in the statement, that it will provide the workers with a severance package and help them find new jobs.

In July, following reports in local media that the local OSI unit was supplying stale meat, the company had announced that it will recall all of its products made at the Shanghai Husi unit. Chinese authorities suspended operations at the unit and arrested six of its employees.

Later, OSI also announced plans for a "quality control center" in Shanghai and added that it plans to spend 10 million yuan ($1.6 million) annually on a food safety education campaign, according to the Associated Press.

Following the scandal, KFC called off all its dealings with OSI, while chains like Burger King Corp., Starbucks Corp., pizza outlet Papa John's International Inc. and Dicos, a chain of sandwich shops, had said that they had withdrawn products containing ingredients from suppliers who had dealt with Shanghai Husi.