On June 16, 1998, the Supreme Court of Pennsylvania made life a little easier for employers. In Rue v. K-Mart Corp., 713 A.2d 82 (Pa. 1998), the Court held that an employer is not bound by the factual findings of an Unemployment Compensation Referee ("Referee") in subsequent litigation. In Rue, K-Mart dismissed plaintiff for stealing and eating a bag of potato chips. When plaintiff was granted unemployment compensation, K-Mart appealed the decision to a Referee arguing that the benefits should be denied because plaintiff committed wilful misconduct. During the hearing, the Referee determined that plaintiff did not, as a factual matter, steal and eat a bag of chips and upheld the award of benefits. K-Mart did not appeal this decision.
Following the Referee's decision, plaintiff filed a defamation suit against K-Mart. In that action, the Court refused to allow K-Mart to introduce evidence that Rue had taken the potato chips, ruling that the issue had already been decided against K-Mart in the unemployment hearing. K-Mart appealed the decision, and the Superior Court of Pennsylvania, en banc, overturned the jury verdict. The Superior Court found, and the Supreme Court affirmed, that the trial court erred when it precluded K-Mart from presenting any evidence to prove that plaintiff did in fact steal a bag of chips.
The Supreme Court analyzed whether the doctrine of collateral estoppel prevented re-litigation of the Referee's factual findings as to whether plaintiff stole the bag of chips. The Court determined that only three out of the four prongs under collateral estoppel were satisfied:
- K-mart was a party to the prior action;
- K-Mart received a final judgment; and
- the factual issue in the unemployment compensation hearing was identical to one presented in the civil action.
The final prong, whether K-mart had a full and fair opportunity to litigate the issue in the prior action, was not met.
The Supreme Court reasoned that an unemployment compensation hearing and civil litigation have substantial economic and procedural disparities. Unemployment compensation hearings, at best, offer employers minimal procedural due process. They do not permit parties to fully litigate the issues since the Referee's goal is to "get money into the pocket of the unemployed worker at the earliest point." See Id. at 86. Further, the Referee neither follows any evidentiary rules nor permits pre-hearing discovery. Due to the brief and informal nature of the proceedings, the Court recognized that employers give little credence to most unemployment compensation hearings, especially since the amount of money in controversy is minimal. Thus, employers have little or no incentive to vigorously litigate the action or even attend the hearing.
This ruling protects employers from having to live with a Referee's factual findings in future civil litigation. In essence, the decision discounts a Referee's factual findings by providing employers with a second opportunity to litigate an issue already decided at the unemployment compensation hearing.
The first trial resulted in a $1.49 million award to plaintiff. Ironically, after the "chips" had fallen at the second trial, the jury awarded only one-tenth of the original verdict.