A two-year-old rule that makes it harder to collect unemployment benefits in New Jersey has been struck down in court.

On May 1, a three-judge Appellate Division panel invalidated N.J.A.C. 12:17-2.1 as arbitrary and capricious, finding it illogical and confusing and calling it a “linguistic morass, one that cannot be readily or sensibly understood and applied.”

The court gave the Department of Labor and Workforce Development (DOL), 180 days to adopt an acceptable substitute.

In the meantime, however, the rule will continue in effect because the court stayed its decision, saying it wanted to avoid disruption to the program.

The provision at issue in the case, captioned In re N.J.A.C. 12:17-2.1, defines “simple misconduct,” a term for conduct that can limit the eligibility of terminated workers to receive unemployment compensation.

The law recognizes three levels of such misconduct—simple, severe and gross, each with its own set of consequences.

Simple misconduct delays the start of benefits by eight weeks, versus one week when there is no misconduct.

Severe misconduct results in complete disqualification from benefits until the employee finds and works in a new job for at least four weeks and makes six times the weekly benefit rate.

For gross misconduct, you must work in the new job a bit longer, eight weeks, and make 10 times the weekly benefit amount.

The statute defines gross misconduct as an act that constitutes a crime of the first, second, third or fourth degree under New Jersey law.

It is far less clear what actions meet the simple or severe misconduct standard.

Initially, the law referred only to misconduct and gross misconduct but was amended in 2010, adding an intermediate category of severe misconduct, while “misconduct” became “simple misconduct.

The amendment did not define simple misconduct or severe misconduct but gave some examples of the latter: repeated violations of an employer’s rule or policy, repeated lateness or absence after a written warning; falsification of records; theft of company property; misuse of sick time; abuse of leave; excessive use of intoxicants or drugs at work; and physical assault or threats or malicious and deliberate conduct that does not rise to the level of gross misconduct.

A prior 2013 appeals court decision, Silver v. Board of Review, took a look at the 2010 amendments in overturning a decision to deny benefits based on severe misconduct.

The plaintiff, Joan Silver, was a teacher at the Middlesex County Youth Facility who was fired for repeatedly failing to collect all the pens from her students at the end of class, which was required for security purposes.

During her nine years on the job, she had come up short six times and after the sixth, she was warned she would be fired if it happened again. Six months later, she was fired over another missing pen, then denied unemployment for supposed severe misconduct, based on the repeated violation of employer policy rationale.

The Silver court reversed on the ground that the lapse did not even qualify as simple misconduct, never mind severe misconduct.

It made no sense to require intentional and malicious acts for simple misconduct while allowing mere inadvertence or negligence to suffice for severe misconduct, the judges reasoned,

They mentioned that the DOL had not yet adopted a rule to distinguish simple from severe misconduct but that there was one in the works, the one eventually adopted in 2015 and the subject of the May 1 court decision.

The rule states that “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 that 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.”

During the 2014 rulemaking process, the National Employment Lawyers Association (NELA-NJ).and attorney Alan Schorr submitted written objections to the proposed rule, as did Legal Services of New Jersey, and Schorr, who also represented Silver, spoke against it at a public hearing.

He pointed out that the rule’s definition of “simple misconduct” would “remove the requirement of maliciousness, and replace it with negligence. There was no indication that the Legislature, when it added severe misconduct in 2010, meant to lower the standard to deprive employees of benefits for making a mistake, even repeatedly, without intent to harm anyone, said Schorr.

Legal Services similarly urged that maliciousness should remain a requirement for simple misconduct and also that certain examples of severe misconduct, such as falsification of records, which could be due to carelessness, should have be more than isolated incidents to be deemed severe and disqualify from benefits, which would be “disproportionately punitive.”

Following the rule’s adoption in 2015, Schorr challenged it in court on behalf of his firm and NELA-NJ. He accused the DOL of trying to expand the definition of misconduct to disqualify as many people as possible, contrary to the legislative purpose of the law to provide a safety net to those left involuntarily jobless.

He characterized the DOL’s revised definition of misconduct to include negligence as an “end run around decades of judicial interpretation and enforcement,” including Silver.

The May 1 appeals court opinion relied heavily on and reaffirmed Silver, citing its recognition of the “critical distinction between intentional and deliberate conduct on the one hand and negligent or inadvertent conduct on the other.”

The regulations the DOL adopted in 2015 “fail to make this critical distinction between simple negligence, on the one hand, and intentional, deliberate, or malicious conduct, on the other hand, at least not consistently,” held the court. The literal wording of the rule “confusingly blends concepts of negligence with intentional wrongdoing that cannot be sensibly understood or harmonized,” wrote Judge Jack Sabatino, joined by William Nugent and Michael Haas.

The court also saw a problem in that the rule’s definition of “simple misconduct” encompassed employee actions as serious as those falling under “severe misconduct,” perhaps even more so. For example, the court termed it “difficult to comprehend how an employee who has acted with ‘evil design’ or with ‘wrongful intent’ is only guilty of simple misconduct and not severe misconduct.”

Sabatino added that the panel did not “ascribe any improper policy motives” to the DOL.

The DOL has informed him that it intends to appeal, said Schorr.

He said in an interview that his firm handles more unemployment cases than any other firm in the state and that, since the 2010 revision, the number has risen, as has the reversals.

Schorr provided as examples of negligent acts for which benefits are being denied, leaving open a jewelry case in a retail store, even though nothing was stolen, and incorrectly mixing the paint in a hardware store more than once.

The May 1 ruling marks the second time in less than two months that the Appellate Division has sided with employees on unemployment benefits in a precedential opinion.

On March 6, a different three-judge panel–Susan Reisner, Ellen Koblitz and Thomas Sumners Jr.–ruled that employees who suffered workplace discrimination need not deduct their unemployment benefits from the back pay that they recover in court as damages under the New Jersey Law Against Discrimination (LAD).

The trial court in that case, Acevedo v. Flightsafety International, had reduced the back pay damages awarded to the plaintiff by one half of the unemployment compensation he received.

The Appellate Division held that the collateral source statute does not apply to LAD claims.


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