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Harold G. Diehl, Jr v. Unemployment Compensation Board of Review (Esab Group

December 28, 2012

HAROLD G. DIEHL, JR., APPELLANT
v.
UNEMPLOYMENT COMPENSATION BOARD OF REVIEW (ESAB GROUP, INC.), APPELLEE



Appeal from the order of the Commonwealth Court, dated September 20, 2010, at No. 2421 CD 2009 affirming the order of the UCBR, dated November 10, 2009, at No. B-09-09-F-3990.

The opinion of the court was delivered by: Mr. Justice Baer

CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.

ARGUED: May 8, 2012

OPINION MR. JUSTICE BAER

We granted review to consider whether the "voluntary layoff option" proviso ("VLO Proviso") contained in Section 402(b) of the Unemployment Compensation Law ("UC Law"), 43 P.S. § 802(b),*fn1 permits employees to receive unemployment compensation benefits when they accept an early retirement plan offered pursuant to an employer-initiated workforce reduction. Upon application of our rules of statutory construction, we reverse the decision of the Commonwealth Court and conclude that the UC Law does not preclude application of the VLO Proviso to early retirement plans offered pursuant to employer-initiated workforce reductions.

Appellant Harold G. Diehl (Employee) was a sixty-three year old, twenty-three year employee of ESAB Welding and Cutting Products (Employer), where he worked as a shipping clerk. Transcript of Hearing before Unemployment Compensation Referee, June 16, 2009, at 3. In December 2008, Employer announced a reduction in force due to financial conditions and issued a memo to Employee's union, UAW Local 1968, with a list of twenty employees who would be laid-off in accordance with the Reduction in Workforce section of the contract with the union. While the list did not include Employee, who had high seniority, the memo explained that up to ten listed employees would be "retained to fill vacancies pending the results of the Early Retirement offer." Employer Memo to Union, December 19, 2008, at 2. As found by an Unemployment Compensation Referee, Employer offered employees over sixty years old an early retirement program to encourage high seniority employees to leave so that the less senior employees on the list would not be laid off. Referee Decision/Order of June 23, 2009. The terms of the offer included full payment of health insurance for three years and partial payment of insurance for two years. Additionally, Employer would pay for unused vacation days, but not a severance benefit or other monetary compensation. Employee accepted the early retirement package, under the assumption that he would also receive unemployment compensation. Transcript of Hearing before Unemployment Compensation Referee, June 16, 2009, at 5.

After accepting the early retirement option, Employee sought unemployment compensation benefits. The Office of Unemployment Compensation Benefits denied his claim in a Notice of Determination, citing a portion of Section 402(b) of the Unemployment Compensation Law.*fn2 It determined that where a claimant's reason for separation is due to accepting the employer's voluntarily retirement offer, "in order to qualify for benefits, the burden is on the Claimant to show that he had knowledge that his job would have been affected if he did not accept the Employer's plan to voluntarily separate from employment." Notice of Determination, May 5, 2009.

Employee appealed the decision to a referee of the Unemployment Compensation Board of Review (UCBR), who presided over a hearing in June 2009. Employer did not attend the hearing but submitted a letter limited to the following statements: "The retirement packages offered to all hourly employees this year have been part of an overall reduction in force. The reductions in force have been necessary in response to deteriorating business conditions." ESAB Letter dated June 16, 2009. Subsequently, the referee affirmed the denial of benefits, citing the following language from Section 402(b): "An employee shall be ineligible for compensation for any week . . .

(b) In which his unemployment is due to voluntarily leaving work without cause of a necessitous and compelling nature . . . ." Referee's Decision of June 23, 2009. Noting that Employee was not on the list of employees to be laid-off, the referee found that Employee's unemployment was not due to a necessitous or compelling reason as required by the general rule of Section 402(b), without discussing the applicability of the VLO Proviso of that section.

Employee sought review from the UCBR, which initially affirmed. Upon Employee's motion, the UCBR granted reconsideration and vacated its prior determination to address Employee's legal issue regarding the VLO Proviso of Section 402(b). As noted, the VLO Proviso states, "Provided further, That no otherwise eligible claimant shall be denied benefits for any week in which his unemployment is due to exercising the option of accepting a layoff, from an available position pursuant to a labor-management contract agreement, or pursuant to an established employer plan, program or policy." 43 P.S. § 802(b). Although the UCBR granted reconsideration, it ultimately denied benefits based upon the Commonwealth Court's prior decisions, which have held that the "VLO Proviso does not apply to situations involving acceptance of severance or retirement incentives," such as the early retirement package present in the case at bar. UCBR Decision of November 10, 2009, quoting Renda v. UCBR, 837 A.2d 685, 694 (Pa. Cmwlth. 2003).

Employee appealed the denial of benefits to the Commonwealth Court. In a published opinion, the Commonwealth Court addressed Employee's assertion that the UCBR's denial of benefits to Employee ignored the plain language of the VLO Proviso of Section 401(d)*fn3 and 402(b) of the Unemployment Compensation Law. Diehl v. UCBR, 4 A.3d 816 (Pa. Cmwlth. 2010). The Commonwealth Court recognized that Employee also sought reconsideration of the court's decision in Renda, which Employee asserted barred application of the VLO Proviso to claimants who received financial incentives. Alternatively, Employee argued that Renda was distinguishable because his health insurance and vacation benefits did not constitute financial incentives.

In considering Employee's challenge, the Commonwealth Court reviewed its history of addressing the VLO Proviso, which was added to the Unemployment Compensation Law in 1980. It acknowledged that it first considered the proviso in W.R. Grace & Co. v. UCBR, 455 A.2d 729 (Pa. Cmwlth. 1983), in which an employee was offered the choice between accepting a transfer from the first shift to the second and third shifts or accepting a voluntary layoff with recall rights. The court in W.R. Grace held that application of the VLO Proviso required two elements: (1) that the employee be "otherwise eligible" for unemployment compensation benefits and (2) that the employee's unemployment be "due to exercising a voluntary layoff option either negotiated by contract or established unilaterally by the employer." Id. at 730.

The Commonwealth Court proceeded to review its caselaw after W.R. Grace, in which it repeatedly refused to apply the VLO Proviso to employees accepting early retirement programs. See Renda v. UCBR, 837 A.2d 685 (Pa. Cmwlth. 2003), appeal denied, 863 A.2d 1151 (Pa. 2004); George v. UCBR, 767 A.2d 1124, 1128 n.10 (Pa. Cmwlth. 2001); Flannery v. UCBR, 557 A.2d 52 (Pa. Cmwlth. 1989); Sievers v. UCBR, 555 A.2d 260 (Pa. Cmwlth. 1987), aff'd per curiam, 551 A.2d 1057 (Pa. 1989). Accordingly, the court in the case at bar held, "based on our history of concluding the VLO proviso does not apply where a claimant accepts an early retirement incentive package, we decline Claimant's invitation to again revisit this issue here." Diehl, 4 A.3d at 822. The court did not recognize, as discussed in detail later in this opinion, that none of the cited cases provide the necessary statutory analysis of the VLO Proviso.

The court further rejected Employee's claim that the Renda line of cases' emphasis on the acceptance of financial incentives conflicted with the plain language of the statute. The court held that Employee's position failed to address the court's multiple holdings that the VLO Proviso does not apply to early retirement incentives packages (presumably with or without financial incentives), but instead applies only to voluntary layoffs.*fn4

This Court granted Employee's petition for allowance of appeal to consider whether the VLO Proviso applies where an employee accepts an early retirement plan offered pursuant to an employer-initiated workforce reduction, and thus to review the Renda line of caselaw to which this Court has not previously written.

Employee observes that the plain language of the VLO Proviso instructs that a claimant shall not be denied unemployment compensation benefits for "accepting a layoff, from an available position, pursuant to a labor-management contract agreement, or pursuant to an established employer plan, program or policy." He disputes the Commonwealth Court's distinction between an early retirement and a voluntary layoff. Employee contends that the plain meaning of the term "layoff" refers to both temporary and permanent terminations, such that it can encompass retirement as well as temporary layoffs. He further observes that the VLO Proviso does not speak to retirement, but instead applies so long as the claimant is "otherwise eligible." The "otherwise eligible" language of Section 402(b) relates to, inter alia, Section 401, 43 P.S.§ 801, entitled "Qualifications required to secure compensation" and listing various requirements including that the employee has been paid certain wages, has registered to work and continued to report to employment offices, and, relevantly, "[i]s able to work and available for suitable work." Employee contends that employees accepting early retirement packages may remain able and available to work, observing that many individuals "retire" from one organization without retiring from working generally.*fn5

Employee further maintains that the Commonwealth Court's interpretation of the statute conflicts with the purpose of the UC Law and public policy. Employee highlights former Justice Papadakos's argument in his dissenting statement from this Court's per curiam affirmance of the Commonwealth Court in Sievers, where he argued that to deny benefits in this situation would encourage employers to adopt "sophisticated schemes" to "force early retirements" during financial downturns or when the bulk of the employees become older and achieve higher seniority. Sievers, 551 A.2d at 1059 (Papadakos, J., dissenting). Justice Papadakos stated, "To deny unemployment compensation benefits to employees caught in such circumstances seems to me to be contrary to the most fundamental goals of the statute." Id. Employee observes that the fundamental goals referenced by the dissent are set forth in Section 3 of the UC Law, providing that "[e]conomic insecurity due to unemployment is a serious menace to the health, morals, and welfare of the people of the Commonwealth." 43 P.S. § 752.

Employee emphasizes that this Court has held that the eligibility sections of the UC Law should be interpreted liberally to provide a maximum amount of benefits allowable to a claimant who has experienced involuntary unemployment and that disqualification provisions should be interpreted narrowly, citing Penflex, Inc. v. Bryson, 485 A.2d 359, 365 (Pa. 1984). In contrast to our guidance in Penflex, Employee contends that the Renda line of cases "restricts eligibility and expands disqualifications by imposing additional restrictions on the VLO that are not provided for in the statute by the 'plain language' of this provision." Brief of Employee at 19.

Employee also finds support in the caselaw and statutes of our sister states. He contends that several states allow unemployment benefits to employees who accept employer-initiated voluntary layoff packages, even where the layoffs involve the voluntary decision of a higher-seniority employee to accept termination, thereby permitting lower-seniority employee to remain employed. Brief of Employee at 20-24, citing, inter alia, Ford Motor Co. v. Administrator, Ohio Bureau of Employment Services, 571 N.E.2d 727, 730 (Ohio 1991); AT&T Information Systems, Inc. v. Arizona Dep't of Economic Sec., 741 P.2d 703 (Ariz. Ct. App. 1987). Although Employee acknowledges differences in the relevant statutory language of some of our sister states compared to our own, as discussed below, Employee contends that the policy of providing unemployment benefits to employees accepting early retirement applies equally in Pennsylvania.*fn6

The UCBR urges this Court to affirm the decision of the Commonwealth Court and its long-standing precedent. It contends that under the general rule of Section 402, rather than the exception of the VLO Proviso, when an employee voluntarily quits and applies for unemployment benefits, the burden is on the employee to establish his eligibility by showing that he had a compelling and necessitous reason to leave his employment, in contrast to a case involving an employee discharged by his employer, where the burden is on the employer to prove ineligibility. It notes that in cases where employees elect early retirement packages, the Commonwealth Court has held that the employee must show a compelling and necessitous reason for accepting the offer by demonstrating that she "was justified in believing that her layoff was likely to materialize and that her job was imminently threatened." Brief of UCBR at 8, quoting Wright-Swygert v. UCBR, 16 A.3d 1204, 1208 (Pa. Cmwlth. 2011). The UCBR observes that this burden is not insurmountable, citing a handful of cases where the Commonwealth Court has affirmed the UCBR's award of benefits where the claimants were justified in believing their positions would be in jeopardy if they did not accept the early retirement packages. See Wright-Swygert, 16 A.3d 1204; Eby v. UCBR, 629 A.2d 176 (Pa. Cmwlth. 1993).

Turning to the application of the VLO Proviso, the UCBR emphasizes that in "case after case" the Commonwealth Court has consistently rejected the application of the VLO Proviso to employees who have voluntarily accepted severance or retirement incentive plans offered by their employers, and instead limited the VLO Proviso to cases involving temporary layoffs. The UCBR cites the Commonwealth Court's decision in W.R. Grace, 455 A.2d at 730, as the genesis of the limitation of the VLO Proviso to those who exercise a "voluntary layoff with recall rights," as opposed to severance or early retirement incentives. While the UCBR fails to acknowledge that the W.R. Grace court merely applied the VLO Proviso in a case involving a "voluntary layoff with recall rights," without speaking positively or negatively to the application of the VLO Proviso to retirement incentives, the UCBR correctly recognizes that the Commonwealth Court has repeatedly relied upon W.R. Grace as establishing such a limit. See Renda, 837 A.2d at 694 n. 9; Flannery, 557 A.2d at 53-54; see also George, 767 A.2d at 1128 n.10 (relying upon Flannery).

The UCBR observes that the Commonwealth Court recently opined, This Court's adoption of this narrower definition of the term "layoff" has yielded nearly three decades of rulings, rejecting consistently any argument that the VLO proviso applies to a permanent separation from employment, and, in particular, permanent separations accompanied by some form of consideration from the employer - e.g., a severance or early retirement "package."

Beddis v. UCBR, 6 A.3d 1053, 1057 (Pa. Cmwlth. 2010) (emphasis in original). It asserts that there is no reason to change this long-standing judicial interpretation of the VLO Proviso, when those accepting early retirement incentives can instead pursue unemployment benefits upon demonstration of a necessitous and compelling reason for retiring under the general provision of Section 402(b). The UCBR, however, fails to acknowledge that the prior Commonwealth Court decisions upon which it relies have failed to provide any statutory analysis of the VLO Proviso or explain why the prior decision in W. R. Grace, which did not involve an early retirement package, controls the question at bar.

The UCBR rejects Employee's claim that the plain language of the VLO Proviso requires that the provision be applied to those who voluntarily retire pursuant to an employer's plan. It argues instead that a "layoff" entails a temporary separation from employment. The UCBR contrasts our Pennsylvania statute with the plain language of statutes of our sister states which specifically include permanent reductions in force, such as Arkansas. Brief of UCBR at 14, quoting Ark. Code Ann. ยง 11-10-513(c)(1) ("No individual shall be disqualified under this section if he or she left his or her last work because he or she voluntarily participated in a permanent reduction in the employer's work force after the employer announced a pending reduction in its ...


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