Consider a situation in which an undeserving employee files for unemployment compensation and a hearing is scheduled: do you refer it to counsel, or do you handle it yourself? The short answer is that, thanks to a recent Pennsylvania Supreme Court decision, the risks that you take in handling it alone are substantially reduced.
Until recently, the findings of an unemployment compensation hearing referee (the official who decides unemployment compensation claims) were binding in later litigation filed by the employee against the employer. This problem was recognized, and solved, in Rue v. K-Mart Corporation. K-Mart fired its employee, Rue, for stealing a bag of potato chips. The employee successfully applied for unemployment compensation benefits over K-Mart's objection. K-Mart appealed and represented itself at the hearing, but the unemployment compensation referee was persuaded that Rue did not steal the potato chips and ruled against K-Mart.
This dispute over a stolen bag of potato chips in the context of a claim for unemployment compensation benefits hardly seemed to be a high stakes litigation requiring a substantial investment of time and money to defend. But Rue followed up with a defamation suit, claiming that K-Mart damaged her reputation when it told her co-employees that she stole a bag of potato chips. Truth is a defense to defamation cases, so K-Mart wanted to defend by proving that Rue stole the potato chips. The trial court would not allow K-Mart to present any evidence to show that it told the truth. Why? Because, under the law at that time, the unemployment hearing referee's finding that Rue did not steal the potato chips was binding in later cases, including Rue's defamation action. The result was a jury verdict for Rue for $1.5 million.
Fortunately, the Pennsylvania Supreme Court reversed this result. Considering the fast and informal nature of unemployment compensation hearings (on average, each referee decides over one thousand cases a year), the Pennsylvania Supreme Court concluded that these hearings do not provide an opportunity to litigate the issues pertinent to an employee's termination in a manner that would make it appropriate to bind the parties to the outcome in other cases.
While this is good news for employers, some words of caution are in order. First, this ruling is confined to unemployment compensation hearings. Findings in other types of administrative proceedings, such as workers' compensation hearings, continue to be binding in later litigation. You should always seek the assistance of counsel in these matters. Second, the initial step in the defense of an unemployment claim involves the employer's written response, which is transmitted on a form to the unemployment authorities. The written statements of an employer can always be used against the employer in some other proceeding. An inartfully worded response can come back to haunt you. Third, if the initial decision is appealed, testimony has to be given before the referee. This testimony is taken under oath and recorded, and it can be obtained by the employee's attorney and used as evidence in later litigation.
In most cases, these potential dangers will not translate into reality, because the employer's written statements and testimony will focus on the employee's misconduct; it would be an exceptional situation in which the employer admits to an unlawful, ulterior motive for the employee's termination. But, the danger of misstatements and trickery cannot be ignored, particularly in situations in which an unrepresented employer is cross-examined by an employee's attorney.
The best and most practical course is a quick consult with counsel before finalizing a written statement. Among other things, this will assist you in maximizing your chances of obtaining a denial of the unemployment compensation while at the same time avoiding unintentional misstatements that could get you into trouble. And if you are going to testify in a context where the employee has counsel who can cross-examine you, we see no alternative other than recommending that you be represented by counsel at the hearing. Employee versus employer litigation is rampant, and the risk of testifying without representation remains unacceptably high.