RENDERED: JANUARY 7, 2022; 10:00 A.M. NOT TO BE PUBLISHED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-