Controversial Judicial Estoppel Ruling Overturned Regarding Unemployment Case – But the Risk Remains
A former employee who the Alabama Department of Labor had ruled in an unemployment hearing was fired lawfully for misconduct was not precluded, or estopped, from later claiming she was fired unlawfully in retaliation for taking Family and Medical Leave Act leave, the U.S. Court of Appeals for the Eleventh Circuit has held. Simmons v. Indian Rivers Mental Health Ctr., No. 15-11658, 2016 U.S. App. LEXIS 10663 (June 13, 2016) (unpublished).
Reversing summary judgment for the employer, the Court of Appeals concluded that all of the necessary elements of the collateral estoppel doctrine had not been met and that the former employee may proceed with her FMLA claim. However, the Eleventh Circuit’s decision was premised on specific facts that, while precluding the application of the collateral estoppel doctrine in this case, did not eliminate the risk posed to employers when deciding whether and how to oppose a former employee’s claim for unemployment benefits.
Upon return from her FMLA leave, the employee was fired for job performance issues discovered while she was on leave. The employee applied for unemployment benefits, identifying “misconduct” as the reason for her separation. Based on the employer’s brief, handwritten, unsworn explanation of why the employee was fired, the employee initially was disqualified from receiving benefits.
The employee appealed and a hearing was scheduled, but, having secured new employment, she did not attend the hearing. The employer appeared at the hearing by telephone, but it presented no testimony or other evidence. Based solely on the employer’s unsworn statement, the appeals referee upheld the initial determination that the employer had a legitimate reason for discharging the employee. The employee did not further appeal the denial of benefits, but she later filed a lawsuit claiming, in part, that she was discharged in retaliation for taking FMLA leave.
Trial Court Ruling and Collateral Estoppel
Although the trial court initially denied the employer’s motion for summary judgment as to the retaliation claim, just prior to trial the employer argued that the employee was collaterally estopped from pursuing the claim in light of the unemployment appeals referee’s decision.
Generally, collateral estoppel applies to bar an issue (such as the reason for an employee’s discharge), which has been litigated and decided by a valid and final judgment in an earlier proceeding, from being re-litigated in a later one where the same parties are involved. Under Alabama law, five factors must be established to collaterally estop an issue previously raised in an administrative proceeding:
there must be identity of the parties or their privies;
there must be identity of the issues;
the parties had an adequate opportunity to litigate the issues in the administrative proceeding;
the issues to be estopped were actually litigated and determined in the administrative proceeding; and
the findings on the issues to be estopped were necessary to the administrative decision.
In the case at hand, the trial court agreed that all of the collateral estoppel factors had been satisfied and, therefore, as a matter of law, the legitimate reason for the employee’s discharge (misconduct) already had been established. Accordingly, the trial court dismissed the FMLA retaliation claim. Franks v. Indian Rivers Mental Health Ctr., 2014 U.S. Dist. LEXIS 15544 (N.D. Ala. Feb. 7, 2014), aff’d, 2014 U.S. Dist. LEXIS 28005 (Mar. 5, 2014).
Prior to this ruling, Alabama employers commonly were counseled either to fully participate in an unemployment hearing, with witnesses and documents, or to drop their challenge to the benefits application and not participate at all in the hearing. The latter option, under a traditional collateral estoppel analysis, presumably would prevent all of the necessary elements of the collateral estoppel doctrine from being met. However, the trial court’s decision created the risk that an employer who elects not to attend the unemployment hearing later may face a discrimination or retaliation lawsuit without a viable defense, depending on how the unemployment appeals referee worded his or her decision.
Court of Appeals Decision
The Eleventh Circuit reversed the lower court decision. While agreeing with the lower court on the first and second collateral estoppel factors (the identity of the parties and the identity of the issues were the same), and assuming there was an adequate opportunity to litigate the issue, the Court of Appeals held that neither the fourth factor (the issues to be estopped were actually litigated and determined in the administrative proceeding) nor the fifth factor (the findings on the issues to be estopped were necessary to the administrative decision) were satisfied.
The fourth factor was not satisfied, the Court concluded, because the unemployment application file contained only an unsworn statement from the employer and therefore no competent evidence from which the hearing officer could make a determination in a “judicial capacity,” a prerequisite to a federal court’s ability to give a state agency determination preclusive effect. In addition, the Court noted that the former employee had opted not to attend the hearing because she had obtained subsequent employment quickly and, therefore, had no incentive to participate. Under the applicable administrative code, when the claimant fails to appear, the appeals referee has the option of declaring a default in lieu of making a determination on the merits. Therefore, the Eleventh Circuit observed, even though in this case the referee made a decision on the merits, it could not be said that it was “necessary” to do so. Thus, the fifth collateral estoppel element likewise had not been established.
Although the Eleventh Circuit’s decision voided the precedential value of the district court’s earlier ruling, that decision did not eliminate the risk to employers who are assessing whether, and to what extent, they should challenge a former employee’s application for unemployment benefits. Significantly, under the applicable administrative regulations the “default” determination option available to the appeals referee applies only if the claimant, not the employer, fails to appear for the hearing. Therefore, had the former employee appeared at the hearing and provided sworn testimony or documents (i.e., competent evidence), and had the employer not appeared at the hearing, or had it appeared but relied solely on the unsworn written statement it previously submitted, the grounds on which the Eleventh Circuit reversed the lower court’s decision would not have existed. Thus, had the hearing officer concluded that unlawful FMLA discrimination or retaliation was the actual reason for the employee’s discharge, the employer might find itself facing a subsequent lawsuit without a defense.
Employers should consult with experienced counsel in Alabama to determine the best course to take before making a final decision as to whether, and to what extent, to participate in an unemployment appeals hearing.