A federal appeals court in New Orleans has issued a little-noticed decision that could cripple the government's stepped-up efforts to control worker exposure to health hazards.

A three-judge panel of the 5th U.S. Circuit Court of Appeals set aside the Occupational Safety and Health Administration's new benzene exposure rules Oct. 5 on grounds that OSHA failed to show a "reasonable relationship" between anticipated benefits and costs.

"Although the agency does not have to conduct an elaborate cost-benefit analysis . . . it does have to determine whether the benefits expected from the standards bear a reasonable relationship to the costs imposed by the standard," the court ruled.

This was a major departure from rulings of other appelate courts, which upheld various OSHA standards imposed without such a cost-benefit test, most recently in a case last March involving coke-oven emissions.

Government officials concede that the 5th Circuit's ruling, if allowed to stand and accepted as precedent in other circuits, could make it much easier for industry to challenge on-the-job health rules - and possibly other regulations - issued by the government.

Others go further, suggesting it may be impossible for the government to put a price tag on "benefits" involving such items as the cost of a human life.

"The decision puts an impossible burden on OSHA to try to quantify benefits that no one has ever been able to quantify before," said George H. R. Taylor, director of the AFLCIO's division of occupational safety and health.

"OSHA is going up the walls about it (the decision) and we are too," said Taylor.

Industry officials also ascribed major significance to the decision. "The American Petroleum Institute believes the decision could have far-reaching effects on the entire federal regulatory process because the court has concluded that standards must be 'reasonably necessary,' said a spokesman for API, one of several industry groups that challenged the benzene standard in court.

OSHA is studying what steps to take next. An agency spokesman said OSHA could pursue the case in the courts, including an appeal directly to the Supreme Court, or reopent the standard-setting process to hear new evidence that might strengthen its case. One source suggested that litigation over a revised standard need not take place in the 5th Circuit.

The benzene case was heard in the 5th circuit - in the heart of the petrochemical industry - because industry lawyers filed their suit there.

As part of its new crackdown on serious health hazards at work sites, OSHA issued a permanent standard last March to lower exposure limits for benzene, a widely used industrial chemicals that the agency says can cause leukemia.

About 600,000 workers at 150,000 work sites were to have been protected by the standard, which OSHA estimated would cost about $500 million for chemical and related industries to implement, more than half of it in new engineering controls.

However, enforcement was held up by the litigation which came to a head in the 5th Circuit ruling earlier this month.

OSHA contended that laws governing its operations require only that rules be "reasonably necessary" to provide a healthy and safe workplace and "feasible" for the industry to meet. This, the agency argued, does not mean that there must be some mathematical equating of costs and benefits. It was here, among other places, that the court found fault with OSHA's reasoning.

"It (OSHA) contends the standard promises appreciable benefits at a cost which industry can absorb. This justification is deficient in one crucial way: substantial evidence does not support OSHA's conclusion that benefits are likely to be appreciable. Without an estimate of benefits supported by substantial evidence, OSHA is unable to justify a finding that the benefits to be realized from the standard bear a reasonable relationship to its one-half-billion-dollar price tag."

The court took note of coke oven, asbestos and vinyl chloride standards that have been upheld by other circuit courts but said the issue of congressional intent regarding a cost-benefit tradeoff had not been addressed in these cases.

Two other OSHA standards, for arsenic and cotton dust, are currently in litigation outside the 5th Circuit. Several others including sweeping rules governing all cancer-causing substances, are in the OSHA pipeline nearing completion.