Silver v. Board of Review, A-1750-11T3; Appellate Division; opinion by Lisa, J.A.D., retired and temporarily assigned on recall; decided and approved for publication March 21, 2013. Before Judges Ashrafi, Hayden and Lisa. On appeal from the Board of Review, Department of Labor, No. 327,102. DDS No. 25-2-9346 [21 pp.]

This appeal requires a determination whether "severe misconduct," within the meaning of New Jersey’s Unemployment Compensation Law, disqualified appellant from receiving unemployment compensation benefits.

Appellant Joan Silver appeals from a final decision of the Board of Review, which affirmed an Appeal Tribunal determination that she was disqualified for benefits under N.J.S.A. 43:21-5(b) because her discharge from employment was for severe misconduct connected with the work. Appellant argues that the board applied an incorrect legal standard and that, under the correct standard, her conduct did not constitute "misconduct," and therefore could not constitute "severe misconduct."

From February 2002 to February 2011, appellant was a full-time teacher at the Middlesex County Youth Facility. Appellant was required to account for all of the pens given to students before the students were released from the classroom. This was important for security purposes because the pens could be used as weapons. If it were discovered that a pen was missing, the teacher was required to report this immediately to a security officer. On Feb. 23, 2011, at the conclusion of a class, appellant realized that one pen was missing. She immediately notified security. The missing pen was never found.

Over the years, appellant had committed this same infraction six previous times, most recently six months before this incident. After the sixth infraction, she was warned that if it happened one more time, she would be terminated, which she was for the Feb. 23, 2011, infraction.

The deputy determined that appellant was disqualified for benefits because her discharge was for severe misconduct. The appeals examiner upheld the deputy’s determination. Without discussion, the board expressed its agreement with the Appeal Tribunal and affirmed its decision.

Held: In the absence of deliberate conduct, the Board of Review’s finding of "severe misconduct," a new intermediate level of misconduct added to N.J.S.A. 43:21-5(b) by a 2010 amendment, is reversed.

From its inception in 1936, New Jersey’s Unemployment Compensation Law has provided for disqualification for benefits for employees discharged for "misconduct" or "gross misconduct" connected with the work. 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." In 2010, the Legislature added a third category in § 5(b), "severe misconduct." This was intended as an intermediate form of misconduct, with an intermediate level of disqualification from collecting unemployment benefits. The amendatory provision does not define severe misconduct, but contains a nonexclusive list of examples.

The Appellate Division in Beaunit Mills Inc. v. Bd. of Review defined "misconduct" within the meaning of the unemployment law as "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." Disqualification under N.J.S.A. 43:21-5(b) is warranted only when the employee’s conduct that resulted in his or her discharge had the ingredients of willfulness, deliberateness and intention.

The Department of Labor and Workforce Development promulgated a rule in 2003 defining misconduct. By its plain terms, this rule prescribes a two-prong standard. First, the conduct must be improper, intentional, connected with the work, malicious, and within the employee’s control. Second, the conduct must also be either a deliberate violation of the employer’s rules or a disregard of the standards of behavior that the employer has the right to expect. The department has not yet adopted new regulations to distinguish simple misconduct from severe misconduct. Thus, the definition contained in N.J.A.C. 12:17-10.2(a), the rule defining misconduct, controls, except to the extent it is superseded by the 2010 amendment.

Two of the examples of severe misconduct listed in the 2010 amendment describe, if read literally, conduct that would not necessarily be deliberate, intentional or malicious ("repeated violations of an employer’s rule or policy" and "repeated lateness or absences after a written warning"). However, in light of the history, the governor and Legislature intended to create severe misconduct as a gap-filler between simple misconduct and gross misconduct. Therefore, the two examples must be construed as requiring acts done intentionally, deliberately and with malice. This interpretation comports with the amended statutory scheme.

In this case, the Appeal Tribunal does not mention of N.J.A.C. 12:17-10.2(a) and its requirement that the conduct be intentional, deliberate and malicious. The factual findings of the appeals examiner, adopted by the board, do not include a finding of intentional or deliberate conduct or malicious intent. Nor did the appeals examiner find that appellant intentionally or deliberately disregarded the employer’s rule. The record would not support such a finding. It is clear that appellant’s conduct was a result of negligence or inadvertence, not intentional or deliberate disregard of the employer’s rule.

Under the correct Beaunit Mills analysis, appellant’s conduct did not constitute misconduct because it lacked the requisite elements of willfulness, deliberateness, intention and malice. More important, her conduct did not satisfy the agency’s own definition of misconduct, and which appears to express the Beaunit Mills standard. Because under the controlling legal definition, there was no misconduct, of necessity there could be no severe misconduct.

The board ignored its own regulation defining "misconduct." Instead, it applied its view of the Beaunit Mills standard, which was erroneous. The appellate panel reverses, concluding that the legal error underpinning the board’s action rendered its action arbitrary and contrary to the applicable statutory and regulatory provisions.

For appellant — Alan H. Schorr (Zachary R. Wall on the briefs). For respondents: County of Middlesex — Benjamin D. Leibowitz, Deputy County Counsel (Thomas F. Kelso, County Counsel); Board of Review — Jeffrey S. Chiesa, Attorney General (Alan C. Stephens, Deputy Attorney General, on the statement in lieu of brief).