The Oklahoma Court of Appeals very recently decided the case of Evans v. Oklahoma Employment Security Commission, 2011 OK CIV APP 9, in which it found that the Chief of the Consumer Health Service for the state Department of Health, who was terminated for a conflict of interest, was not terminated for “misconduct” and was therefore entitled to unemployment compensation benefits.

In Evans, the claimant was responsible for, among other things, overseeing the Oklahoma tattoo industry. His son happened to own a tattoo business. While the claimant testified that he disclosed this fact to his former supervisor, he had not told his current supervisor. The new supervisor testified that the claimant was terminated pursuant to the Department’s conflict of interest policy. The evidence showed, among other things, that the claimant ordered an employee to inspect his son’s establishment on the day that Oklahoma started regulating the tattoo industry, so his son’s business could be the first licensed tattoo parlor in Oklahoma. On another occasion, the claimant directed that one of his employees verify that one of his son’s competitors was in compliance with state regulations, because one of his son’s employees complained that the competitor’s business was not more than 1,000 feet from a school. This was after the employee had already once measured the distance and the claimant directed her to measure again. On another occasion, after a complaint by one of his son’s employees, the claimant directed one of his employees to investigate whether one of his son’s competitors was operating illegally on the weekend. When this complaint could not be verified, the claimant went to the business and told the owner he could not obtain a license because he was located too close to a church and that he could also be fined.

There was also evidence that the claimant’s supervisor discussed conflicts of interest in a meeting attended by the claimant and even discussed the form to be filled out, and that the claimant filled the form out without disclosing any conflict, claiming it was simply a “big mistake.” Based upon the evidence, the OESC denied benefits. The Board of Review affirmed this denial on appeal. The claimant appealed to the district court, which reversed, finding the evidence insufficient to establish that the claimant had engaged in “misconduct” associated with his work so as to disqualify him from receiving unemployment compensation. On appeal, the Court of Appeals affirmed the district court.

The Court found that the conflict of interest policy discussed in the testimony before the OESC was not in the record, and so the Court could not determine whether it was reasonable, since, “An employer may not, merely by passing a rule, disqualify as misconduct actions which, absent the rule, would not meet the statutory definition. “ Accordingly, the Court found the OESC failed to meet its burden to establish that the violation of the policy alone could disqualify the claimant. The Court further held that the claimant was not otherwise guilty of misconduct, which “may be found where an employee manifests an intentional and substantial disregard of the employer’s interests or of the employee’s duties and obligations to his employer.” The Court found that the evidence established that the claimant’s failure to disclose the conflict was out of “oversight or error” and that he assumed everyone knew his son was a tattoo artist. The Court also found that after the employer brought the issues to the claimant’s attention and began to investigate, the claimant took a “hands off” approach and did not involve himself in duties relating to tattoo businesses. The Court further found that the actions that had been taken by the claimant toward tattoo businesses were consistent with his duties, and that there was no evidence that he acted unfairly toward any business. The Court noted that the OESC did actually prove a conflict, but only an appearance of a conflict, which was insufficient to establish misconduct. The Court also seemed to be influenced by the fact that the claimant’s supervisor had been unaware of the claimant’s activities (which apparently caused the Court to conclude there was a lack of diligence or supervision on his part) and that it took the supervisor several weeks to complete an investigation into the claimant’s activities and terminate his employment.

This case is a good reminder that employers should be prepared with all available documentation and evidence when defending unemployment compensation proceedings, as they are often handled much like trials, with the proffered testimony and evidence admitted much like trial evidence. If evidence is not admitted or included in the record, it could lead to a bad result. Also, employers should clearly articulate and document their employment policies, ensure that employees are aware of such policies by having them acknowledge in writing their receipt of the policies, enforce and follow their policies, and take prompt and appropriate action in the case of violations. A well documented file may avoid the type of result that occurred in Evans.