Opinion
No. 2429 C.D. 2010
01-06-2012
Richard Patton, Petitioner v. Unemployment Compensation Board of Review, Respondent
BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE MARY HANNAH LEAVITT, Judge HONORABLE JAMES R. KELLEY, Senior Judge
This case was decided before Senior Judge Kelley's retirement on December 31, 2011.
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE LEAVITT
Richard Patton (Claimant), pro se, petitions for review of an adjudication of the Unemployment Compensation Board of Review (Board) holding him ineligible for unemployment compensation benefits. In doing so, the Board affirmed the factual findings of the Referee that Claimant, who was in-house counsel to a corporation, violated his employer's policy by sharing confidential information with another employee of the corporation. Accordingly, the Referee held that Claimant's willful misconduct rendered him ineligible for benefits under Section 402(e) of the Unemployment Compensation Law (Law). Concluding that the Board misapplied the work rule, we reverse.
Section 402(e) of the Law, Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. §802(e), provides in relevant part:
An employe shall be ineligible for compensation for any week -
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(e) In which his unemployment is due to his discharge or temporary suspension from work for willful misconduct . . . ."
Claimant was employed as in-house counsel for WJO, Inc. (Employer) with a final pay rate of $100,000 per year. After his dismissal on November 19, 2009, Claimant applied for unemployment compensation benefits. The Erie UC Service Center denied his application when Employer reported that it had dismissed Claimant for willful misconduct. Claimant appealed, and a Referee conducted two hearings.
William J. O'Brien, Employer's owner and CEO, testified. He explained that Employer owns several corporate subsidiaries, including HyperOx, which employs Joe Underwood as its Director of Engineering. O'Brien owns 51 percent of a hyperbaric oxygen patent, and Joe Underwood owns 49 percent of the patent. During the summer of 2009, the relationship between O'Brien and Underwood became strained, and O'Brien believed that Underwood was planning to set up a competing business. To prevent that, O'Brien sought a non-compete agreement from Underwood. To that end, Employer engaged a law firm to draft an appropriate employment agreement with a non-compete clause. On August 4, 2009, O'Brien e-mailed the draft employment agreement to Claimant to review. Underwood resigned on November 11, 2009, without signing the employment agreement.
After Underwood resigned, Employer's IT department retrieved e-mails sent to or from Underwood. Two printouts of e-mail chains, including correspondence between Claimant and Underwood, and other employees, were submitted into evidence.
In the first e-mail chain, dated August 4, 2009, O'Brien e-mailed the draft employment agreement to Claimant with a cover message that Claimant should check on an unrelated patent issue. O'Brien's e-mail gave no instructions with respect to the employment agreement. Later that day, Claimant forwarded the draft employment agreement to Underwood. O'Brien testified that he was shocked that Claimant had forwarded the employment agreement to Underwood because the draft agreement was labeled "confidential & privileged." Further, Claimant knew that Underwood was resisting the non-compete. O'Brien explained that Employer's handbook prohibits disclosure of confidential information and offered into evidence Section 18 of Employer's Handbook entitled "Trade Secrets and Conflicts of Interest."
Section 18 states, in relevant part, as follows:
It is important . . . that you keep information you learn through your employment confidential. Employees who improperly disclose sensitive information, confidential information, proprietary information, or trade secret information to anyone outside the Company will face disciplinary action, up to and including termination.Certified Record (C.R.), Item No. 20, Exhibit ER-2, at 1. O'Brien also submitted into evidence a "Handbook Acknowledgment Form" signed by Claimant on January 13, 2009. C.R., Item No. 20, Exhibit ER-3.
In the second e-mail chain, dated November 4, 2009, Claimant stated to Underwood that "the alpha has to occur." Notes of Testimony, February 17, 2010, at 39 (N.T. 2/17/10, at___). In full, Claimant's e-mail stated:
THIS IS WHY I TOLD YOU THAT THE ALPHA HAS TO OCCUR; " WE DON'T HAVE BUGS AS PART OF OUR INS POLICY" which is another way of saying , "I don't really give a f***!Certified Record (C.R.___), Item No. 20, Exhibit ER-1, at 1 (underlining, italics, and caps in original). The genesis of the e-mail chain was a discussion between Claimant and another employee, Larry Bird, regarding an insect infestation problem. Bird responded to Claimant's e-mail about whether "bugs" were covered by the insurance policy and could support some action against the landlord. This discussion was then forwarded to Underwood with the above e-mail. When O'Brien questioned Claimant about what "the alpha" meant, Claimant responded that it referred to Underwood starting his own company.
O'Brien was dissatisfied with Claimant's explanation for either of the two e-mails. Concluding that Claimant had acted in a way that was inimical to Employer's interests, O'Brien dismissed him on November 19, 2009.
Claimant offered a different version of the facts in his testimony. He testified that during the summer of 2009 the relationship between O'Brien and Underwood became hostile because of their conflict over Employer's non-compete request. Claimant explained that he believed his job required him to do what O'Brien directed, which meant providing legal advice to the corporation and to its employees. In the event of a conflict between O'Brien and Underwood, he could not represent either party. With respect to the conflict between Employer and Underwood, Claimant understood his role to be that of a mediator.
Claimant explained that he e-mailed a copy of the draft employment contract to Underwood for his review, believing that this would advance a resolution of the conflict between O'Brien and Underwood. Claimant stated that he understood O'Brien wanted Underwood to review the draft agreement so that it could be executed promptly. Claimant noted that, in any event, O'Brien did not instruct him not to send the draft agreement to Underwood. Upon receiving the draft agreement, Underwood informed Claimant that he was going to hire a lawyer.
With regard to Claimant's e-mail to Underwood stating that "the alpha has to occur," Claimant testified that the word "alpha" was a joking reference to a roach problem in the office. Claimant denied advising Underwood to start his own business or that the "alpha" reference had anything to do with Underwood starting a business. Claimant testified that advising Underwood to start a business would have been a "gross violation" of his job duties. Notes of Testimony, March 2, 2010, at 19 (N.T. 3/2/10, at ___).
Underwood then testified on behalf of Claimant. He confirmed that his relationship with O'Brien became hostile in 2009 and that Claimant did not advise him to start a competing business. When Claimant forwarded the draft employment agreement to him, Underwood turned it over to his attorney. Underwood testified that "operation alpha" was a comical term he and Claimant had used for exterminating roaches.
Because the parties disagreed on the duties and responsibilities of in-house counsel, the Referee offered into evidence, without objection, an advisory opinion by the Pennsylvania Bar Association. PENNSYLVANIA BAR ASSOCIATION, ATTORNEY-CLIENT PRIVILEGE IN THE CORPORATE SETTING: HOW TO KEEP YOUR CONFIDENTIAL INFORMATION CONFIDENTIAL. C.R., Item No. 21, Exhibit R-12 (Advisory Opinion). The Advisory Opinion states, inter alia, that an in-house counsel serves the corporation, as opposed to its individual officers, directors or employees; that privileged or sensitive information should be disclosed only on a need-to-know basis; and that communications between in-house counsel and outside attorneys should be kept confidential. Such communications should not be shared with other employees, except on a "strict need-to-know basis." Advisory Opinion at 2.
The Advisory Opinion is available online at http://www.pabar.org/public/committees/in-house/pubs/inhouseguide.asp.
The Referee made, inter alia, several critical factual findings. Specifically, the Referee found that Claimant knew: (1) that Employer's policy states that employees who disclose confidential information are subject to termination; (2) that the relationship between O'Brien and Underwood had become hostile in the summer of 2009; (3) that O'Brien wanted Underwood to sign an employment agreement but Underwood was reluctant to do so; and (4) O'Brien and Underwood disagreed as to the terms and conditions of the employment agreement, in particular the scope of the non-compete clause. The Referee found that Claimant was dismissed for forwarding the draft employment contract to Underwood and for advising Underwood to start his own company. However, the Referee made no findings about the meaning of the "alpha" e-mail or whether Claimant in any way had advised Underwood to leave and start his own company.
Noting the Advisory Opinion's directive that in-house counsel cannot represent both the corporation and its employee, where their interests diverge, the Referee concluded that Claimant could not represent Underwood in the negotiations. The Referee determined that Claimant's act of e-mailing the draft employment agreement to Underwood without express authorization from Employer constituted willful misconduct.
Claimant appealed to the Board, and it affirmed the Referee's decision. It credited O'Brien's testimony that he asked Claimant to review the draft employment agreement and did not authorize Claimant to forward the agreement to Underwood. It rejected as not credible Claimant's testimony that he believed Underwood was expecting a copy of the draft agreement and that O'Brien wanted it signed quickly. It further found that Claimant failed to establish good cause for his conduct. Claimant now petitions this Court for review.
Although not defined in the Law, the courts have established that willful misconduct is a willful disregard of an employer's interest, a deliberate violation of the employer's rules, a disregard of standards of behavior which the employer has a right to expect of an employee, or negligence indicating an intentional disregard of the employer's interest or of the employee's duties and obligations to the employer. Bruce v. Unemployment Compensation Board of Review, 2 A.3d 667, 671 (Pa. Cmwlth. 2010), appeal denied, 608 Pa. 656, 12 A.3d 753 (2010). Where the alleged willful misconduct is based upon the violation of a work rule, the employer has the burden to establish the existence of the rule, its reasonableness, and that the employee was aware of the rule. Bishop Carroll High School v. Unemployment Compensation Board of Review, 557 A.2d 1141, 1143 (Pa. Cmwlth. 1989). Once employer meets this burden, the burden shifts to the claimant to prove that the rule was unreasonable or that he had good cause for violating the rule. Guthrie v. Unemployment Compensation Board of Review, 738 A.2d 518, 521 (Pa. Cmwlth. 1999). A claimant has good cause if his actions are reasonable and justified under the circumstances. Bruce, 2 A.3d at 671. With these principles in mind, we turn to Claimant's issues on appeal.
On appeal, Claimant argues that substantial evidence does not support several of the Referee's findings of fact. Claimant also challenges the Board's conclusion that he violated Employer's policy or his responsibilities as its in-house counsel.
Our scope of review is limited to determining whether constitutional rights have been violated, errors of law were committed, or whether findings of fact are supported by substantial evidence. 2 Pa. C.S. §704; Sheets v. Unemployment Compensation Board of Review, 708 A.2d 884, 885 n.3 (Pa. Cmwlth. 1998). Substantial evidence is defined as "such relevant evidence which a reasonable mind would accept as adequate to support a conclusion." Guthrie v. Unemployment Compensation Board of Review, 738 A.2d 518, 521 (Pa. Cmwlth. 1999).
We begin with Claimant's second argument. He challenges the Board's conclusion that he violated Employer's work rule and his duties as in-house counsel by forwarding the employment contract to Underwood.
Employer's rule prohibits the disclosure of sensitive, confidential, proprietary, or trade secret information "to anyone outside the Company." C.R., Item No. 20, Exhibit ER-2, at 1 (emphasis added); see also Employee's Handbook, supra note 3. Claimant forwarded the draft employment contract to Underwood, who was an employee at that time. An employee cannot be found to have committed willful misconduct where the employer's policy did not warn that such behavior could result in termination. PMA Reinsurance Corporation v. Unemployment Compensation Board of Review, 558 A.2d 623, 626 (Pa. Cmwlth. 1989). In any case, Employer's work rule did not apply here because Claimant did not disclose the information to someone "outside the Company," but rather inside the Company.
Even assuming, arguendo, that Employer's rule extends beyond its plain language, the evidence did not show a violation. Employer asserts that the draft employment contract was privileged and confidential because the contract was marked as such. That the terms of the employment agreement were intended to be kept confidential by Employer does not mean it was to be kept a secret from the putative parties to the agreement. There are many reasons why the terms of such an agreement would be kept confidential, particularly if other employees were offered an employment agreement with similar, but not as favorable, terms. It does not follow that the draft employment agreement was to be kept confidential from Underwood, the very party expected to sign the agreement. O'Brien may have believed that the draft agreement was not ready for Underwood's review, but by his own admission he did not share that belief with Claimant. Indeed, O'Brien gave no instructions to Claimant on how to conduct his "review." It was not unreasonable for Claimant to believe that a "review" included getting comments from the other party to the proposed agreement.
In sum, we conclude that Claimant did not violate the express terms of Employer's trade secret policy by forwarding the draft employment agreement to Underwood for his comment. Nor did Claimant violate instructions on how to handle the document.
We turn next to the Board's conclusion that Claimant violated his professional duties as in-house counsel by forwarding the contract to Underwood. The Referee and the Board relied on the Advisory Opinion, but we conclude that this reliance was misplaced.
At the hearing, the Referee interrupted O'Brien's testimony regarding his beliefs about Claimant's duties as in-house counsel. In particular, the Referee stated that she would need to take "judicial notice" to determine "an official designation of what in-house counsel does and who in-house counsel represents." N.T. 2/17/10, at 34. The parties disagreed on the scope of Claimant's responsibilities as in-house counsel, but the Advisory Opinion is not dispositive of Claimant's duty to Employer.
For example, O'Brien testified that he occasionally asked Claimant to handle legal issues for employees. The relevant testimony occurred as follows:
[Claimant]: Had you [O'Brien] come to me on a number of occasions and asked me to involve myself with other employees of the companies . . . to address their legal needs?N.T. 2/17/10, at 33. Thus, the parties' understanding of the duties of in-house counsel differed from that of the Advisory Opinion.
[O'Brien]: I came to you as CEO of the company and specifically I can name Dr. Pickard for one who had a problem with a construction company. I said, Rick, if you can help him out that would be great. Don't charge him if you want; but if you want to charge him you can, that's fine. Rick would charge them, okay, and treat them as if they were clients in that regard. Sometimes he didn't charge them.
First, the Advisory Opinion does not set out to make ethical or professional pronouncements to guide attorneys in their profession. It is a "how to" manual that identifies ways in which attorneys may assist their corporate clients in keeping "confidential information confidential." C.R., Item No. 21, Exhibit R-12, at 1. It calls itself "A Guide for Corporate Clients." Id.
Second, Claimant's job responsibilities were unclear. At times he assisted employees, at the direction of O'Brien, in their personal matters, such as a problem an employee had with a construction company. See supra note 6. Claimant did not work exclusively as an attorney for the corporation. That he was an attorney did not mean that he always worked as an attorney in the organization.
The Board argues that Claimant breached Rule 1.6(a) of the Pennsylvania Rules of Professional Conduct, which states: "A lawyer shall not reveal information relating to representation of a client unless the client gives informed consent, except for disclosures that are impliedly authorized in order to carry out the representation. . . ." Pa. R. Prof. Conduct 1.6(a). The comments to Rule 1.6 further explain that "[e]xcept to the extent that the client's instructions or special circumstances limit [disclosure], a lawyer is impliedly authorized to make disclosures about a client when appropriate in carrying out the representation." Pa. R. Prof. Conduct 1.6 cmt. 6.
Here, it is not disputed that Employer sought Underwood's agreement to a non-compete. That fact was not confidential information nor was Underwood's resistance to the proposed non-compete. It was not unreasonable for Claimant to believe that the scope of his representation of Employer required him to obtain Underwood's comments on the draft employment agreement. A draft agreement could result in a counter-draft that would be acceptable to Employer. Rule 1.6 might have application should Claimant have disclosed the existence of the draft employment agreement to third parties without an interest in the matter. There is no evidence that he did so.
O'Brien acknowledged that he did not direct Claimant not to send the contract to Underwood. O'Brien's cover e-mail with the draft employment agreement gave no directions to claimant with respect to that agreement. Claimant believed it advanced his representation of Employer to forward the draft employment agreement to the other party to that proposed agreement. Absent contrary instructions, this belief was reasonable.
In sum, the Board erred in holding that Claimant violated Employer's rule or his duties as an attorney. Accordingly, for all of the foregoing reasons, we reverse the order of the Board.
Because of our resolution of Claimant's first issue, we need not address his challenge to certain findings of fact. --------
/s/_________
MARY HANNAH LEAVITT, Judge ORDER
AND NOW, this 6th day of January, 2012, the order of the Unemployment Compensation Board of Review dated October 25, 2010, in the above-captioned matter is hereby REVERSED.
/s/_________
MARY HANNAH LEAVITT, Judge