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Department of Labor and Industry v. Smalls

Decided: October 27, 1977.


Bischoff, Kole and Gaulkin. The opinion of the court was delivered by Kole, J.A.D.


[153 NJSuper Page 413] Plaintiff Department of Labor and Industry (Department) appeals from the denial of its motion for summary judgment and the dismissal of its complaint against defendants, which sought a refund of unemployment compensation benefits pursuant to N.J.S.A. 43:21-5(b).

The facts are not in dispute. Defendant Smalls, after being indicted on several criminal charges, was given a mandatory leave of absence without pay by his employer, defendant New Jersey Natural Gas Company (Gas Company). Unable to find other employment, Smalls registered for and received unemployment compensation benefits of $2,040 for a period of 24 weeks. After his acquittal of the charges Smalls instituted a grievance procedure seeking to be reinstated by his former employer. Pursuant to the collective bargaining agreement between his union and the Gas Company, the propriety of the mandatory leave of absence without pay was submitted to arbitration.

The arbitrator determined that Smalls was improperly discharged. The arbitration award recited that the Gas Company was to make Smalls "whole for wages lost" but, in calculating the amount of back pay, the Gas Company was to deduct from the gross amount due, among other things, the amount he received in unemployment compensation benefits. The Gas Company complied by deducting $2,040 from the approximately $4,000 in back pay due to Smalls.

In due course the Department, acting pursuant to N.J.S.A. 43:21-5(b), demanded that Smalls refund the total amount of unemployment compensation benefits paid to him. Alternatively, the Department requested payment of the same amount from the Gas Company. When both requests went unheeded, the Department instituted this action against both Smalls and the Gas Company.

The trial judge held in favor of the Gas Company on the grounds that (1) there was no statutory authority to order the employer to refund the unemployment compensation benefits withheld pursuant to the arbitrator's award; and (2) the relief requested would require an unauthorized revision of that award, which was binding on the employer. The judge also declined to order Smalls to make the refund. It concluded that the deductions of the unemployment compensation

benefits, as well as other payroll withholdings, including those for taxes and social security, resulted in Smalls' getting something less than "100% back pay."

We need not determine whether the judge was correct in concluding that Smalls was not required to make the refund by reason of his receipt of less than "100% back pay." See Caldwell v. Div. of Unemployment Disab. Ins. , 145 N.J. Super. 206 (App. Div. 1976). We hold that, in any event, under the circumstances of this case, Smalls should not be liable for the refund.

N.J.S.A. 43:21-5(b) requires that an individual, restored to employment after discharge with back pay, "shall return any benefits received under this chapter for any week of unemployment for which he is subsequently compensated by his employer." In this case, however, Smalls received a back pay award that specifically excluded the unemployment compensation benefits he had received. In order to preserve the financial integrity of the state unemployment compensation fund, the foregoing statutory provision obviously was designed to preclude double payment of compensation to an employee, by the employer and by the State, during a period of unemployment. Clearly no such payment was made to or received by Smalls here. Under these circumstances to require him to refund the unemployment compensation benefits that he received would not serve to prevent depletion or attrition of the state fund. Rather, it would operate as an unjust penalty against him merely for having applied for and obtained benefits to which he had been entitled, but which he no longer possessed or could regain through no fault of his own. See Fischer v. Board of Review , 123 N.J. Super. 263 (App. Div. 1973); Kugel v. Board of Review , 66 N.J. Super. 547, 550 (App. Div. 1961). See also Snedeker v. Board of Review , 139 N.J. Super. 394, 400 (App. Div. 1976); Schock v. Board of Review , 89 N.J. Super. 118 (App. Div. 1965), aff'd 48 N.J. 121 (1966); Lazar v. Board of Review ,

77 N.J. Super. 251, 259 (App. Div. 1962); Soricelli v. Board of Review , 46 N.J. Super. 299, 310-311 (App. Div. 1957).*fn1

As far as we can determine, the question of whether an employer may be required to refund unemployment compensation benefits withheld from a back pay award to an employee has never been decided in this State. Other jurisdictions that have considered the matter have concluded that, absent a statutory authorization permitting recourse against an employer in these circumstances, the judiciary should apply the principle of unjust enrichment. The thesis is that the purpose of the Unemployment Compensation Act and the fund created thereunder is to benefit the general public by compensating eligible and qualified employees who are unemployed; it is not intended to enrich the employer. The employer, having no title or valid claim to the compensation benefits money, thus properly may be required to refund the amount so deducted which otherwise would have ...

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