Mental states and 'misconduct': the Supreme Court of Missouri interprets an important disqualification from unemployment benefits.

• Author: Stair, Brian

Fendler v. Hudson Services, 370 S.W.3d 585 (Mo. 2012) (en banc)

1. INTRODUCTION

   Unemployment insurance has been part of America's social and economic tradition for several decades. (1) A significant increase in the number of unemployed Americans during the Great Depression led to the passage of the Social Security Act of 1935, which "established a system of state and federal unemployment insurance laws." (2) Stemming from Title IX of the Social Security Act, the Missouri Unemployment Compensation Law was enacted in 1937 (3) and imposed on employers a duty to pay taxes (contributions), beginning in January 1939, from which benefit payments would be made to qualified claimants. (4) Today, this set of unemployment insurance laws is known as Missouri Employment Security Law (MESL). (5)

   In 2011, over 500,000 initial unemployment claims were filed with the Division of Employment Security (DES), a branch of the Missouri Department of Labor and Industrial Relations. (6) During that year, more than $710 million in unemployment insurance benefits were paid, and more than 42,000 appeals were filed following DES determinations. (7) In September 2012, Missouri had an unemployment rate of 6.9%, and more than 25,000 initial unemployment claims were filed in that month alone. (8) Overall, nearly 80,000 people received unemployment insurance benefits in September. (9)

   Under MESL, claimants are disqualified from receiving unemployment benefits if they were terminated for "misconduct" connected with their work. (10) Although MESL provides a definition of what type of behavior constitutes "misconduct," (11) Missouri appellate courts review decisions regarding the granting and denial of unemployment benefits, (12) and these courts have provided judicial interpretations of this statutory definition. Obviously, such interpretations have a practical effect on who does and does not qualify for and receive unemployment insurance payments. Furthermore, the potential effects of these decisions have practical implications in the realm of public policy. (13)

   Fendler v. Hudson Services features the Supreme Court of Missouri's first thorough discussion of section 288.030.1(23) and the Court's decision illustrates a development in Missouri appellate court interpretation of the statute's definition of "misconduct." (14) This Note describes that definitional development and addresses its potential effect on future disputes in which employers are seeking to prove that an employee's behavior constituted misconduct. Specifically, this Note focuses on how the Supreme Court of Missouri, by refusing to require a showing of "willfulness" to prove "misconduct," has further complicated the use of mental states in "misconduct" analysis and potentially broadened the scope of what qualifies as statutory "misconduct." Finally, this Note will identify a potential result of this broadened definition (15) and seek to show how this "Fendler effect" relates to two very important, competing public policy interests.

2. FACTS AND HOLDING

   The DES is the state agency that is responsible for administering the unemployment insurance benefit and tax program. (16) The DES collects tax contributions from employers and distributes unemployment benefits to individuals who qualify under Missouri law. (17) Hudson Services (Hudson) is a company that provides various property management services, including commercial cleaning and security. (18) Hudson hired Carol Fendler in 1994, and by 2008, Fendler held the position of "operations assistant" in Hudson's housekeeping department. (19)

   One of Fendler's official duties was to verify the number of hours worked by janitorial employees on a given shift when those workers failed to properly clock in and out of work. (20) Prior to July 2008, Fendler's supervisor allowed her to complete this verification by calling the janitorial employees and simply recording into the payroll system the total number of hours the employees said they worked. (21) However, in July (2008), Pam Meister became Fendler's new supervisor, and although Hudson had no written policy on how to complete Fendler's duty of verification, Meister told Fendler that Fendler's usual method of verification would no longer be sufficient. (22) Instead, Meister instructed Fendler to record the specific times that the janitorial employees began and ended work on a given shift. (23) Further, Meister informed Fendler that she would need to get approval from the general manager if she wanted to merely record the total hours worked. (24) During 2009, Meister gave Fendler three warnings after Fendler failed to comply with the new required verification procedure; the third warning came on December 28, 2009. (25) Despite these formal warnings, Fendler failed to comply with the procedure on eleven separate occasions during the month of January, and on January 25, 2010, Hudson terminated Fendler. (26)

   Subsequently, Fendler filed a claim for unemployment benefits with the DES, but in March 2010, in accordance with sections 288.030.1(23) and 288.050.2 of the Missouri Revised Statutes, the DES denied her benefits because it determined that she had been fired for "misconduct." (27) Fendler appealed and received a hearing before the appeals tribunal, at which both she and Meister testified." (28) Fendler testified that she had received instructions regarding the new verification procedures from Meister and that she had failed to record the exact times. (29) However, Fendler claimed that the reason she had failed to do so was because she was so familiar with the old verification procedures under her former supervisor. (30) Fendler also denied having received a third warning in late 2009, and she claimed that she was unaware that her failure to comply with Meister's instructions would threaten her job, adding that she would have followed the instructions had she known that she would be fired. (31) Meister testified that she warned Fendler on three occasions (including the warning in December 2009) that she needed to follow the new verification procedures, adding that she believed that Fendler's continued failure to comply was caused by a failure to call the janitorial employees in the first place. (32)

   Finding that Fendler had not engaged in misconduct, the tribunal reversed the DES's decision to withhold unemployment benefits. (33) Hudson then appealed to Missouri's Labor and Industrial Relations Commission (Commission), which serves as an appeals board for unemployment insurance cases. (34) Finding Meister's testimony to be more credible than Fendler's, the Commission concluded that Hudson had met its burden of proving that Fendler's behavior constituted misconduct. (35) In coming to that conclusion, the Commission stated that Fendler's "repeated failure to comply with explicit instructions takes her conduct outside the realm of mere mistakes or poor work performance and into the realm of insubordination." (36)

   Fendler next appealed to the Eastern District of the Missouri Court of Appeals, claiming that the Commission erred in disqualifying her from receiving unemployment insurance by finding that she had engaged in misconduct connected with her work. (37) Specifically, Fendler argued that the record only supported a finding that she acted negligently (not willfully) and that negligent behavior cannot support a finding of misconduct. (38) Relying heavily on Duncan v. Accent Marketing, LLC, the Eastern District determined that the Commission had erred in finding that Fendler's actions constituted misconduct, reversing the Commission's decision and remanding "for the entry of an appropriate award." (39) In doing so, Judge Glenn Norton emphasized that a finding of misconduct always requires a showing of "willful intent" and deliberate or purposeful error (even where negligence is the basis for the finding of misconduct or where there is a showing of multiple violations of an employer's policy). (40) According to the court, the evidence was insufficient to conclude that Fendler deliberately or purposely failed to follow Meister's instructions. (41) However, while the case was still pending in the Eastern District, the Supreme Court of Missouri granted transfer of the case. (42)

   The Supreme Court disagreed with the Eastern District and affirmed the Commission's determination that Fendler's actions constituted misconduct. (43) Emphasizing Fendler's admission that she would have complied with Meister's instructions had she known that she would lose her job, the Court concluded that sufficient evidence existed to establish Fendler's conduct as deliberate and "willful disregard" of her employer's instructions. (44) However, the Court made it clear that a lack of willfulness does not "preclude a finding of misconduct," pointing out that negligence (at a high degree or level of recurrence) can constitute statutory misconduct. (45) Further, the Court explicitly agreed with the Commission's statement that Fendler's repeated failure to follow instructions constituted insubordination, rather than mere mistake or poor work performance. (46) Therefore, the Supreme Court of Missouri held that the fact that Fendler knew Hudson's rule, repeatedly failed to comply after formal warnings, and admitted that she would have followed the rule had she known that she would lose her job, established competent and substantial evidence to support the Commission's conclusion that Fendler "engaged in misconduct by repeatedly and deliberately violating a reasonable, known and understood work rule." (47)

3. LEGAL BACKGROUND

   This section will discuss both the statutory and judicial understandings of "misconduct" as they relate to disqualification from unemployment benefits. The first subsection will cover policy concerns, funding mechanics, and eligibility issues related to Missouri's employment security statutes. The subsection will also describe the statutory definition "misconduct" and present a piece of...