Appeals of Claims for Unemployment Compensation Benefits in Alabama – A Potential Trap for Unwary Employers

Alabama employers should carefully consider the decision to contest a former employee’s claim for unemployment compensation (UC) benefits. The ramifications of the claim can be far more damaging that just the cost of UC benefits, since an adverse appellate finding could be used against the employer in a later lawsuit under the legal doctrine of “collateral estoppel.” 

The unemployment claim procedure: After the employer responds to the employee’s claim for UC benefits, the Alabama Department of Labor  issues a written decision on the employee’s eligibility. The losing party may then appeal that decision. A hearing on any appeal is held by telephone and conducted by an “appeals referee.” The parties and any witnesses are under oath for their testimony during the hearing. The referee is usually not a lawyer, and the rules of evidence are very liberally applied in the hearing.  The parties have a right to appeal the referee’s decision to the Board of Appeals and then to the state Circuit Court.

The risk to employers of adverse appellate decisions: To decide the appeal, the referee often must decide conflicting evidence and determine the reason for the employee’s separation from work. The risk to employers arises when the employee is arguing that he or she was terminated for unlawful reasons, such as retaliation for making a workers’ compensation claim. The referee could reject the employer’s reason for the termination that disqualifies the employee from UC benefits and instead accept the employee’s testimony and conclude that the employee is eligible because he or she was terminated for a discriminatory reason.

The impact of collateral estoppel: The Alabama Supreme Court has held for well over 20 years that collateral estoppel applies to the decision of a UC appeals referee. This means that decision could have preclusive effect in a later employment lawsuit, depending on the type of claim being asserted. Collateral estoppel can apply to an appellate determination in a UC claim when:

• • The parties were under oath in the hearing.
  • The parties contested the issue of the employee’s termination and had adequate opportunity to do so.
  • That issue was decided by the referee and necessary to the determination.

The practical result is that an employee could use a determination that the employee was retaliated against, or some other finding adverse to the employer, against the employer in a later employment lawsuit. For example, the employee could successfully argue in the lawsuit that the issue of whether he or she had been retaliated against had already been decided by the appeals referee, even if the UC hearing was informal and brief, and thus preclude the employer from being able to challenge that finding in the lawsuit. This doctrine does work both ways, however, as an employer can use a finding adverse to the employee – e.g., the appeals officer finds there was no retaliation – to successfully defend against the later employment lawsuit.

Employer tips: Every UC claim filed by a former employee who has either asserted an employment law claim or who the employer thinks could assert one in the future should be monitored from the initial filing by a senior HR employee, in-house lawyer or other senior management person familiar with the process and the potential consequences. The employer should consult with an employment lawyer throughout every step of the claim, starting with the initial response. Importantly, employers should consult with a lawyer before deciding to appeal an initial adverse decision and then again on whether to participate in the hearing of an employee’s appeal, as participation in the hearing is a key factor in deciding whether collateral estoppel may apply.

Please contact Michael Turner or any member of Phelps’ Labor and Employment team if you have questions or need compliance advice or guidance.