One of the biggest unresolved labor issues facing employers in the new year is how federal regulators will determine the scope of “joint employment” business relationships, circumstances where one company can be held responsible for the workers of another.

Joint-employer disputes have kicked up significant litigation, fueled federal legislative proposals, and driven a sharp wedge between management-side lawyers and attorneys for workers' rights. The issues touch on who's responsible for contract workers and employees of franchises.

And the landscape potentially just got a lot muddier.

A divided federal appeals court in Washington issued a ruling Friday in the case Browning-Ferris Industries v. National Labor Relations Board that said the Obama-era board's expanded, worker-friendly standard wasn't unlawful. Judges Patricia Millett and Robert Wilkins delivered a win for employees, but it comes as the Trump administration's new leaders at the board are aiming to undo the current rules and enforce a more business-friendly approach. The dissenting judge said the court should have waited for the NLRB to finish its administrative process.

Friday's D.C. Circuit ruling said regulators can take into account a company's “reserved but unexercised right” to control employees of another company in deciding whether two businesses are, in fact, jointly employing the workers.

That's not what the business community wanted to hear, and it's not what the Trump labor board itself has proposed. Under the proposed new rule, a company can be deemed a joint-employer “only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment.” Any new test would not apply retroactively. The board's rulemaking process has generated thousands of comments.

Writing in dissent Friday, Judge A. Raymond Randolph said his colleagues in the majority—Millett and Wilkins—jumped the gun and should not have issued an opinion while the labor relations board is reviewing its joint-employer standard.

“I dissent because the majority should not have issued any merits opinion in light of the pending rulemaking proceedings,” Randolph wrote. “I dissent as well because the majority opinion misstates the common law, misframes the questions in the case, and adds to the uncertainty the board's Browning-Ferris decision has generated.”

The potential consequences of the D.C. Circuit's decision were not immediately known, considering the NLRB is still reviewing whether to set a new joint-employer standard and the challengers could further ask the U.S. Supreme Court to weigh in.

“Yet the majority opinion—without any reasonable explanation—threatens to short-circuit the board's choice, to control and confine the scope of its rulemaking, and to influence the outcome of that proceeding,” Randolph wrote. He added: “Our court should not be attempting to preempt the board's forthcoming judgment in the rulemaking proceeding.”

The labor board itself had asked the D.C. Circuit to rule on the Browning-Ferris case even as the rulemaking process was underway.

Rulemaking itself is rare at the NLRB, which more regularly uses case decisions to articulate new labor and employment standards. The board's chairman, John Ring, a former Morgan, Lewis & Bockius partner in Washington, has said the rulemaking process will be thorough and fair.

“The board's rulemaking … must color within the common-law lines identified by the judiciary,” Millett wrote for the D.C. Circuit majority Friday. She added: “Like the board, and unlike the dissenting opinion, we see no point to waiting for the board to take the first bite of an apple that is outside of its orchard.”

Millett and Wilkins concluded: “Browning-Ferris's proposed rigid distinction between direct and indirect control has no anchor in the common law. Neither Browning-Ferris nor the dissenting opinion cites any case holding that consideration of indirect control is forbidden. Nor have we found any.”

All was not lost Friday for Browning-Ferris, represented in the D.C. Circuit by Joshua Ditelberg, a Seyfarth Shaw partner in Chicago. (Ditelberg had urged the D.C. Circuit to send the case back to the labor board pending the outcome of the new rulemaking that is underway.)

The D.C. Circuit gave Browning-Ferris another shot to argue against the NLRB's conclusion that the California-based recycling plant company jointly employed the workers of another company, Leadpoint Business Solutions. Browning-Ferris contracts with Leadpoint to assign workers to sort through recycling material.

Millett and Wilkins said they “cannot tell from this record what facts proved dispositive in the board's determination that Browning-Ferris is a joint employer.” It's possible, the court said, that the NLRB on further review will conclude that Browning-Ferris should not be considered a joint-employer.

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Federal appeals court weighs in on joint-employer rule

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