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In re N.J.A.C. 12:17-2.1.

Superior Court of New Jersey, Appellate Division

May 1, 2017

IN RE N.J.A.C. 12:17-2.1.

          Argued March 6, 2017

         On appeal from a regulation promulgated by the New Jersey Department of Labor and Workforce Development.

          Alan H. Schorr argued the cause for appellants Schorr & Associates, P.C. and National Employment Lawyers Association -New Jersey (Schorr & Associates, P.C., attorneys; Mr. Schorr, on the briefs).

          Alan C. Stephens, Deputy Attorney General, argued the cause for respondent New Jersey Department of Labor and Workforce Development (Christopher S. Porrino, Attorney General, attorney; Melissa Dutton Schaffer, Assistant Attorney General, of counsel; Mr. Stephens, on the brief).

          Before Judges Sabatino, Nugent and Haas.

          OPINION

          SABATINO, P.J.A.D.

         The heart of this appeal involves a challenge to the validity of a regulation, N.J.A.C. 12:17-2.1, adopted in 2015 by the Department of Labor and Workforce Development ("the Department"). In that regulation, the Department defines, for the first time in codified form, the concept of "simple misconduct" by an employee that can limit his or her eligibility for unemployment benefits under the Unemployment Compensation Act ("the Act"), N.J.S.A. 43:21-1 to -56. The Department's adoption of the regulation attempted to respond to concerns this court expressed in Silver v. Board of Review, 430 N.J.Super. 44 (App. Div. 2013), regarding the need for a codified rule that distinguishes "simple misconduct" from the more stringent intermediate concept of "severe misconduct" as defined by the Legislature in a 2010 amendment to N.J.S.A. 43:21-5(b), or the most extreme category of "gross misconduct" defined in the statute.

         For the reasons that follow, we invalidate the portion of the challenged regulation defining simple misconduct. We do so because the definition illogically and confusingly mixes in concepts of "negligence" with intent-based concepts such as "willful disregard, " "evil design, " "wrongful intent, " and similar states of mind. The regulation is also flawed because, as explained in this opinion, it defines "simple misconduct" in certain respects as encompassing employee conduct that is at least as extreme or venal - or perhaps more so - than "severe misconduct."

         Consequently, the Department's final agency action adopting the definition of simple misconduct within N.J.A.C. 12:17-2.1 must be set aside as arbitrary and capricious.[1] We do so without prejudice to the Department pursuing the adoption of a substitute regulation that cures these defects and conforms with the overall statutory scheme.

         I.

         A.

         The framework and history of the statute and related case law dating back to 1936 is eloquently set forth in Judge Lisa's opinion in Silver, supra, 430 N.J.Super. at 48-56. We incorporate by reference that background here. Some highlights from Silver bear repeating.

         To begin with, we detailed in Silver:

From its inception in 1936 until 2010, New Jersey's Unemployment Compensation Law has provided for disqualification for benefits for employees discharged for "misconduct" or "gross misconduct" connected with the work. N.J.S.A. 43:21-5(b); see L. 1936, c. 270, § 5. The statute defines "gross misconduct" as "an act punishable as a crime of the first, second, third or fourth degree, " but it does not define the term "misconduct." Ibid. Appropriately, the sanctions for gross misconduct are greater than for simple misconduct. Ibid.
In 2010, the Legislature added a third category in section 5(b), "severe misconduct." L. 2010, c. 37, § 2, eff. July 1, 2010. As we will explain, this was intended as an intermediate form of misconduct, requiring greater culpability than simple misconduct, but less than gross misconduct, and with an intermediate level of disqualification from collecting unemployment benefits. The amendatory provision does not define severe misconduct, but contains a non-exclusive list of examples. See N.J.S.A. 43:21-5(b).[2]
[Silver, supra, 430 N.J. Super, at 48-49.]

         As we then explained in Silver, case law has attempted to fill in the gap left by the omission from the Act of an express definition of "simple misconduct":

In 1956, our Supreme Court held that employees were guilty of misconduct for engaging in a work stoppage, in violation of a no-strike clause in their collective bargaining agreement, which provided that the employer shall immediately discharge any employee in violation of the clause. Bogue Elect. Co. v. Bd. of Review, 21 N.J. 431, 433-34 (1956). Without attempting to define "misconduct" broadly, the Court held that a deliberate breach of the collective bargaining agreement could not be deemed a circumstance causing involuntary unemployment, the hazard intended by the Legislature to be protected against, and thus, within the spirit and policy of the unemployment law, it constituted misconduct. Id. at 436.
A few months later, a panel of this court was confronted with a similar situation, in which employees were fired as a result of a work stoppage, but in which the collective bargaining agreement did not contain a no-strike provision. Beaunit Mills, Inc. v. Bd. of Review, 4 3 N.J.Super. 172, 176-80 (App. Div. 1956), certif. denied, 23 N.J. 579 (1957). Because of that material factual distinction, the panel was required to define "misconduct" within the meaning of the unemployment law. It did so thusly:
[Silver, supra, 430 N.J. Super, at 49.]

         We then quoted in Silver from the following instructive passages found in Beaunit Mills:

What does the statutory [term] misconduct signify? Obviously it cannot mean "mere mistakes, errors in judgment or in the exercise of discretion, or minor but casual or unintentional carelessness or negligence, and similar minor peccadilloes." It cannot mean mere inefficiency, unsatisfactory conduct, failure of performance as the result of inability or incapacity, inadvertence in isolated instances, or good faith errors of judgment. Boynton Cab Co. v. Neubeck, 237 Wis. 249, 296 N.W. 636 (1941); Kempfer, Disqualifications for Voluntary Leaving & Misconduct, 55 Yale Law J. 147, 162-166 (1945). In our opinion, the statement in 4 8 Am. Jur., Social Security, Unemployment Compensation, etc., § 38 at 541 (1943), suggests the fair intendment of the statute:
[Silver, supra, 430 N.J. Super, at 49-50 (quoting Beaunit Mills, supra, 43 N.J. Super, at 182). ]

         At this point, as we further noted in Silver, Beaunit Mills quoted this portion of the Am. Jur. treatise:

Misconduct within the meaning of an unemployment compensation act excluding from its benefits an employee discharged for misconduct must be an act of wanton or willful disregard of the employer's interest, a deliberate violation of the employer's rules, a disregard of standards of behavior which the employer has the right to expect of his employee, or negligence in such degree or reoccurrence as to manifest culpability, wrongful intent, or evil design, or show an intentional and substantial disregard of the employer's interest or of the employee's duties and obligations to the employer.
[Id. at 50 (quoting Beaunit Mills, supra, 43 N.J. Super, at 183 (quoting 48 Am. Jur. §38 at 541)).]

         Silver then explained:

Applying those principles, we held [in Beaunit Mills] that, because the employees "were engaged in a concerted activity in good faith for their mutual aid and protection, " and with an "absence of evil intent or willful desire to injure the employer, " under all of the circumstances, the employees were not guilty of misconduct connected with the work within the meaning of section 5(b). Id. at 183, 185.
Subsequent case law, although sparse, has made clear that the Beaunit Mills standard for defining misconduct is not limited to a literal and isolated reading of the Am. Jur. passage quoted above. The definition also includes the discussion in Beaunit Mills preceding the Am. Jur. passage we have also quoted.
[Silver, supra, 430 N.J. Super, at 48-50 (emphasis added).]

         Our opinion in Silver went on to distill guiding principles from several reported New Jersey cases that have applied Beaunit Mills. In particular, Silver noted, id. at 50, that in Demech v. Board of Review, 167 N.J.Super. 35 (App. Div. 1979), we reversed the Department's denial of benefits to a supermarket employee who had thrown a roast at a co-worker out of frustration and anger caused by the co-worker's inappropriate conduct towards her. "Because the employee's conduct was provoked by the co-employee, was unthinking and spontaneous, and was not intended to and did not cause injury to the co-employee, it did not qualify as misconduct under the Beaunit Mills standard." Silver, supra, 430 N.J. Super, at 51 (citing Demech, supra, 167 N.J. Super, at 38-39). In this regard, Silver quoted this key passage from our opinion in Demech: "All that the statute undertakes to penalize is deliberate and willful disregard of standards of conduct an employer has a right to expect." Ibid, (emphasis added) (quoting Demech, supra, 167 N.J. Super, at 41).

         Silver next addressed our opinion in Smith v. Board of Review, 281 N.J.Super. 426 (App. Div. 1995), a case in which a hospital orderly was discharged for misconduct because he had brought food to a pre-surgery patient, contrary to a nurse's instructions. Silver, supra, 430 N.J. Super, at 51 (citing Smith, supra, 281 N.J. Super, at 428). The majority of this court's panel in Smith upheld the denial of benefits because the orderly's behavior amounted to "a 'willful disregard of the employer's best interest, ' thus constituting misconduct." Ibid. (emphasis added) (quoting Smith, supra, 281 N.J. Super, at 430). The third member of the panel dissented in Smith, because he regarded the evidence as insufficient to support a "willful disregard" of the hospital employer's policies, and instead signified "only negligent" conduct. Ibid, (citing Smith, supra, 281 N.J. Super, at 438 (Brochin, J.A.D., dissenting)). We explained in Silver that this split within the Smith panel illustrates "[t]he critical distinction between intentional and deliberate conduct on the one hand and negligent or inadvertent conduct on the other[.]" Ibid, (emphasis added).

         As a further example of "the need for deliberate or intentional conduct" to be proven to disqualify an employee for benefits, Silver also discussed Parks v. Board of Review, 405 N.J.Super. 252 (App. Div. 2009). Id. at 51-52. In Parks, the claimant was terminated from his job because of what was deemed to be "excessive absenteeism" after four absences from work. Id. at 52. The record in Parks reflected that all four absences had been occasioned by family illnesses or emergencies. Ibid. (citing Parks, supra, 405 N.J. Super, at 255). Given these circumstances, this court reversed the Department's denial of benefits to Parks, applying the Beaunit Mills standard. Ibid. (citing Parks, supra, 405 N.J. Super, at 254).

         As we highlighted in Silver, the panel in Parks observed that disqualification for benefits under the Act "is warranted only when the employee's conduct that resulted in his or her discharge had the ingredients of willfulness, deliberateness and intention." Ibid, (internal citations omitted). "[B]ecause the employee's absences were the result of excusable circumstances, they could not meet the BeaunitMills standard of deliberateorintentionalviolations of the ...


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