Michael Nichols v. Kentucky Unemployment Insurance Commission ( 2022 )


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  •                 RENDERED: JANUARY 7, 2022; 10:00 A.M.
    NOT TO BE PUBLISHED
    Commonwealth of Kentucky
    Court of Appeals
    NO. 2017-CA-1156-MR
    MICHAEL NICHOLS                                                 APPELLANT
    ON REMAND FROM KENTUCKY SUPREME COURT
    FILE NO. 2019-SC-0477-DG
    APPEAL FROM JEFFERSON CIRCUIT COURT
    HONORABLE AUDRA J. ECKERLE, JUDGE
    v.                     ACTION NO. 16-CI-02236
    KENTUCKY UNEMPLOYMENT
    INSURANCE COMMISSION
    AND NORTON HEALTHCARE, INC.                                     APPELLEES
    OPINION
    AFFIRMING
    ** ** ** ** **
    BEFORE: MAZE, TAYLOR, AND K. THOMPSON, JUDGES.
    MAZE, JUDGE: This case is before us on remand from the Supreme Court of
    Kentucky following reversal of our prior opinion in Kentucky Unemployment
    Insurance Commission v. Nichols, No. 2019-SC-0477-DG, 
    2021 WL 5050254
    (Ky. Oct. 28, 2021). The Kentucky Supreme Court remanded this matter for
    further consideration of the issues not addressed in this Court’s prior opinion.
    Michael Nichols appeals a decision by the Jefferson Circuit Court which affirmed
    the ruling of the Kentucky Unemployment Insurance Commission (“the
    Commission”) denying his application for benefits.
    There are two arguments remaining on appeal. First, Nichols
    contends that his former employer, Norton Healthcare, Inc. (“Norton”), failed to
    offer sufficient evidence that he was fired for misconduct, and the Commission
    wrongfully placed the burden on him to show his lack of misconduct. And second,
    Nichols argues that the Commission erred in finding that he knowingly made false
    statements on his unemployment application. We conclude that the Commission
    applied the correct standard of proof for determining misconduct. We further find
    substantial evidence to support the Commission’s findings that Nichols was fired
    for misconduct and that he knowingly made false statements on his application.
    Hence, we affirm.
    I. FACTUAL AND PROCEDURAL HISTORY
    Nichols worked for Norton as a clinical engineering specialist from
    April 14, 2013, until November 9, 2015. His duties included inspection,
    maintenance, and repair work, on all biomedical and sterilization equipment in
    Norton’s six Louisville-area facilities. The clinical engineering team consisted of
    -2-
    only two people, Nichols and his team leader, Kara Fautz. Both workers had
    regular duty hours and after-hours, on-call responsibilities.
    Due to the small team size and heavy workload, Fautz and Nichols
    often relied on outsourced repair and maintenance work performed by vendors.
    Both Fautz and Nichols were aware, however, that Norton wanted to phase out this
    reliance on expensive outside vendor services and rely solely on the in-house
    equipment maintenance staff.
    Growing dissatisfied with the effect his on-call responsibilities had on
    his personal life, Nichols emailed his supervisor, Norton’s Systems Director of
    Clinical Engineering, Scott Skinner, in September of 2015. He inquired about the
    possibility of handing his on-call duties over to Getinge USA, Inc. (“Getinge”),
    one of the outside vendors frequently retained by Norton to handle maintenance
    and repair tasks the in-house team could not perform. Skinner denied the request,
    citing budgetary concerns.
    In October of 2015, Fautz was assigned to work on an off-site special
    project which would demand her exclusive attention for the next three weeks.
    Before she left, Fautz instructed Nichols to perform the annual preventive
    maintenance on all of Norton’s sterilizer equipment by the end of the month, going
    so far as to tell him to ignore the “trouble calls” that came in while he performed
    that work. Nichols acknowledged in his later hearing testimony that failure to
    -3-
    perform this maintenance would “put us out of compliance” with regulatory
    requirements that mandated more thorough maintenance than usual, and such work
    needed to be completed by the end of October. Skinner told Nichols that Norton
    deemed it prohibitively expensive to employ outside vendors to perform this work.
    Fautz’s instructions notwithstanding, Nichols, out of an alleged
    concern for patient care, intentionally prioritized the “trouble calls” over the
    sterilizer maintenance. He worked on the sterilizers only when he had the time,
    and employment records did not indicate Nichols worked any overtime hours
    during October 2015. Later in the month, it grew apparent that Nichols could not
    complete the sterilizer maintenance. Nichols instead performed a less thorough
    quarterly maintenance routine on some of the sterilizers and retained Getinge to
    perform the work on the rest. Nichols also closed out the work orders on those
    machines as soon as Getinge began work on them, rather than waiting until after
    the work had been completed. Fautz learned, on November 2, 2015, that Nichols
    had not only disobeyed her direction to ignore the trouble calls, but also failed to
    complete the annual preventative maintenance on the sterilizers and retained
    Getinge to perform the work she had specifically assigned to him. She notified
    Skinner of Nichols’ actions.
    Skinner confronted Nichols about his suspected misfeasance on
    November 6, 2015. Skinner suspended Nichols pending a final disciplinary
    -4-
    decision by Norton. On November 9, 2015, Skinner called Nichols and informed
    him that Norton had decided to terminate his employment. Fifteen minutes later,
    Nichols submitted an online application for unemployment benefits,1 seeking to
    secure unemployment benefits as expeditiously as possible.
    The application requests information regarding the reason for the
    applicant’s separation. In one instance, the applicant is asked to select from a list
    of options which include “discharge” and “lack of work.” Nichols selected “lack
    of work,” and now argues that he misunderstood the term to mean that he was fired
    for failing to perform work tasks, rather than the actual meaning of the term, that
    the employer had no work for the employee to perform. The application also had
    an area where applicants could elaborate on their selected answer; Nichols noted
    that he was “Let go due to lack of work. I have not been given a reason for being
    let go.” Soon after, Nichols received a written Corrective Action Record from
    Norton which listed the reasons for his firing: abandonment of duties, falsification
    of records, and inappropriate stewardship of company resources.
    The Commission’s Unemployment Division conducted follow-up
    inquiries with Nichols and Norton. After this investigation, the Unemployment
    Division determined that Norton had fired Nichols for misconduct and that he had
    1
    Nichols later claimed his wife completed the application for him, though who actually
    completed the form is immaterial for our review.
    -5-
    made intentional misrepresentations in his application, which justified both his
    disqualification from eligibility to receive benefits and the extension of this period
    of ineligibility. Nichols then appealed this decision to a referee.
    The referee conducted evidentiary hearings on February 8 and 29,
    2016. Nichols was represented by counsel, while Skinner, a non-lawyer, appeared
    for Norton. Skinner also testified in the hearings, offering several crucial facts.
    Skinner testified that Nichols had accepted blame and admitted wrongdoing during
    their November 6 conversation. Nichols admitted to having closed the work orders
    prior to the completion of the work. On that topic, Skinner testified that company
    policy mandated completing work before closing out a work order. He also
    offered that Norton’s human resources office considered Nichols’ actions in
    October 2015 to have been reckless. Skinner admitted that Norton had used
    Getinge for similar work in the past, and that Nichols had authorized their work
    without reprimand.
    The referee conducted the vast majority of questioning during
    Nichols’ testimony at the February 29 hearing. However, the referee also afforded
    Skinner an opportunity to conduct a brief cross-examination, asking several
    questions of Nichols. Nichols testified that he had never been reprimanded for
    retaining Getinge in the past, but also conceded that Skinner had told him not to
    hire a vendor in late September. Nichols also testified that he had not intentionally
    -6-
    included misleading information in his application. He explained that he thought
    “lack of work” meant he was fired for not personally completing his assigned
    work.
    The referee affirmed the Unemployment Division, entering a written
    ruling to that effect on March 18, 2016. The Commission, after conducting a de
    novo review of the record, affirmed. The Commission concluded that Nichols had
    been terminated for misconduct, specifically: abandoning his work duties,
    dishonesty, and inappropriate stewardship of company resources. Supporting the
    conclusion, the Commission offered the following factual findings: Nichols had
    failed to obey reasonable instructions to complete the annual preventive
    maintenance without resorting to the use of a third-party vendor, he had closed out
    work orders indicating completion of work he knew had not been completed, and
    that he had no need to seek third-party assistance if he had made diligent efforts to
    complete the assigned task.
    Nichols filed a petition for judicial review in Jefferson Circuit Court,
    alleging three errors by the Commission. He first contended that the
    Commission’s factual findings lacked the support of substantial evidence. Second,
    he contended that the Commission impermissibly shifted the burden to him to
    prove the lack of misconduct. Finally, he contended that the evidentiary hearings
    before the referee were unconstitutional per se due to Skinner’s appearance as a
    -7-
    non-attorney representative on behalf of Norton. The circuit court affirmed the
    Commission in all respects.
    On appeal, this Court reversed on the latter issue. This Court
    determined that KRS2 341.470(3)(a) was unconstitutional because it authorizes a
    non-attorney to represent a corporate or partnership employer in a proceeding
    before the referee or the Commission. We concluded that the statute encroached
    on the exclusive power of the judiciary to establish rules relating to the practice of
    law. See Ky. Const. § 116. See also Turner v. Kentucky Bar Ass’n, 
    980 S.W.2d 560
    , 562-63 (Ky. 1998). Consequently, this Court reversed the circuit court’s
    decision affirming Commission’s ruling and remanded for a new administrative
    hearing before the Commission or a referee at which Norton was to be represented
    by an attorney. Nichols v. Kentucky Unemployment Ins. Comm’n, No. 2017-CA-
    001156-MR, 
    2019 WL 1868589
     (Ky. App. Apr. 26, 2019).
    On discretionary review, the Kentucky Supreme Court reversed this
    Court’s decision. The Supreme Court held that Nichols lacked standing to
    challenge the constitutionality of KRS 341.470(3)(a) because he failed to allege a
    sufficient injury attributable to Norton’s representation by a non-attorney. Nichols,
    2
    Kentucky Revised Statutes.
    -8-
    
    2021 WL 5050254
    , at *4.3 The Supreme Court remanded this matter for review of
    Nichols’ remaining claims.
    II. ANALYSIS
    A. STANDARD OF REVIEW
    Judicial review of an administrative action by the Commission
    involves an examination of the factual findings to determine if substantial evidence
    supports them, and then determining whether the agency correctly applied the
    governing law to the facts. Thompson v. Ky. Unemployment Ins. Comm’n, 
    85 S.W.3d 621
     (Ky. App. 2002). If the record contains substantial evidence, a
    reviewing court must defer to the agency’s findings, even where evidence exists to
    the contrary. 
    Id. at 624
    . Courts have defined the term, “substantial evidence,” as
    3
    In dicta, the Supreme Court also suggested that Skinner’s representation of Norton before the
    referee would not amount to the unauthorized practice of law because he was not offering legal
    advice. Nichols, 
    2021 WL 5050254
    , at *5. However, the Supreme Court has previously
    emphasized that conduct implicates the practice of law if “(1) it requires legal knowledge or
    legal advice, (2) involves representation, counsel or advocacy on behalf of another party, and (3)
    involves the rights, duties, obligations, liabilities, or business relations of that other party.”
    Countrywide Home Loans, Inc. v. Kentucky Bar Ass’n, 
    113 S.W.3d 105
    , 121 (Ky. 2003)
    (emphasis added). Furthermore, it is well-established that representation of a corporate or non-
    natural entity by a non-attorney implicates the unauthorized practice of law. See Rule of the
    Supreme Court (SCR) 3.020. See also Kentucky Bar Ass’n v. Tussey, 
    476 S.W.2d 177
    , 180 (Ky.
    1972) (“That a corporation may not draw legal instruments through a nonprofessional officer or
    employee is no more phenomenal than its inability to be so represented in court.”); Flynn v.
    Songer, 
    399 S.W.2d 491
    , 494 (Ky. 1966) (“A corporation cannot practice law and must have a
    licensed [attorney] representing it in court matters.”) (citation omitted); and Kentucky State Bar
    Ass’n v. First Federal Sav. and Loan Ass’n of Covington, 
    342 S.W.2d 397
     (Ky. 1960).
    Consequently, we respectfully suggest that the Supreme Court’s dicta in Nichols may be
    misleading.
    -9-
    “evidence which has sufficient probative value to induce conviction in the minds
    of reasonable people.” Ky. Unemployment Ins. Comm’n v. Cecil, 
    381 S.W.3d 238
    ,
    245 (Ky. 2012) (citing Ky. State Racing Comm’n v. Fuller, 
    481 S.W.2d 298
     (Ky.
    1972)). “If the reviewing court concludes the rule of law was correctly applied to
    facts supported by substantial evidence, the final order of the agency must be
    affirmed.” 
    Id.
     at 246 (citing Brown Hotel Co. v. Edwards, 
    365 S.W.2d 299
     (Ky.
    1962)).
    B. THERE WAS SUBSTANTIAL EVIDENCE TO SUPPORT THE
    COMMISION’S FINDINGS AS TO THE ALLEGED MISCONDUCT
    In situations where the employer fired the employee for misconduct,
    the employee, because of that misconduct, cannot receive unemployment benefits.
    “A worker shall be disqualified from receiving benefits for the duration of any
    period of unemployment with respect to which . . . [h]e has been discharged for
    misconduct or dishonesty connected with his most recent work[.]” KRS
    341.370(1)(b). The statutory definition of misconduct includes refusal to obey
    reasonable instructions and knowingly violating reasonable and uniformly
    enforced rules of an employer. KRS 341.370(6).
    It is well-established that the employer seeking to defeat a claim for
    benefits bears the burden of proving it fired the employee for misconduct. Brown
    Hotel, 365 S.W.2d at 301. Nichols argues the referee and the Commission
    -10-
    improperly required him to prove lack of misconduct. He further argues that
    Norton failed to offer sufficient evidence to defeat his claim for benefits.
    Specifically, Nichols asserts that he could not have been fired for
    misconduct, because “misconduct” implies intent, and he could not have intended
    to violate an order of which he had no knowledge. He relies heavily on Smith v.
    Kentucky Unemployment Insurance Commission, 
    906 S.W.2d 362
     (Ky. App.
    1995), to support his contention that failing to abide by a policy that Norton had
    not published in advance of his alleged violation could not constitute misconduct.
    However, Smith does not fully support his position.
    In Smith, the employer required the two employees to submit to a drug
    test following an altercation at work. The employer’s drug-testing policy required
    the employees to identify all drugs used in the two weeks prior to the test. The
    tests were positive for the presence of marijuana, which the employees had not
    disclosed. Based on the positive tests, the employer discharged the employees for
    violation of its drug-testing policy. 
    Id. at 363
    .
    In their claim for unemployment benefits, the employees in Smith, like
    Nichols, argued that “misconduct” could not be based on a violation of work rules
    which were not distributed or posted by the employer. The employees also argued
    that their admission to off-duty use of illegal drugs could not meet the statutory
    definition of misconduct. While the Commission agreed with these positions in
    -11-
    principle, the Commission also found that the employees were aware of the
    employer’s drug policies at the time they took the test.
    In this case, the employer did make claimant aware of its
    intent to have a drug-free workplace, did have a
    reasonable basis to send claimant for drug testing as a
    result of a verbal altercation on its premises and
    allegations that claimant had used drugs on its property,
    and did have a right to expect claimant to answer
    questions truthfully about drug usage once claimant
    agreed to be tested for drug use.
    
    Id.
    This Court found substantial evidence to support the Commission’s
    finding that the employees were aware of the employer’s policy and expectations.
    Consequently, the Court held that the circuit court properly affirmed the
    Commission’s finding that the claimants committed misconduct by violating the
    employer’s drug testing policy. 
    Id.
    Since Smith, the Kentucky Supreme Court has held that the definition
    of “misconduct” in KRS 341.370(6) does not require a showing of bad faith or
    willful or wanton conduct. Cecil, 381 S.W.3d at 247. But as previously noted, the
    applicable definition of misconduct includes knowingly violating reasonable and
    uniformly enforced rules of an employer. KRS 341.370(6). As a result, the statute
    clearly requires the employer to prove the employee’s knowledge of the rules and
    intent to violate those rules.
    -12-
    But in this case, the record amply supports the Commission’s finding
    that Nichols knowingly violated Norton’s instructions. At the hearing, Skinner
    testified that Nichols violated company policy by closing out the work orders on
    the sterilizers before having completed the work. Skinner also testified that
    Nichols had been trained on Norton’s standard operating procedures regarding
    when to close out a work order. Nichols did not controvert this assertion in his
    own testimony.
    Moreover, Nichols was fired for his refusal to abide by reasonable
    instructions of his superiors. Nichols testified that Fautz had told him to perform
    preventative annual maintenance on the sterilizers and to ignore “trouble calls” for
    other equipment until that work had been completed. Nichols further testified that
    he deliberately continued to respond to the trouble calls, and that he intentionally
    performed the less thorough quarterly preventative maintenance of the sterilizers.
    He also acknowledged that his failure to perform the more thorough maintenance
    put Norton out of compliance with applicable regulations. In addition, Nichols
    acknowledged that he had closed out work orders indicating completion of work
    which had not been completed.
    The record established here that Norton considered hiring an outside
    vendor to perform maintenance services to be prohibitively expensive. Nichols
    conceded knowledge of that fact at several points in his hearing testimony.
    -13-
    Nichols also acknowledged that he alone made the decision to hire Getinge to
    perform the annual maintenance duties he could not perform on time. Skinner
    testified that Norton had no reasonable basis to believe Nichols could not get his
    work done. Given that his actions directly contravene Norton’s pecuniary
    interests, coupled with his knowledge of that fact, the agency committed no error
    in deeming Norton’s reaction to such behavior as a firing for misconduct, nor did
    the circuit court in affirming that conclusion.
    Nichols contends that he violated Norton’s policies and the
    instructions of his supervisors out of an abundance of concern for Norton’s
    interests. He states that he took these actions because he believed that Norton was
    not devoting sufficient resources to conduct all of the maintenance which was
    required of him. However, Nichols was not entitled to violate Norton’s policies
    and instructions merely because he questioned their wisdom. Nichols presented no
    evidence that his compliance with Norton’s instructions would have placed Norton
    outside of regulatory compliance or placed any other persons at risk of harm. To
    the contrary, Skinner testified that Nichols’ failure to complete the sterilizer
    maintenance actually placed Norton out of compliance. Likewise, Nichols does
    not argue that Norton’s policies and instructions made it impossible for him to
    complete all the tasks which were expected of him. Under the circumstances, we
    -14-
    find substantial evidence to support the Commission’s finding that Norton fired
    Nichols for misconduct.
    C. THERE WAS SUBSTANTIAL EVIDENCE TO SUPPORT THE
    COMMISSION’S FINDINGS AS TO THE ALLEGED FALSE
    STATEMENTS IN NICHOLS’ APPLICATION
    KRS 341.370(2) disqualifies claimants from receiving benefits for
    knowingly making false statements in order to establish a right to receive benefits.
    Nichols conceded that his application contained false material statements, though
    he contends it was not knowingly made. The referee and the Commission both
    found his assertion, that the misstatement resulted from a misunderstanding of the
    questions on the application, to strain credibility.
    Substantial evidence exists in the record to support the agency’s
    conclusion. Nichols noted that he had applied for unemployment benefits after
    being laid off from previous employment, so he was not a stranger to the process.
    He also made more than one statement in his application that he had been
    separated due to lack of work and had not been given a reason for his separation.
    Nichols knew he had been fired, however, but his application did not reflect that
    reality.
    The facts at play in this case are similar to those found in Downey v.
    Kentucky Unemployment Insurance Commission, 
    479 S.W.3d 85
     (Ky. App. 2015).
    The claimant had worked for a nursing home corporation and had been terminated
    -15-
    for refusing a work assignment that doubled her normal workload. Her employer
    contended that such refusal amounted to misconduct and terminated her. The
    claimant immediately applied for benefits and characterized her separation as
    having been “laid off” for “lack of work.” 
    Id. at 87
    . Her employer refuted those
    representations in her application, and she was denied benefits based on the fact
    that she had been fired for misconduct and had made false representations in her
    application. The Commission reversed in part, concluding that the job assignment
    was an unreasonable request and her refusal could not constitute misconduct, but
    the Commission affirmed the disqualification based on the misrepresentations in
    her application. 
    Id. at 88
    . The circuit court affirmed the Commission’s ruling on
    the basis that substantial evidence supported the finding that the claimant had
    knowingly made false representations to secure benefits, and this Court affirmed
    the circuit court. 
    Id. at 90
    .
    In the instant matter, both the referee and the Commission found
    Nichols’ justification for the misstatements in his application lacked credibility.
    Because the agency is the fact-finder and sits in the best position to determine such
    issues, a reviewing court “may not substitute its opinion as to the credibility of the
    witnesses, the weight given the evidence, or the inferences to be drawn from the
    evidence.” Thompson v. Ky. Unemployment Ins. Comm’n, 
    85 S.W.3d 621
    , 624
    -16-
    (Ky. App. 2002). Much like the circuit court, we can find no error in the
    Commission’s findings, and we must affirm.
    III.   CONCLUSION
    Accordingly, we affirm the judgment of the Jefferson Circuit Court
    upholding the decision of the Kentucky Unemployment Insurance Commission.
    ALL CONCUR.
    BRIEF FOR APPELLANT:                      BRIEF FOR APPELLEE
    KENTUCKY UNEMPLOYMENT
    Kevin B. Sciantarelli                     INSURANCE COMPANY:
    Robyn Smith
    Louisville, Kentucky                      Clay J. Lamb
    Frankfort, Kentucky
    BRIEF FOR APPELLEE NORTON
    HEALTHCARE, INC.:
    Donna King Perry
    Louisville, Kentucky
    -17-