Hunton Employment & Labor Perspectives

As previously discussed, the Third Circuit recently considered the National Labor Board’s (“NLRB” or “Board”) statutory authority to order consequential damages in a case involving Starbucks.  As a quick refresher, the current Board has envisioned consequential damages it purportedly has the right to issue against a party it finds to have violated employee rights, such as unlawful termination, as covering a wide swath of potential financial repercussions.  This could, include, for instance, mortgage payments and credit card late fees. With interest these damages could potentially quickly balloon to tens of thousands of dollars, changing the settlement calculus.

While the Third Circuit otherwise enforced the Board’s order in the underlying unfair labor practice proceeding, the Court vacated the portion of the Board’s order under Thryv, Inc. requiring Starbucks to compensate the discriminatees for all “direct or foreseeable pecuniary harms incurred as a result of [their discharges.]” Starbucks Corp., 372 NLRB No. 50 slip op. at 1 n.3 (2023).

Starbucks argued in relevant part that the consequential damages remedy ordered by the Board were inconsistent with the National Labor Relations Act (“NLRA”) and “that reading the statute otherwise would violate the Constitution’s Seventh Amendment right to a jury trial[.]”  NLRB v. Starbucks, Corp., Nos. 23-1953 and 23-2241 slip op. at 26 (3d Cir. 2024).  In explaining its ruling, the Third Circuit noted that Section 10(c) of the NLRA authorizes the Board to “take such affirmative action[,] including reinstatement of employees with or without back pay, as will effectuate the policies of [the Act].”  29 U.S.C. § 160(c).  The Court then went on to note that the Supreme Court has interpreted the Board’s remedial authority to mean that “Congress did not establish a general scheme authorizing the Board to award full compensatory damages for injuries caused by wrongful conduct.” UAW-CIO v. Russell, 356 U.S. 634, 642–43 (1958).  Despite this limitation, the Third Circuit wrote that the Board in its Starbucks decision “purport[ed] to grant broad compensatory relief.”  NLRB v. Starbucks, Corp., Nos. 23-1953 and 23-2241 slip op. at 31.

Ultimately, the Third Circuit reasoned that making Starbucks “compensate the employees for losses incurred as a result of” the unfair labor practices “resemble[d] an order to pay damages.” NLRB v. Starbucks, Corp., Nos. 23-1953 and 23-2241 slip op. at 31 (citing Damages, Black’s Law Dictionary (12th ed. 2024)).  Because of this, the Third Circuit concluded that the Board’s order providing for consequential damages exceeds its authority under the NLRA.  Id.

The Board has been issuing virtually identical orders to this order the Third Circuit refused to enforce in all cases involving discharges and similar adverse employment actions since it first issued its decision in Thryv, Inc.  The Third Circuit’s decision gives employers faced with unfair labor practice allegations relating to employee discipline and other issues impacting employee wages a strong argument against such remedies.