To:                  Our Clients and Friends

From:              Todd M. Sahner

Date:               June 2006

Re: Consequences and Ramifications of Unemployment Compensation Determinations

This memorandum addresses an issue that has occurred repeatedly with our clients: an unhappy employee terminates his employment.  He then applies for unemployment compensation, claiming that he was forced to leave because of the atmosphere that existed at the company – something that we call a constructive termination.  Realizing that a lawsuit may be coming, the company is concerned about the ramifications of the determination made in the administrative process as to whether the employee is entitled to unemployment compensation.  Under the law, if the employee is out of work through no fault or act of his own, the employee is generally entitled to benefits. A constructive termination would fall into this category. However, if the employee was terminated for cause, or simply quit, that person is not entitled to benefits.  This issue has been a cause for concern because the unemployment hearings are very informal.  Typically, the former employee appears in person at the administrative office, while the employer’s representative is frequently “present” only by telephone.  Attorneys rarely are involved.  The “hearing” process tends to be very informal and the common perception is that the hearing officers generally are pro employee.  The same holds true for the somewhat abbreviated appeals process which similarly is frequently done by telephone. 

The New Jersey Supreme Court recently addressed this issue in Olivieri v. Y.M.F. Carpet, Inc., and concluded that the determination made for unemployment compensation should not be given any preclusive or collateral estoppel effect because of the procedural limitations (the informality of the proceedings), the different purpose of the proceedings (to provide speedy and inexpensive benefits), and because the proceedings do not afford litigants a fair and effective opportunity to litigate factual issues.  As the Court so properly noted, one of the things that a fact finder does at the trial level is judge credibility, in part by observing the witnesses.  When there is a difference of opinion between an employer and an employee as to the reason for termination, and the employer is present only by telephone, it is impossible to accurately judge credibility since the face to face confrontation that is so critical is lacking. 

As a result, employers no longer have to worry about the possibility that an adverse unemployment compensation decision could end up costing them significant dollars in the event of subsequent litigation.  Employers now have the right to decide, for economic purposes, whether they are even going to challenge unemployment applications and if so, how much time and energy to devote. 

If any of you have any further questions on this or any other labor and employment issues, please feel free to contact Todd M. Sahner or MaryJane Dobbs.