From the Experts: ‘Misconduct’ Not Automatic Cause for Denying Unemployment Benefits

We terminated an employee, and she has filed a claim for unemployment benefits. We want to fight her claim because she was fired for falsifying accounting records, a violation of company policy. Can you please explain the type of “misconduct” that will result in a denial of unemployment benefits?

Responding to unemployment insurance (UI) benefit claims can be a complex process for employers. It is important that an employer understands the legal definition of misconduct before deciding whether to challenge a terminated employee’s claim for unemployment benefits.

Unemployment Insurance Code

Under California Unemployment Insurance Code Section 1256, certain factors can disqualify an employee from receiving unemployment insurance benefits, such as voluntarily quitting a job without good cause.

If an employer fires an employee, unemployment benefits will be denied only if the employer can show that the employee was discharged for misconduct connected with their most recent work.

Definition of Misconduct

“Misconduct,” as used in the code, is defined as willful or wanton disregard of an employer’s interests, or such carelessness or negligence as to manifest equal culpability. (Amador v. Unemployment Insurance Appeals Board, 35 Cal. 3d 671 (1984); UI Code, Section 1256)).

It is important to note that this is a narrow definition of misconduct. Terminations for mere inefficiency, unsatisfactory conduct, poor job performance, inadvertent errors or ordinary negligence in isolated instances, or good-faith errors in judgment or discretion will not rise to the level of misconduct.

On the other hand, the following are examples of misconduct that typically will result in denial of unemployment benefits: theft, fraud, intoxication, deliberate violation of safety rules, workplace violence, deliberately falsifying a timecard and harassment.

The California Employment Development Department (EDD) has a Benefit Determination Guide available on its website that provides some helpful guidance on what constitutes misconduct.

Examine Actual Misconduct

Employers should understand that terminating an employee for misconduct or violating company policy will not automatically disqualify the employee from receiving unemployment benefits.

A California Supreme Court case established that an employee’s discharge for misconduct will not necessarily bar the employee from receiving unemployment benefits; the employee’s actual misconduct will need to be examined to determine if it meets the criteria established by law. (Paratransit, Inc. v. Unemployment Insurance Appeals Board, 59 Cal. 4th 551 (2014)).

In Paratransit, an employee refused to sign a disciplinary notice, was terminated for insubordination and then filed for unemployment benefits. The court acknowledged that the employee’s refusal to sign the disciplinary notice may have justified his termination, but the sole issue was whether the employee’s refusal rose to the level of misconduct.

The court found that based on the specific circumstances, the employee’s refusal to sign a disciplinary notice was not misconduct but, at most, a mistake in judgment that did not disqualify him from an award of unemployment benefits.

In the case of the employer who fired the employee for falsifying accounting records, the EDD will examine the employee’s specific conduct and make an independent determination of whether the employee’s actions rise to the level of misconduct that would bar her from receiving unemployment benefits.

Employer Has Burden of Proof

Employers also must keep in mind that the law presumes an employee was not fired for misconduct (UI Code, Section 1256). The burden of proving misconduct falls on the employer, and it is up to the employer to submit evidence relating to the misconduct.

The employer who fired the employee for falsifying accounting records will need to submit clear evidence of the employee’s misconduct, such as copies of the falsified accounting records, company policies, disciplinary notices, witness statements or any other supporting information or records.

The EDD will require an employer to provide strong proof of misconduct before it disqualifies an employee from receiving unemployment benefits.

Recommended Action

Because of the narrow definition of misconduct under the law, it may prove difficult for an employer to successfully challenge a terminated employee’s unemployment insurance claim.

Before investing the time and money to fight a former employee’s claim for benefits, an employer, in consultation with legal counsel, should evaluate carefully the reason for an employee’s termination and whether the employer can provide evidence of misconduct.

Lisa Guzman, Employment Law Expert, CalChamber

CalChamber members can read more about Unemployment Insurance in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.