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Lourdes Medical Center of Burlington County v. Board of Review

January 27, 2009

LOURDES MEDICAL CENTER OF BURLINGTON COUNTY, RESPONDENT-RESPONDENT AND CROSS-APPELLANT,
v.
BOARD OF REVIEW, RESPONDENT-APPELLANT AND CROSS-RESPONDENT, AND DIANE PRESTWOOD, SANDRA C. VODA, JEANNE RICHARDSON, BETH A. BENN, LIESA P. MILLINGTON, BARBARA J. MARTIN, PATRICIA A. SOZIO, EDNA E. MORRISSEY, BERNICE AMARH, DEBORAH L. SORRENTINO, KARON R. BRANCH, NANCY ZIRPIOLI, CYNTHIA L. BORGSTROM, QUETTELY G. DANASTOR, DONNA TAYLOR RIVERA, VIRGINIA L. BROWN, ANNETTE M. RIDGE, JUANITA BUSSIE, CANDACE L. WEBB, JUANITA PAYNE, CHRISTINE M. GALLAGHER, JANE E. MAHER, MARIA MIRAGLIA, PAULA M. CLARK, PEGGY A. GLASPEY, DOROTHEA D. CURTIS THOMAS, KATHLEEN C. NASTO, REGINA M. JONES, THOMAS W. BRAY, KITTY L. STOUT, DZIGBORDI A. AHIEKPOR, LINDA L. PINE, FLORENCIA A. BAKER, ROVENUS D. LITTLE, MARCI J. LYONS, PATRICIA L. BOZZI, MARYANN K. LAVERTY, NANCY KELLY, PHYLLIS M. SNOW, KATHLEEN M. MORAN, ROBERT A. WALSH, BRENDA MORRISON , MARY MAIETTA, PATRICIA A. RALPH, JOSEPHINE M. FOLZ, JOSEPH R. PARKER, KIMBERLIN J. SANSONI, PATRICIA A. MARTINO, ANNA CLARK, CAROLYN D. STEVENSON, DORIS E. ROBERTS, ANNA V. SIA, AYISHA BRYANT, MARY E. MURRAY, ROSA E. JONES, LOIS J. PRICE, CHRISTINE M. MUELLER, DEBBIE A. STEWART, MARY A. BEAUDET, SHARON M. SHEDAKER, BETH A. SLIMM, SHIRLEY J. MEGARGEE, ELEANOR A. NEUENFELDT, MILDRED E. PERRY, TERESA E. LAVERTY, CAROLYN M. RICHMAN, CAROL A. ANDERSON, SUSAN L. GARBE, SHIRLEY D. RICHARDSON, PURIFICACION C. ST. GEORGE, YSABEL L. GALICK, ANNETTE L. ZELAUSKAS, RUTH BEST, THERESA A. SCHIERS, MARY F. HANSEN, CAROL A. KINKADE, NEDINA C. JORDEN, ELIZABETH HALL, VALARIE L. STANLEY, SANDRA L. IWANICKI, MARGARET J. CLIVER, STEPHANIE J. SAMAR, STEPHANIE L. SMITH, JACQUELINE R. KIRBY, NORA DUNN, BARBARA V. JONES, REGINA HASS, MARIANNE NEWMAN, LINDA L. MAKRIS, PATRICIA A. MELCHIORRE, JOAN R. MCDOWELL, PATRICIA L. MCQUARRIE, LISA A. HALL, SUSAN STARK, SANDRALEE HEINZE, DEBORAH L. GOSS AND KATHLEEN DENTON, CLAIMANTS-RESPONDENTS AND CROSS-RESPONDENTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 394 N.J. Super. 446 (2007).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The issue before the Court is whether nurses, while on strike against Lourdes Medical Center of Burlington County (Lourdes), were entitled to unemployment benefits.

Lourdes Medical Center (Lourdes) is a 259-bed, nonprofit hospital located in Willingboro, New Jersey. Lourdes employs 2000 people and provides a wide range of medical services to the public. On April 19, 2004, approximately 240 registered nurses went on strike over work scheduling and economic issues. During this labor dispute, ninety-seven of the striking nurses filed for unemployment benefits for the period they were out of work. On June 15, 2004, a Deputy Director of the New Jersey Division of Unemployment Insurance found the striking nurses were eligible for unemployment benefits. Lourdes appealed, claiming that the nurses should have been denied benefits because they were "participating in the labor dispute."

At a hearing conducted by an appeals examiner, evidence was presented that the nurses, who were members of a union, manned picket lines during the strike. Evidence also was presented demonstrating that, despite the considerable financial difficulties produced by the strike, Lourdes continued to function at full service. Lourdes found replacement nurses, maintained its patient and employee census, and did not curtail its hospital procedures.

The appeals examiner looked to the governing statute N.J.S.A. 43:21-5(d), and regulation, N.J.A.C. 12:17-12.2(a)(2), to determine whether Lourdes suffered a "stoppage of work." N.J.S.A. 43:21-5(d) provides that an individual is disqualified from receiving unemployment benefits if her "unemployment is due to a stoppage of work which exists because of a labor dispute at the factory, establishment or other premises" where she was employed.

N.J.A.C. 12:17-12.2(a)(2) defines a "stoppage of work" as a "substantial curtailment of work which is due to a labor dispute." That regulation also provides that "[a]n employer is considered to have a substantial curtailment of work if not more than 80 percent of the normal production of goods or services is met."

Despite the "great cost" to the hospital caused by the strike, the appeals examiner concluded that there was not a "stoppage of work" as defined by N.J.A.C. 12:17-12.2(a)(2) or N.J.S.A. 43:21-5(d). The examiner, rejecting Lourdes' argument that the regulation "should not apply to a hospital's production," held that the striking nurses were entitled to unemployment benefits. The Board of Review affirmed the decision of the appeals examiner.

The Appellate Division reversed the decision of the Board of Review, finding that the Board failed to consider "the financial expense to which the hospital was put to maintain normal levels of service to the community" in assessing whether a "stoppage of work" had occurred.

The Supreme Court granted certification.

HELD: A loss of revenue attributable to the strike that does not result in a substantial curtailment of work at the hospital is not the equivalent of a "stoppage of work." Thus, the Board of Review did not act arbitrarily or capriciously in concluding that Lourdes Medical Center did not suffer a "stoppage of work" within the intendment of N.J.S.A. 43:21-5(d). Accordingly, the striking nurses qualify for unemployment benefits.

1. The Unemployment Compensation Law does not define the phrase "stoppage of work." In the years since the law's passage, our courts and the Board of Review have rejected a literal interpretation of the term; the stoppage need not be complete, it will suffice if there has been a substantial curtailment of operations. Consistent with the approach taken both in our case law and by the Board of Review, the New Jersey Department of Labor promulgated N.J.A.C. 12:17-12.2(a)(2), which provides that a "stoppage of work" means a "substantial curtailment of work which is due to a labor dispute." The regulation further defined the set by providing that a substantial curtailment of work occurs if not more than 80 percent of the normal production of goods or services is met. (Pp. 15-20)

2. This State has held fast to the work-stoppage rule for more than seventy years. In concluding that the very act of going out on strike is a work stoppage, thereby making striking workers always ineligible for unemployment benefits, the dissenting member ignores this State's case law, Board of Review decisions, and the overwhelming weight of authority in this country construing provisions similar to N.J.S.A. 43:21-5(d). Ultimately, the dissenting member of the Court would substitute his own policy choices for those made by the Legislature in 1936. (Pp. 21-25)

3. The Court's appellate authority is limited to determining whether the agency acted arbitrarily, capriciously, or unreasonably. There are four factors relied on to assess whether an agency acted within the scope of its authority. Only two of those factors are relevant here: whether the Board's decision violates expressed or implied legislative policies; and when applying the legislative policy expressed in N.J.S.A. 43:21-5(d), whether the Board's finding is not supported by sufficient credible evidence in the record. Ordinarily, substantial deference is given to the agency's interpretation of the statute it is charged with enforcing. (Pp. 25-27)

4. Contrary to Lourdes' policy argument, N.J.S.A. 43:21-5(d) enables ordinary workers, who otherwise could not afford to leave work to protest for increased wages or decent working conditions, the lifeline of unemployment benefits so long as there is no stoppage of work at their place of employment. The statute has no exemptions and does not rank in terms of importance the industry or profession. It is fair to conclude that the Legislature that enacted N.J.S.A.43:21-5(d) understood that a strike would have a negative impact on the revenue of an employer involved in a labor dispute. If lost revenue were the test under the statute, there would be a work stoppage in almost every case. Had the Legislature intended a business's loss of financial revenue to constitute a stoppage of work, it would have said so in the statute. Thus, the Board of Review's decision not to measure lost revenue in deciding whether a "stoppage of work" occurred did not violate any of the express or implied legislative policies of N.J.S.A. 43:21-5(d). (Pp. 27-36)

5. The Court must defer to the Board of Review when its factual findings are based on substantial credible evidence in the record. The Board found that despite the hospital's costs incurred in hiring replacement nurses, its loss of revenue, and any temporary delay in receipt of grants, it maintained the same quality of services to the public. Those findings are based on sufficient credible evidence in the record. As such, the Board of Review's holding that Lourdes had not suffered a substantial curtailment of work that would disqualify the striking nurses from receiving unemployment benefits is entitled to deference and should not have been disturbed. (Pp. 36-38)

Judgment of the Appellate Division is REVERSED and the decision of the Board of Review is REINSTATED.

JUSTICE RIVERA-SOTO, DISSENTING, is of the view that by upholding the award of unemployment benefits to striking nurses, the majority upends the commonsense notion that striking employees have left their employment voluntarily and, hence, should be disqualified from unemployment compensation benefits. Justice Rivera-Soto finds the majority's determination (1) runs contrary to the basic premises of the Unemployment Compensation Law, N.J.S.A. 43:21-1 to -24.30; (2) misapprehends the import of the disqualification provisions of that Law, N.J.S.A. 43:21-5(d); and (3) ignores stark economic reality.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, WALLACE and HOENS join in JUSTICE ALBIN'S opinion. JUSTICE RIVERA-SOTO filed a separate dissenting opinion.

The opinion of the court was delivered by: Justice Albin

Argued September 9, 2008

In this appeal, we must determine whether nurses, while on strike against Lourdes Medical Center of Burlington County (Lourdes), were entitled to unemployment benefits. N.J.S.A. 43:21-5 provides that striking workers are entitled to unemployment benefits, except when the strike causes a "stoppage of work" at their place of employment. The question is what constitutes a "stoppage of work" for purposes of N.J.S.A. 43:21-5(d).

Despite the considerable financial difficulties produced by the strike, Lourdes continued to function at full service. It found replacement nurses, maintained its patient and employee census, and did not curtail its hospital procedures. On that basis, the Board of Review (Board) concluded that Lourdes did not suffer a "stoppage of work" within the intendment of the statute and granted unemployment benefits to the striking nurses. The Appellate Division reversed because the Board did not consider, in determining whether a work stoppage occurred, "the financial expense to which the hospital was put to maintain normal levels of service to the community." Lourdes Med. Ctr. v. Bd. of Review, 394 N.J. Super. 446, 467 (App. Div. 2007). We now hold that the Appellate Division erred in not deferring to the findings of the Board. We also conclude that loss of revenue attributable to the strike, which does not result in a substantial curtailment of work at the hospital, is not the equivalent of a "stoppage of work." Accordingly, we reverse the Appellate Division and reinstate the Board's decision to grant the striking nurses unemployment benefits.

I.

A.

Lourdes Medical Center is a 259-bed, nonprofit hospital located in Willingboro, New Jersey, employing 2000 people and providing a wide range of medical services to the public. On April 19, 2004, approximately 240 registered nurses, who had been working without a contract for almost two months, went on strike over work scheduling and economic issues.

While the labor dispute was ongoing, ninety-seven of the striking nurses filed for unemployment benefits for the period they were out of work. On June 15, 2004, a Deputy Director of the New Jersey Division of Unemployment Insurance found the striking nurses eligible for benefits. Lourdes appealed, claiming that the nurses should have been denied benefits because they were "participating in a labor dispute."

At a hearing conducted by an appeals examiner (also known as the Appeal Tribunal), evidence was presented that the nurses, who were members of a union,*fn1 manned picket lines at the hospital's five entrances during the strike.*fn2 In response to the strike, the hospital at first hired replacement nurses, which increased by about $1 million per month the total cost for nursing staff. Later, Lourdes hired new nurses on a permanent basis. Management costs generally increased during the strike. For example, the hospital had to hire additional security guards and its public relations personnel were diverted from handling usual matters to focus full-time energies on strike-related activities. Additionally, the receipt of a $750,000 obstetrics department grant and the opening of a new laboratory were temporarily delayed. Before the strike, operational losses for the hospital were $600,000 per month, and afterward losses rose to between $1.4 and $1.75 million per month. In 2004, the hospital's losses were projected to exceed those of 2003 by $8 million.

Despite the strike, the hospital remained in full operation. The hospital's patient census remained stable, its hours of operation did not change, it did not curtail medical procedures in any department, and it found no need to discharge staff. Indeed, in a series of published letters issued during the strike, Lourdes repeatedly assured the community that there was no decline in the quality of services offered by the hospital. Several weeks into the strike, Lourdes reported that doctors serving on the Medical Executive Committee viewed "nursing care at the hospital [as] 'excellent' and patient care '[as having] never been better.'" In the fifth week of the strike, Lourdes was "pleased to report that hospital operations continue to run smoothly." In a letter to registered nurses, approximately nine weeks after the inception of the labor dispute, Lourdes insisted that the "hospital has been able to maintain operations and continue to provide quality care to the community." Despite the sunny face it portrayed in those letters, Lourdes claimed at the Appeal Tribunal hearing that the strike required a public relations offensive to counteract rumors that it might close.

At the hearing, Lourdes emphasized that because a hospital is highly regulated by the state, it could not simply close its doors due to mounting financial losses without first engaging in a lengthy and complex legal process to obtain the issuance of a certificate of need from the Commissioner of Health and Senior Services. Lourdes argued that it should not be forced to "subsidize" a strike that was placing it in "severe financial distress."

To determine whether the hospital suffered a "stoppage of work" under N.J.S.A. 43:21-5(d) and N.J.A.C. 12:17-12.2(a)(2), the appeals examiner looked to the governing statute and regulation. N.J.S.A. 43:21-5(d) provides that an individual is disqualified from receiving unemployment benefits if her "unemployment is due to a stoppage of work which exists because of a labor dispute at the factory, establishment or other premises" where she was employed. N.J.A.C. 12:17-12.2(a)(2) defines "'[s]toppage of work' [as] a substantial curtailment of work which is due to a labor dispute." That regulation also provides that "[a]n employer is considered to have a substantial curtailment of work if not more than 80 percent of the normal production of goods or services is met."*fn3 Ibid.

With those legal principles in mind, the appeals examiner noted that, during the strike, the hospital "operate[d] at normal occupancy levels" without a decrease in the census of patients, "did not reduce the medical procedures or services provided to the public," and "maintain[ed] all of the same quality services to the public." The appeals examiner took into account that Lourdes incurred a cost of $1 million per month to replace the striking registered nurses with agency nurses and "hired approximately 40 new nurses." One-third of the striking nurses had returned to work by the date of the hearing.

Despite the "great cost" to the hospital caused by the strike, the appeals examiner concluded that there was not a "stoppage of work" as defined by N.J.A.C. 12:17-12.2(a)(2) or N.J.S.A. 43:21-5(d). The examiner rejected Lourdes' argument that the regulation "should not apply to a hospital's production." Therefore, the examiner held that the striking nurses were entitled to unemployment benefits.

The Board of Review affirmed the decision of the appeals examiner.

B.

The Appellate Division reversed the Board of Review and remanded to the Board for consideration of "whether the financial expense to which the hospital was put to maintain normal levels of service to the community, including its net revenue, constitutes a stoppage of work within the meaning and intendment of the statute and regulation here at issue." Lourdes Med. Ctr., supra, 394 N.J. Super. at 467. In reaching that decision, the appellate panel nevertheless upheld the validity of N.J.A.C. 12:17-12.2(a)(2), finding that the application of the regulation's "eighty-percent rule" to a hospital was consistent with the "statutory scheme and the public policy supporting it" and therefore was neither arbitrary nor capricious. Id. at 461-62. Significant to the panel's determination was that the hospital, as a regulated entity, had no choice but to hire replacement nurses and remain in full operation, given that a shutdown could take as long as a year. Id. at 467.

The panel compared the present case to the unreported Appellate Division opinion in Dominicus v. Board of Review (Amergen), No. A-3352-04T2 (App. Div. Jan. 2, 2007). Amergen involved a ten-week union strike at the American Energy Company, a nuclear-powered electric-generating facility where 219 of 439 workers withheld their services. Lourdes Med. Ctr., supra, 394 N.J. Super. at 456, 464-67. In Amergen, in measuring what constituted "'normal production of goods and services,'" the Board of Review's focus was not solely on whether the nuclear power plant generated electricity at full capacity. Id. at 465. Rather, in considering whether a "stoppage of work" occurred during the strike, the Board noted that "the workforce was only able to complete fifty to sixty percent of the work normally done" and that "projects were reduced, postponed or left undone during the strike." Id. at 464-65. Based on those facts, the Board concluded that the power plant had experienced "a substantial curtailment of work" and therefore a work stoppage. Id. at 465.

In drawing a parallel to Amergen, the appellate panel found that although Lourdes remained in full operation during the strike, its "routine work processes and projects were reduced, postponed or left undone" and it incurred "significant financial deficits directly attributable to the cost of securing replacement nurses." Id. at 466.

Relying, in part, on case law in other jurisdictions, the panel was "persuaded that revenue is a factor that must be considered in determining whether there was a stoppage of work as a result of a labor dispute." Id. at 467. Because "there was no statistical analysis provided analyzing the effect of [the hospital's] reductions and establishing that the net revenue was reduced by twenty percent or more," id. at 466-67, the matter was remanded to the Board for further review, id. at 467.

We granted the Board of Review's petition and Lourdes' cross-petition for certification. 193 N.J. 222-23 (2007). We also granted the New Jersey Hospital Association's motion to participate as amicus curiae.

II.

The Board of Review argues that the Appellate Division, by substituting its own policy judgments for the Board's findings of fact and law, violated the deferential standard of review that is owed to the agency responsible for administering the statutes and regulations governing the unemployment compensation system. The Board contends that striking workers are statutorily guaranteed unemployment benefits unless the labor dispute causes the employer to suffer a "substantial curtailment of work," N.J.A.C. 12:17-12.2(a)(2). That test, according to the Board, encompasses a consideration of "the impact of the labor dispute on the employer's overall work processes." Applying its agency expertise to that test, the Board concluded that Lourdes did not suffer a "stoppage of work."

The Board points out that a strike intended to redress workers' grievances, by its very nature, will necessarily "cause financial harm to the employer." By making "financial impact the primary determinant of the existence of a work stoppage," the Appellate Division's decision will effectively strip striking workers of unemployment benefits in most cases -- even when the business remains in full operation -- and force the unemployment agency "to engage in complex, time-consuming inquiries into the employer's financial status." In the Board's judgment, "the stoppage of work test" is "clearly directed at the employer's operations, not the financial harm suffered by the employer," and therefore "financial impact should not be a material factor" in that test.

The striking nurses join in the arguments advanced by the Board, adding that Lourdes made a strategic business decision not to curtail its patient care operations in order to defend its "market share" against four competing area hospitals. By maintaining its normal operations and engaging in an "aggressive advertising campaign," Lourdes ensured not only "the continued flow of government funding," but also that the hospital would remain a going concern. Additionally, the nurses emphasize that although the State may have temporarily postponed a $750,000 grant to the obstetrics department, the government bankrolled the hospital through the "unimpeded flow of Medicare and Medicaid funding." Loss of growth opportunities and even loss of revenue, according to the nurses, do not constitute "a stoppage of work" under the applicable statute and regulation.

Lourdes responds with a two-fold argument. First, it argues that the Appellate Division correctly ruled that the Board misapplied its own work processes test devised in Amergen. Lourdes submits that under the flexible work processes test a "stoppage of work" occurred at the hospital. The hospital satisfied that test, it insists, because the entire nursing staff walked off the job and "routine work processes and projects were reduced, postponed, or left undone during the strike." Lourdes maintains that the Board should not have looked narrowly at patient census -- the production of goods or rendering of services -- as the sole measure of determining whether a work stoppage occurred. Because a hospital is responsible for delivering uninterrupted, quality healthcare, the Board should have analyzed lost revenue and profitability under the work processes test in assessing whether the striking nurses caused a work stoppage.

Second, it contends that the Appellate Division erred in not invalidating N.J.A.C. 12:17-12.2(a)(2), which provides that "[a]n employer is considered to have a substantial curtailment of work if not more than 80 percent of the normal production of goods or services is met." Lourdes maintains that the regulation is an arbitrary guideline inconsistent with its enabling statute. Lourdes states that the regulation does not account for the impact of a strike on the normal operations of a hospital, which cannot simply close its doors. It disagrees that financial inquiries into the economic livelihood of the business will be complex and time-consuming, and also complains that the regulation "has the effect of arbitrarily requiring a hospital to fund a strike against it[self]," thus violating the public policy of "State neutrality in labor disputes."

Amicus Curiae New Jersey Hospital Association echoes the positions articulated by Lourdes. The Association believes that the Appellate Division correctly considered net revenue to be "one important factor" in analyzing whether there was a substantial curtailment of work under the work processes test. The Association also considered the "eighty percent rule" embodied in N.J.A.C. 12:17-12.2(a)(2) to be an arbitrary and capricious formula that "precludes a holistic review of the impact of a strike on an employer's normal overall operations." According to the Association, ...


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