New Jersey Appellate Court Invalidates Department of Labor and Workforce Regulation Affecting Eligibility of Unemployment Benefits

Paula Lopez, May 5, 2017.

In a challenge by a New Jersey law firm and the National Employment Lawyers Association to N.J.A.C. 12:17-2.1, a 2015 regulation passed by the Department of Labor and Workforce defining employee conduct that renders him or her ineligible to receive unemployment benefits following termination, the  New Jersey Appellate Division ruled that the Department’s attempt to define “simple misconduct,” and distinguish it from behavior amounting to “severe misconduct” and “gross misconduct,” is arbitrary and capricious and therefore invalid.

A worker in New Jersey fired from their job can be disqualified from receiving employment benefits if it is determined that the termination was due to employment related misconduct. The disqualification period for simple misconduct begins the week of the termination and continues for the next seven weeks.  After this period, the employee may be eligible to begin collecting unemployment benefits.  For severe misconduct, an employee is ineligible for benefits indefinitely and will only become eligible to receive unemployment benefits in connection with the loss of a subsequent job if they worked in the new job for four weeks and earned six times the weekly benefit amount, and lost the new job through no fault of their own.  Termination for gross misconduct (which is any conduct serious enough to constitute a crime), disqualifies an employee indefinitely and the employee can only become eligible after finding new employment and working in the new job for at least eight weeks, earning ten times the weekly benefit amount, and becoming unemployed through no fault of their own.

Despite having a tiered system for determining eligibility for unemployment benefits prior to the 2015 amendments, the Department of Labor and Workforce never defined the concept of “simple misconduct” to provide a clear distinction between mere negligence that should not disqualify an employee from receiving benefits, more deliberate conduct that amounts to simple misconduct, or more egregious severe or gross misconduct.  The New Jersey Appellate Division called attention to this void in its decision in Silver v. Board of Review, 430 N.J. Super. 44 (App. Div 2013), in which it reversed an agency determination disqualifying a terminated employee from receiving unemployment benefits because there was insufficient evidence to support a finding that the employee engaged in “severe” misconduct or even simple misconduct.

In an attempt to fill the void highlighted by the Appellate Division in Silver, the Department of Labor promulgated regulations in 2015 containing the following definitions:

’Gross Misconduct’ means an act punishable as a crime of the first, second, third or fourth degree under the New Jersey Code of Criminal Justice…

’Misconduct’ means simple misconduct, severe misconduct, or gross misconduct.

’Severe misconduct’ means an act which constitutes ‘simple misconduct,’ as that term is defined in this section; (2) is both deliberate and malicious; and (3) is not gross misconduct.

’Simple misconduct’ means an act which is neither ‘severe misconduct’ nor ‘gross misconduct’ and which is 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 the employer has the right to expect of his or her employee, or negligence in such degree or recurrence 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.

In reviewing the validity of the regulation’s definition of “simple misconduct,” the Appellate Division noted that while “duly-enacted regulations start off with a presumption of validity, courts are empowered to set them aside where they are shown the be ‘unreasonable or irrational’“ because “[t]he public is entitled to be guided by regulations that are clear, understandable, and reasonably predictable in uniform application.”

Having applied the “narrow and deferential” standard of review by which courts commonly review an agency’s adoption of a regulation, the court found that the regulation’s definition of “simple misconduct” fails “to make [a] critical distinction between simple negligence, on the one hand, and intentional, deliberate, or malicious misconduct, on the other hand,” thereby conflating concepts of negligence with intentional acts to such an extent that discerning what behavior would amount to simple misconduct instead of the more egregious severe misconduct or gross misconduct is impossible to be “sensibl[y] understood or harmonized.”   The court recognized the possibility that the Department was attempting to represent the concept of “gross negligence” into the definition of “simple misconduct” but rather than engage in “judicial surgery,” the court set aside the definition of “simple misconduct” as arbitrary and capricious without prejudice and afforded the Department 180 days to adopt a substitute provision.   The court, on its own motion, stayed the decision for the 180-day period to avoid a disruption to New Jersey’s unemployment benefits program.  However, while the Department undertakes to make the necessary clarifications, employers should be wary in challenging an employee’s eligibility to benefits under the existing definition of “simple misconduct.”