Renewed Importance of Legal Procedures in Unemployment Hearings

Virtually every North Carolina employer deals with the unemployment process at some point. Most employers typically handle unemployment claims without specific assistance from a lawyer. A decision last year from North Carolina’s Court of Appeals, however, places a premium on employers being prepared to make – and overcome – legal objections during telephonic or other hearings with the Division of Employment Security.

Generally, employers have relied on the truism that if an employee is fired for any sort of “cause,” then the former employee should not get unemployment benefits. By administratively denying benefits and then engaging in the administrative hearing process with the North Carolina Department of Commerce’s Division of Employment Security (the “Division”), most employers could – on their own – make sure they got both (i) a fair hearing, and (ii) their argument across about why a claimant was fired.

In Jackson v. North Carolina Dep’t of Commerce, Div. of Employment Sec. and Golden Age of Lexington, Inc., 775 S.E. 2d 687 (N.C. App. 2015), the Court of Appeals renewed the importance of objecting to any improper testimony or evidence at a telephonic administrative hearing before the Division. Failing to object to otherwise incompetent or inadmissible evidence now means that the evidence is both admissible and probative, and it can be used as a basis for denying – or potentially granting – benefits. Accordingly, employers more than ever need to be on guard and prepared for evidentiary issues that could arise in administrative hearings.

Background and Holding in Jackson

Golden Age of Lexington, Inc. operates a nursing home. Golden Age terminated Jackson, a certified nursing assistant, when it determined that she had failed to report a resident’s fall. A key part of Golden Age’s investigation into the incident included the statement of another Golden Age employee, Hyatt. Hyatt told Golden Age’s administrator – both orally and then in writing – that Jackson had asked for Hyatt’s help in getting the resident off the floor after the fall. According to Hyatt, she asked Jackson if the incident had been properly reported and Jackson said it had. Because Jackson had not in fact reported the resident’s fall, as required by Golden Age, the home terminated her employment. 

Jackson filed for unemployment benefits. Golden Age opposed her getting them. A Division adjudicator ruled that Jackson could not receive benefits because she had been “discharged for misconduct connected with the work,” namely failing to report the fall. Jackson appealed the decision to a Division referee who scheduled a telephonic evidentiary hearing. During the hearing, legal counsel represented Jackson. Only Golden Age’s administrator – who had conducted the investigation – appeared on behalf of Golden Age. 

During the telephonic hearing, Golden Age did not have Hyatt give actual testimony. Instead, Golden Age just relied on Hyatt’s written statement and the administrator’s testimony about what Hyatt told her. Both the written statement and the testimony about what someone else said would be “hearsay” and typically not admissible as evidence in a legal proceeding. The referee, however, accepted the written statement into evidence after specifically asking Jackson and her counsel if they had any objections to the statement being admitted. Jackson and her counsel made no objection. Later in the telephonic hearing, the referee provided another opportunity to object to the written statement and to the administrator’s testimony about what Hyatt said. Again, Jackson and her counsel did not object.

After the telephonic hearing, the appeals referee also found that Jackson was not eligible to receive unemployment benefits. Through a series of appeals, Jackson pursued her case all the way to a hearing in Superior Court. Relying solely on the record and transcript from the telephonic hearing below (as it must as a matter of law), the Superior Court reversed the Division’s decision and awarded Jackson benefits. Specifically, the Superior Court found that Jackson should have gotten unemployment benefits because the only proof of her supposed “misconduct on the job” was the hearsay written statement from the co-worker and the administrator’s hearsay testimony about what the co-worker said, not actual testimony from the co-worker herself, Hyatt. 

Now Golden Age appealed. The North Carolina Court of Appeals accepted Golden Age’s argument that Jackson had waived her right to object to Hyatt’s written statement as hearsay because Jackson and her lawyer failed to object to its introduction during the telephonic hearing. Golden Age successfully argued that the appropriate time to object to any evidence was during the evidentiary hearing itself when Golden Age could have had the opportunity to correct any potential issue or even supplement the record with additional evidence or testimony. The Court of Appeals recognized that the law in North Carolina is that “hearsay evidence which is not properly objected to ‘is entitled to be considered for whatever probative value it may have’” and that a factual determination “can be sustained even where the only evidence offered to prove the fact is hearsay which is not objected to.” Jackson, 775 S.E.2d at 689-90. Because Jackson and her legal counsel had not objected to the written statement during the telephonic hearing, they could not raise such an objection later in the administrative or legal appeals process. As noted above, the Jackson decision puts a premium on both objecting to improper evidence and making sure that parties are able to enter proper evidence during the earliest telephonic, fact-finding hearing in an unemployment dispute.

No Longer “Business as Usual” in Unemployment Hearings

As most employers with experience before the Division will appreciate, how Jackson and her legal counsel handled the telephonic hearing was actually fairly routine. In many instances, litigants during the administrative hearing process – in unemployment hearings and other similar administrative proceedings – will dispense with some of the formality of admitting or objecting to evidence as it comes in. In many situations, appeals referees historically have discouraged such objections as only “wasting time.” Parties have been encouraged to “move the proceedings along” and make any objections or arguments about the weight of admissibility of any evidence only in post-hearing arguments, or indeed, even in just the next level of appeal. 

In Jackson, however, the Court of Appeals confirmed, essentially, that the rules are the rules. Litigants even in telephonic hearings in unemployment matters need to be aware of the Rules of Evidence and be able to apply them well enough so that an accurate factual record is created. If otherwise inadmissible evidence – like the hearsay statements relied upon by Golden Age in Jackson – is admitted without an objection, then the evidence will be considered for its actual probative value and can be enough – standing alone – to justify a decision from the Division.

Lessons For Employers from the Jackson Decision

Jackson overwhelmingly should teach employers to be better prepared for telephonic or other evidentiary hearings in workers compensation matters. A single spokesperson and a stack of exhibits no longer may be good enough. Instead, employers should make sure that any exhibits can be adequately verified as business records (an exception to the hearsay rule) or otherwise be admissible under North Carolina’s Rules of Evidence. Employers also likely need to be prepared to have more witnesses – including co-worker witnesses – available for any hearing and to have those witnesses prepared to provide actual testimony. Such preparation may be more time-consuming and expensive on the front end of a telephonic hearing, but it likely will pay for itself over time by making sure that an employer can get admitted competent evidence about the legitimate reasons that an employee may have been fired. Recall that Golden Age easily could have lost in Jackson – as the Superior Court ruled – if Jackson and her counsel had properly objected to hearsay evidence and Golden Age not been prepared to have the co-worker testify. 

Employers also should learn from Jackson to be prepared to object to any testimony or evidence from the other side that seems questionable. While the employer ultimately was victorious in Jackson, the case’s holding applies equally to terminated employees seeking benefits. Accordingly, if claimants can get in hearsay or otherwise dubious evidence without an objection from the employer, then that evidence – even if improper under the Rules – eventually can form the basis for granting benefits. Smart claimants – and their legal counsel – will seek to use Jackson more as a sword to get dubious evidence past unwary employers than as the shield from liability the decision proved to be for Golden Age. Smart employers need to be prepared for such tactics, even if it means providing more training for administrative or Human Resources personnel that typically represent employers in unemployment matters, or consulting more with legal counsel prior to any unemployment hearings.

In the short term, the Jackson decision actually may mean more work for employers in unemployment disputes, and not less. Over the long haul, however, the decision should help ensure that decisions are based on competent evidence and actual facts, not slipshod records or dubious testimony. Part of the increased workload, however, likely should be more interaction with legal counsel as part of preparing for any telephonic or evidentiary hearing. Most employers also will want to seriously consider whether it would be worthwhile to have legal counsel appear at a hearing or two to demonstrate how appropriate objections can be made and how inappropriate objections can be overcome. Alternatively, legal counsel should be prepared to provide additional training to Human Resources professionals and other management who typically represent employers during at least the administrative phases of unemployment matters. Failure to be prepared – and failure to make appropriate objections – will often, as in Jackson, be the difference between winning and losing unemployment disputes.