U.S. appeals court nixes labor agency's Obama-era 'joint employment' test

(Reuters) - A federal appeals court on Friday ruled that a U.S. labor agency’s Obama-era standard making it easier to hold companies liable for illegal labor practices by their contractors and franchisees was too broad, giving business groups a victory.

The U.S. Court of Appeals for the D.C. Circuit, in a 2-1 ruling, said that a 2015 National Labor Relations Board decision did not properly define the kind of “indirect control” over working conditions that the agency said could make companies so-called joint employers of contract or franchise workers.

Joint employers are required to bargain with contract workers’ unions and can be held liable for violating those workers’ rights under federal labor law. Overturning the 2015 standard has been a top priority of business groups, including the U.S. Chamber of Commerce, the nation’s largest business lobby, which said the Obama-era ruling threatened to upend supply chains and the franchise model.

The five-member NLRB, whose current majority was appointed by President Donald Trump, proposed a rule in September that would restore an earlier standard for determining when a company is a joint employer. The board has said it expects to adopt a final rule by June.

Under the proposal, companies are considered to be joint employers with their contractors or franchisees only when they exercise direct control over issues such as hiring or firing workers and setting wages.

In the 2015 case, the NLRB said that indirect control over the way work is performed could be enough to establish joint employment. The D.C. Circuit on Friday said that could be the case, but the board’s definition of indirect control went beyond the traditional legal understanding of what constitutes an employment relationship.

The court sent the case back to the NLRB with orders to “confine” its definition of control over working conditions.

The decision involved California sanitation company Browning-Ferris Industries Inc, which the NLRB said was a joint employer of workers at a recycling plant who were provided by a staffing agency.

Lawyers for Browning-Ferris did not immediately respond to a request for comment. Nor did an NLRB spokeswoman.

The NLRB had overturned the Obama-era joint employment standard in a December 2017 ruling. But it wiped out that decision two months later because a board member appointed by Trump was found to have a conflict of interest.

The case is Browning-Ferris Industries Inc v. National Labor Relations Board, U.S. Court of Appeals for the D.C. Circuit, No. 16-1063.

Reporting by Daniel Wiessner in Albany, New York; Editing by Dan Grebler