(Reuters) - A U.S. labor board on Thursday overturned an Obama-era ruling that had made it easier for unions and workers to hold companies accountable for practices of contractors and franchisees, a decision welcomed by business groups that could affect a major case against McDonald's Corp (MCD.N).
The 3-2 decision by the National Labor Relations Board reversed the standard it had set in a 2015 case involving Browning-Ferris Industries Inc. It reinstated a previous test that says companies are "joint employers" only when they exercise direct control over workers.
President Donald Trump appointed two Republicans to the five-member NLRB earlier this year, giving his party a 3-2 majority for the first time in a decade. Trump's appointees, who joined the board in August and September, are widely expected to revisit a series of recent NLRB decisions that business groups say unfairly favored unions. Thursday's decision marked the third time this week the board overruled an Obama era decision.
Use of franchising or contract labor allows many companies to avoid the costs and responsibilities of directly employing workers. But a company found to be a joint employer can be required to bargain with unions and may be held liable for labor law violations by contractors, staffing agencies or franchisees.
Prior to the 2015 ruling in Browning-Ferris, companies were found to be joint employers of workers hired by another business if they had “direct and immediate” control over working conditions.
In the Browning-Ferris decision, the NLRB said joint employment could also exist when companies have only "indirect or unexercised control" over workers.
On Thursday, the board said the Democratic majority in Browning-Ferris overstepped its authority by altering the legal definitions of employment.
The two Democrats on the board dissented, saying the Browning-Ferris decision was legally sound and the majority failed to provide any "real-world examples or even remotely plausible hypotheticals" that show how the standard harmed businesses.
In a separate case, the NLRB has filed complaints against McDonald's claiming it was the joint employer of franchise workers across the country. A trial began over 2-1/2 years ago, but Thursday's decision could derail the bulk of the case.
The McDonald's case had been seen as an important test of how Browning-Ferris, which did not mention franchisors, would apply to those companies.
“At the very least, this significantly narrows the issues and it should be very comforting to McDonald’s and the franchise community,” said Michael Lotito, a partner at labor law firm Littler Mendelson who represents employers.
A lawyer representing McDonald's in the case did not immediately respond to a request for comment, but two restaurant trade groups hailed the ruling. The U.S. Chamber of Commerce, the National Retail Federation and other trade groups also applauded the decision, which came in a case involving two construction companies based in Iowa and Illinois.
The board said the companies were joint employers of several workers who were unlawfully fired for going on strike.
The International Franchise Association and National Restaurant Association, which represent McDonald's and other fast-food restaurant operators, have been especially vocal critics of the Browning-Ferris standard, arguing it could doom the franchising industry.
The restaurant association said in a statement that Thursday's decision "restores years of established law and brings back clarity for restaurants and small businesses across the country."
(Reporting by Daniel Wiessner in Albany, New York; Editing by Alexia Garamfalvi, Leslie Adler and David Gregorio)