In 1984, the Kentucky Legislature enacted KRS 341.407(3), permitting employers, including corporations and partnerships, to represent themselves or be represented by counsel in administrative unemployment proceedings. Thirty-five years later, on April 26, 2019, the Kentucky Court of Appeals declared that law unconstitutional and effectively held that a lawyer must represent corporations and non-natural entities in administrative unemployment proceedings.
In Nichols v. Kentucky Unemployment Insurance Commission, et. al, the case declaring the statute unconstitutional, Norton Healthcare ("Norton") terminated Mr. Nichols' employment for misconduct. Nichols filed for unemployment online 15 minutes after his termination, citing lack of work as the alleged reason for his discharge. Norton contested Mr. Nichols' claim for benefits, and the Unemployment Division's initial investigation found not only that Nichols was terminated for misconduct, but that his claim of "lack of work" was an intentional misrepresentation in his application disqualifying him from being eligible to receive unemployment benefits.
Nichols appealed the Unemployment Division's ruling to a Referee, and was represented by counsel in those proceedings. Norton was not represented by counsel, but was represented by Mr. Skinner, the manager who terminated Nichols, and a non-lawyer. While the Referee conducted the majority of the hearing, Mr. Skinner was allowed to cross-examine Nichols during the hearing. Both the Referee and subsequently the Unemployment Commission affirmed the Unemployment Division's decision that Nichols was indeed terminated for misconduct. Nichols and his counsel then filed a petition for judicial review.
In a decision that can only be described as shocking to Kentucky employers and their counsel, the Court of Appeals held that Skinner's representation of Norton during the Referee Hearing and before the Unemployment Commission constituted the unauthorized practice of law, and further held that to the extent KRS 341.470(3) provides otherwise, it is an unconstitutional violation of the separation of powers between the legislature and the judiciary.
The ruling in Nichols will impact an employer's decision whether or not to challenge unemployment claims appeals filed by even the most culpable of employees. While it appears employers may still respond on their own to a former employee's initial claim for benefits, in light of the Nichols decision, employers should closely review the strength of the termination decision, their supporting documentation, and the likelihood of success in defending a claim for unemployment benefits. Employers would also do well to consult with their employment counsel for advice on these issues before beginning the now more costly process of challenging or appealing the initial determinations of an employee's entitlement to benefits through the administrative hearing and appeals process.
Finally, there appears to be remaining questions regarding this ruling. Can an employer send the terminating manager or someone from HR to simply answer questions as a witness, not give an opening statement, cross exam witnesses, or make a closing statement, and not be deemed to be engaging in the unauthorized practice of law? Likely unknown at this point, but confirming the Unemployment Division's stance on that issue before a hearing would be a good idea.
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