Appellate Division Holds an Employee Who Resigns His Position Because of a Reduction in Compensation is Not Eligible for Unemployment Benefits

August 23, 2017

Francine Foner, Esq., Ty Hyderally Esq.

The Unemployment Compensation Act, N.J.S.A. 43:21-1 to -24.30 (the “Act”) provides that an individual shall be disqualified for benefits if “the individual has left work voluntarily without good cause attributable to such work[.]” N.J.S.A. 43:21-5(a).  The Appellate Division recently considered a case in which an employee asserted that he had “good cause” to resign his employment, because he learned from his employer that his hours were being reduced by one day a week, resulting in 20% less compensation, which would present a financial hardship for his family.  Mullen v. Bd. of Review, 2017 N.J. Super. Unpub. LEXIS 2106.

After the Department of Labor denied Patrick Mullen’s (“Mullen”) application for unemployment benefits based upon his having voluntarily resigned from his job, he appealed to the Appeal Tribunal. Mullen argued he should not have been disqualified for unemployment benefits because the reduction in his pay constituted an “involuntary termination” of his position and qualified him for unemployment benefits.” Id. at *5.  The Appeal Tribunal agreed with Mullen’s contention, finding that Mullen “demonstrated good cause” and was not disqualified from benefits. However, the employer then appealed to the Board of Review, which reversed, finding that a 20% reduction in pay was not substantial and did not amount to good cause for Mullen’s resignation.  Id. at *3.

Mullen then appealed to the Appellate Division.  Relying upon its “highly deferential standard of review” the Appellate Division affirmed the Board of Review’s determination disqualifying Mullen for benefits.  The Appellate Division reasoned that “[t]he record amply supports the Board’s determination that Mullen resigned voluntarily predicated upon his personal belief that his compensation would be reduced.”  The Appellate Division further explained that the Board’s decision was supported by case law interpreting the meaning of “good cause” for voluntarily leaving work, under a test of “ordinary common sense and prudence”.  Id. at *5, citing Zielenski v. Bd. of Review, 85 N.J. Super. 46, 52 (App. Div. 1964).  Under such standard, the Appellate Division opined that “personal reasons” do not constitute good cause. Id at *6, citing  Brady v. Bd. of Review, 152 N.J. 197, 213 (1997). Utley v. Bd. of Review, Dep’t of Labor, 194 N.J. 534, 544 (2008); Rider Coll. v. Bd. of Review, 167 N.J. Super. 42, 47-48 (App. Div. 1979).

The Appellate Division’s decision did not focus on whether the percentage of the loss of salary was substantial. Rather, the Court relied upon the premise that “[t]his court has held that when an individual gives up partial employment that ordinarily does not constitute “good cause”; [i]t is claimant’s responsibility to do whatever is necessary and reasonable in order to remain employed.”  Id. at *6, citing Zielenski, supra, 85 N.J. Super. at 53-54.   Thus, the Court held that an employee’s leaving work voluntarily “predicated upon his personal belief that his compensation would be reduced” is a personal reason that does not amount to leaving work voluntarily for good cause. Id., citing Brady, supra, 152 N.J. at 213; Utley, supra, 194 N.J. at 544; Rider Coll., supra, 167 N.J. Super. at 47-48.  The Appellate Division went on to further state that “[m]ere dissatisfaction with working conditions which are not shown to be abnormal or do not affect health, does not constitute cause for leaving work voluntarily.” Id., citing Domenico v. Bd. of Review, 192 N.J. Super. 284, 288 (App. Div. 1983) (quoting Medwick v. Bd. of Review, 69 N.J. Super. 338, 345 (App. Div. 1961)). Finally, the Appellate Division opined that Muller’s decision to reject reduced compensation or to work part-time, without the prospect of employment elsewhere, was “objectively unreasonable” and “at odds with his concern of financial hardship.

The Appellate Division’s holding fails to account for circumstances in which altered working conditions or reduced hours would be objectively unreasonable.  Although working less hours, the employee still has to be committed to the position and may be required to produce the same amount of work, albeit in less hours. What if the hours are substantially reduced each day, but the employee still has to work 5 days per week? In such event it could cost the employee as much in commuting costs as remaining employed, while precluding the employee from working elsewhere to supplement his or her income. I would appear that this holding would apply even if the salary reduction was 90%.  In such case, it might not be worthwhile for an employee to remain employed, possibly having lost benefits, when he or she could be devoting all of his or her time to finding a new full time position.  What if an employer requires an employee to work a night shift instead of a day shift? That is not necessarily “abnormal” or something that would “affect health,” yet it is a substantial and potentially “objectively unreasonable” change in working conditions.  However, under the Appellate Division’s reasoning and holding, it would appear that these scenarios would not constitute “good cause” for resigning.

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