Federal Circuit Split Erupts Over NLRB's Power to Award Consequential Damages in Worker Cases

The landscape of American labor law is fracturing along geographic lines. For nearly nine decades, the financial penalty for a company that unlawfully fired a worker for union organizing was predictable: give the employee their job back and pay their lost wages.

But a controversial 2022 ruling by the National Labor Relations Board (NLRB) fundamentally changed that math. In a case known as Thryv, Inc., the agency declared it had the authority to award "consequential damages"—forcing employers to pay for the downstream financial chaos of an unlawful termination.[1][2]

Now, a massive split has erupted among federal appeals courts over whether the NLRB actually possesses this power. With the Supreme Court recently declining to intervene, human resources departments and labor advocates are navigating a chaotic legal patchwork where an employer's financial liability depends entirely on their zip code.[1]

To understand the conflict, one must look at the mechanics of the National Labor Relations Act (NLRA). Historically, Section 10(c) of the Act was interpreted to allow only "equitable" relief. Equitable relief is designed to restore the status quo—putting the worker back in the position they would have been in had the violation never occurred.[5][6]

In practice, equitable relief meant reinstatement and backpay. If a worker was illegally fired and out of work for six months, the employer owed them six months of wages, plus interest, and the restoration of their benefits.[3]

The Thryv decision introduced a radically different concept: "legal" relief, or compensatory damages for foreseeable pecuniary harms. The NLRB argued that simply replacing lost wages often fails to make a worker truly whole, especially if the sudden loss of income triggered a cascade of financial disasters.[2][6]

Under the Thryv framework, if a fired worker has to withdraw money from a 401(k) to survive and incurs an early withdrawal penalty, the employer must cover that penalty. If the worker misses a car payment and their vehicle is repossessed, or if they incur credit card late fees and out-of-pocket medical expenses, the employer foots the bill.[3][6]

Employer advocates immediately challenged the ruling, arguing that it transformed the NLRB from an administrative agency into a tort court. Over the past year, three federal appellate courts—the 3rd, 5th, and 6th Circuits—have agreed, striking down the expanded remedies.[2][5]

In the 5th Circuit's Hiran Management decision, involving a Texas restaurant, and the 6th Circuit's ruling in a case involving Starbucks, the courts delivered a sharp rebuke to the agency. They ruled that the NLRA's authorization of "affirmative action" strictly limits the Board to traditional equitable remedies, not sweeping consequential damages.[3][4]

Furthermore, these courts raised profound constitutional concerns. Citing the 7th Amendment and recent Supreme Court precedent regarding administrative overreach, the appellate judges noted that if an agency is going to award punitive or compensatory legal damages, the defendant has a constitutional right to a trial by jury—a right not afforded in NLRB administrative hearings.[5][6]

"This ruling reins in a federal agency that tried to expand its power beyond what Congress ever allowed," argued attorneys representing employers in the 5th Circuit case, noting that the agency cannot unilaterally invent new forms of damages.[4]

Yet, the NLRB's expanded powers are not dead everywhere. The 9th Circuit Court of Appeals stands as the lone appellate court to uphold the Thryv doctrine.[1][5]

In a case involving Macy's locking out union engineers, the 9th Circuit ruled that these expanded damages are a valid, modern extension of make-whole relief. The court concluded that compensating workers for the direct, foreseeable economic devastation of an illegal firing is perfectly aligned with the NLRA's core purpose of protecting labor rights.[3]

Labor advocates argue that without consequential damages, employers treat traditional backpay as merely the "cost of doing business" when busting a union. They maintain that a worker who loses their home due to an unlawful firing is not made whole simply by receiving back wages months or years later.

The legal community widely expected the Supreme Court to resolve this stark divide. However, in June 2026, the high court quietly denied a petition to review the 9th Circuit's decision, leaving the circuit split intact and cementing a geographic divide in labor law.[1]

The result is a compliance nightmare for national employers. A company operating in Michigan or Texas faces only traditional backpay penalties for labor violations. But if that same company fires a worker in California or Washington, they could be liable for thousands of dollars in downstream financial damages.[2][6]

Adding to the uncertainty is the shifting political winds at the NLRB itself. Following the change in presidential administration, the agency's new Acting General Counsel recently issued a memorandum instructing regional directors to stop seeking Thryv remedies.[1]

However, because the Board currently lacks the quorum necessary to officially overturn the Thryv precedent, the underlying case law remains in flux. Until the Board issues a superseding decision or the Supreme Court finally takes up the issue, the true cost of an unfair labor practice will remain a matter of geography.[1][2]