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06/18/97 ALLEGHENY VALLEY SCHOOL v. PENNSYLVANIA

June 18, 1997

ALLEGHENY VALLEY SCHOOL, APPELLANT,
v.
PENNSYLVANIA UNEMPLOYMENT COMPENSATION BOARD OF REVIEW, DARRELL CALLWOOD, INTERVENOR, APPELLEES



Appeal from the Order of the Commonwealth Court entered on October 26, 1995 at No. 0865 C.D. 95 affirming the order of the Unemployment Compensation Board of Review entered on March 30, 1995 at No. B-335071, Composition OF The Court: Mr. Chief Justice John P. Flaherty, Zappala, Cappy Castille, Nigro, JJ. Opinion BY Mr. Justice Castille. Madame Justice Newman did not participate in the consideration or decision of this case. Mr. Justice Cappy files a Dissenting opinion. Mr. Justice Nigro files a Dissenting opinion.

The opinion of the court was delivered by: Castille

OPINION OF THE COURT

JUSTICE CASTILLE

DECIDED: JUNE 18, 1997

The issue on appeal in this matter is what factor or factors must be considered when determining whether an unemployment compensation claimant had necessitous and compelling reasons to voluntarily terminate his employment after being demoted, thereby making a claimant eligible for benefits under Section 402(b) of the Unemployment Compensation Law, 43 P.S. § 802(b). *fn1 Because we hold that the existence of a necessitous and compelling reason in such a case depends solely upon whether the demotion was justified, and since appellant has produced evidence showing that claimant's demotion was justified, we reverse the Commonwealth Court's affirmance of the Unemployment Compensation Board of Review's grant of benefits to claimant.

The relevant facts are that on January 13, 1992, the claimant, Darrell Callwood, began working for appellant, Allegheny Valley School ("AVS"), an institution that provides for the care and education of developmentally disabled individuals, as an assistant house manager for the second shift *fn2 at a salary of $16,000 per year plus medical and other fringe benefits. The assistant house manager position was classified by AVS as a management staff position. Beginning early in his employment with AVS, claimant's supervisors met with him repeatedly in order to counsel claimant on deficiencies in his job performance. Some of the issues brought to claimant's attention were his failure to follow established routines, his inability to deal effectively with the staff, his failure to use good judgment at work, his deficiency in reporting information in a timely and accurate manner, and his inability to carry out his job responsibilities in a consistent and professional manner.

On July 29, 1994, while claimant was still employed as assistant house manager on the second shift at an increased salary of $18,725 per year, AVS informed claimant that he was being demoted from the assistant house manager position because of his continued inability to perform the responsibilities associated with this position. In place of the assistant house manager position, AVS offered claimant employment as either a house manager aide or as a developmental care specialist. Both of these positions included the same hours and non-monetary fringe benefit package that he had received in the assistant manager position. However, both of the offered positions required claimant to accept a reduction in salary as they only paid $6.76 per hour (approximately $14,000 per year). Also, neither of the offered positions was classified by AVS as a management staff position. On August 1, 1994, claimant refused AVS's offer and terminated his employment.

Claimant then filed for unemployment compensation benefits with the Office of Employment Security. On August 19, 1994, the Office of Employment Security found that claimant had a necessitous and compelling reason for voluntarily terminating his employment with AVS and that claimant was eligible for benefits under Section 402(b) of the Unemployment Compensation Law.

AVS timely appealed this decision and the appeal was assigned to an unemployment compensation referee. The referee conducted hearings on September 20, 1994, November 22, 1994, and December 20, 1994. At these hearings, claimant testified that he did not believe he was demoted. Instead, claimant testified that he believed that he was discharged from the assistant house manager position and was offered reemployment in the other positions offered by AVS. Claimant stated that he did not accept any of the other positions because they provided significantly less compensation than he had previously received as assistant house manager. Claimant, however, admitted at the hearings that he had failed to perform his job duties on certain occasions.

AVS countered claimant's testimony by presenting the testimony of claimant's supervisors. These persons included AVS's house manager, its administrator, its residential services director and its personnel services director. These four witnesses testified about the counselling and consultation provided to claimant because of his continued inability to perform the responsibilities of his position as assistant house manager. Examples of some of the reasons offered by AVS's witnesses for claimant's demotion included claimant's failure to follow established routines when presenting problems to his supervisors, his hasty and volatile reaction to employment situations and to his staff, his failure to keep accurate information concerning the residents, his inability to file timely reports required by AVS policy, his failure to adhere to AVS policy concerning how residents were to be treated, and his breach of the residents' confidentiality.

On January 20, 1995, the referee determined that the evidence supported AVS's contention that claimant was demoted because of poor job performance. The referee also determined that AVS offered claimant continuing employment at a reduced wage and that claimant voluntarily terminated his position. The referee, however, concluded that the demotion and resulting wage reduction created a necessary and compelling reason for claimant's voluntary termination. Thus, the referee affirmed the determination of the Office of Employment Security that claimant was entitled to unemployment compensation benefits under Section 402(b) of the Unemployment Compensation Law.

AVS timely appealed this decision to the Unemployment Compensation Board of Review ("Board"). On March 30, 1995, the Board, without holding further hearings and without the presentation of further evidence, essentially adopted the facts presented in the referee's opinion. In addition to adopting the referee's factual determinations, the Board opined that claimant had worked to the best of his abilities and concluded that claimant's demotion and reduction in pay were unreasonable and unjustified since claimant had worked to the best of his abilities. Thus, the Board affirmed the referee's decision to grant benefits to claimant.

AVS then timely appealed the Board's grant of benefits to the Commonwealth Court. In a published opinion, the Commonwealth Court, relying on Old Forge Bank v. Unemployment Compensation Bd. of Review, 666 A.2d 761 (Pa. Commw. 1995), *fn3 applied the rule of law that when a claimant's demotion is justified due to substandard work performance, a claimant can still receive benefits under Section 402(b) of the Unemployment Compensation Law if the claimant is able to make a showing that he made a good faith effort in performing his job or that his conduct was not tantamount to willful misconduct and that the demotion substantially changes the claimant's benefits or responsibilities. Because claimant made a showing of good faith in his job performance and claimant's pay in this case was found by the referee to be substantially reduced, the Commonwealth Court affirmed the grant of benefits.

This Court granted allocatur in order to address what factor or factors must be considered to support a finding that a claimant had necessitous and compelling reasons for voluntarily terminating employment after being demoted so that he would be entitled to benefits under Section 402(b) of the Unemployment Compensation Law. This Court's scope of review from an appeal of an adjudication of the Unemployment Compensation Board of Review is limited to whether a constitutional right has been violated, an error of law has been committed or whether the necessary findings of fact are supported by substantial evidence. Zerbe v. Unemployment Compensation Board of Review, 545 Pa. 406, 411, 681 A.2d 740, 742 (1996).

The mere fact that a claimant voluntarily terminates his employment does not alone act as an absolute bar to receiving unemployment compensation benefits. See Monaco v. Com., Unemployment Compensation Bd. of Review, 523 Pa. 41, 47, 565 A.2d 127, 130 (1989). Instead, a claimant is entitled to benefits under Section 402(b) of the Unemployment Compensation Law if he has "necessitous and compelling" reasons for voluntarily terminating his employment. 43 P.S. § 802(b). The party alleging that the voluntary termination is based on "necessitous and compelling" reasons bears the burden of proving the same. Deiss v. Unemployment Compensation Bd. of Review, 475 Pa. 547, 553, 381 A.2d 132, 135 (1977). This Court has not spoken on what standard is applicable to determine whether necessary and compelling circumstances exist for a claimant to voluntarily terminate his employment after he has been demoted. However, the Commonwealth Court, through its case law, has developed two lines of thought on how to examine this issue.

In Greco v. Unemployment Compensation Bd. of Review, 126 Pa. Commw. 531, 560 A.2d 300 (1989), Southeastern Pennsylvania Transportation Authority v. Com., Unemployment Compensation Bd. of Review, 109 Pa. Commw. 191, 531 A.2d 60 (1987), and Unemployment Compensation Bd. of Review v. Tune, 23 Pa. Commw. 201, 350 A.2d 876 (1976) (collectively, the "Tune " line of cases), the Commonwealth Court recognized that employers in Pennsylvania can properly demote people as a form of discipline or for other legitimate business purposes. When a claimant voluntary quits after being demoted, then, under the Tune line of cases, the claimant's eligibility for benefits under the "necessitous and compelling" language of Section 402(b) of the Unemployment Compensation Law necessarily relates to the reason for the demotion. Accordingly, under Tune, if the employer was justified in demoting a claimant, the claimant had no necessary and compelling reasons to voluntarily quit and the claimant was deemed ineligible for benefits since his own actions brought about the demotion. Conversely, the Tune line of cases held that a claimant was eligible for benefits if he voluntarily quit after an unjust demotion because the unjust demotion constituted a cause of a necessitous and compelling nature. AVS contends that the Tune line of cases should be applied because these cases follow the intent of the drafters of the Unemployment Compensation Law.

The Board and claimant in this matter do not agree with AVS's position. Instead, they urge the Court to affirm the rule of law stated in Old Forge, (supra) . In Old Forge, the Commonwealth Court expressly overruled the Tune line of cases because it believed that those cases' sole reliance on justification for the demotion did not provide for a proper examination of the "necessitous and compelling" reason issue of Section 402(b) of the Unemployment Compensation Law. Instead, the Old Forge court developed a two part test to examine this issue. Under this test, the fact finder must first look to the reason asserted for the demotion. If the demotion was unjustified, the inquiry is ended since the claimant had necessary and compelling reasons to voluntarily terminate his employment. However, if the employer was justified in demoting the claimant for disciplinary or other valid business reasons, the fact finder must then examine whether the changes in the terms and conditions of employment were ...


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