Practical Ventures, LLC d/b/a AAA Cash Fast v. James Neely, Commissioner of the Tennessee Department of Labor and Workforce Development, and Danyelle A. McCullough

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
Submitted on Briefs January 29, 2014

PRACTICAL VENTURES, LLC d/b/a AAA CASH FAST
v.
JAMES NEELY, COMMISSIONER OF THE TENNESSEE
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT,
AND DANYELLE A. McCULLOUGH

Appeal from the Chancery Court of Shelby County
No. CH-11-0349-3 Kenny W. Armstrong, Chancellor

No. W2013-00673-COA-R3-CV - Filed June 19, 2014

This is an appeal from an administrative decision on unemployment benefits. The appellee
Tennessee Department of Labor and Workforce Development held that the claimant
employee was “constructively discharged” and was therefore eligible for unemployment
benefits. The appellant employer filed a petition for judicial review of the administrative
decision. The chancery court affirmed, and the employer appeals. We hold that the doctrine
of constructive discharge is inapplicable to proceedings under the unemployment
compensation statutes. The facts as found by the administrative tribunal support a holding
that the employee voluntarily terminated her employment. For this reason, we conclude that
the administrative decision awarding benefits to the employee is not supported by substantial
and material evidence and is arbitrary and capricious. Accordingly, we reverse.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court is Reversed

H OLLY M. K IRBY, J., delivered the opinion of the Court, in which A LAN E. H IGHERS, P.J.
W.S., and J. S TEVEN S TAFFORD, J., joined.

Timothy A. Perkins, Memphis, Tennessee, for Plaintiff/Appellant Practical Ventures d/b/a
AAA Cash Fast

Robert E. Cooper, Jr., Derek C. Jumper, and Kathryn A. Baker, Nashville, Tennessee, for
Defendant/Appellee Tennessee Department of Labor and Workforce Development
 OPINION

F ACTS AND P ROCEEDINGS B ELOW

Plaintiff /Appellant Practical Ventures is a limited liability company doing business under
the name AAA Cash Fast (“Cash Fast”). Cash Fast operates a chain of stores that give
automobile title loans and check advances to individuals. The president, owner, and general
manager of Cash Fast is Mr. Gordon Ballenger.

In October 2008, Cash Fast hired Defendant Danyelle McCullough as a “store manager” for
one of its Memphis area stores. As the store manager, McCullough was the primary
employee for that store. When she was at work, she was typically the only employee at the
store; she handled Cash Fast’s financial transactions with its customers, that is, the title loans
and check advances. Occasionally, another employee assisted McCullough at the store, and
on McCullough’s days off, another employee filled in for her.

McCullough worked at her Cash Fast location on January 25, 2010, and she submitted a
closing report that included a summary of the store’s loans and transactions for that day. In
the course of reviewing the paperwork McCullough submitted for her Cash Fast store,
Ballenger noticed a copy of a check that was blank except for the amount of the check. The
next day, January 26, 2010, was McCullough’s day off, and employee Tonya Moore filled
in for her at the store. Concerned about this irregularity, Ballenger contacted Moore and
asked her to pull the check and look at it. Moore confirmed to Ballenger that the check was
in fact blank except for the amount and told him that she had noticed other discrepancies as
well.

Ballenger came to the store to investigate. Ballenger discovered a number of irregularities
involving multiple loans and multiple customers. These included loans in the names of
customers who, when contacted, said they knew nothing about such a loan. Ballenger began
to suspect that McCullough had engaged in fraud.

Ballenger called McCullough on her cell phone. He told her that they had seen some issues
with the loans and asked her to come to the store. McCullough told him that she could not
come in because she had taken her child for medical treatment.1 Ballenger told McCullough
that he and employee Moore would meet McCullough at her store the next morning, when
McCullough was scheduled to work. Ballenger initiated an audit of the store and contacted
the district attorney’s office.

1
The record indicates that McCullough’s daughter was suffering from a chronic medical condition that
required regular medical treatments.

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 The next day, Moore opened the store, and Ballenger was there as well. McCullough called
and told Moore that she was running late. Ballenger spoke to McCullough and told her that
an investigation of the transactions for her store was underway, that her security code had
been removed from the store security system, and that he had contacted the district attorney’s
office. He told her that she was suspended until further notice and that she needed to turn
in her store keys. McCullough responded that she was not concerned and said that she had
been planning to quit the following Saturday anyway. McCullough and Ballenger had no
further communications. She did not return to work at Cash Fast. McCullough did not return
the store keys Ballenger requested.

The Cash Fast audit determined that McCullough’s store location suffered a $15,468 loss
from the irregularities identified. A warrant was issued for McCullough’s arrest and she was
charged with seventeen criminal offenses, including embezzlement, identity theft, and
forgery. Sixteen of the seventeen charges were later dropped; one forgery charge remained
pending before the Grand Jury.

Several months later, on August 3, 2010, McCullough filed an initial claim for
unemployment compensation with the Defendant/Appellee Tennessee Department of Labor
and Workforce Development (“Department”). At the time, the forgery charge against her
remained pending. In McCullough’s unemployment compensation claim, she stated that
Cash Fast discharged her because she refused to come to work on her day off.

Cash Fast’s response to McCullough’s unemployment compensation claim asserted that
Ballenger told her on January 27, 2010, that she was suspended because of the financial
irregularities discovered at her store. It said that McCullough replied to Ballenger that the
suspension did not matter because she had intended to quit the following Saturday, January
30, anyway. The Cash Fast response indicated that the employer did not hear from
McCullough again until the hearing on the criminal charges and that she was ultimately
discharged for financial misconduct.

At the end of August 2010, the Department issued a decision denying McCullough’s claim
for unemployment benefits. It found that her employment was terminated for
misappropriation of company funds and that her actions constituted work-related misconduct
that disqualified her from receiving benefits under Tennessee Code Annotated § 50-7-303.
McCullough appealed the denial.

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On October 28, 2010, the Department’s Appeals Tribunal held an evidentiary telephonic
hearing.2 The Department Hearing Officer heard testimony from McCullough, Ballenger,
Moore, and another Cash Fast employee, Gloria Jones.

Ballenger testified at the outset of the hearing. He said that McCullough was the primary
employee at the store she managed and usually worked by herself at that location. He
described reviewing McCullough’s closing report for January 25, 2010, which included
summaries of the title loan reports and photocopies of the checks written for loans that day.
In the report, Ballenger noticed a photocopied check that was “completely blank except for
the amount of money.” He said the check had “no date, no signature, nothing filled out on
the check whatsoever” and added, “that is totally wrong.” The next day, January 26, was
McCullough’s day off, so Ballenger called Moore, who was filling in for McCullough at the
store, and asked Moore to pull the check in question. Moore did so and verified that the
check was in fact blank. She told Ballenger about several other irregularities as well.

Ballenger said that this information prompted him to go to McCullough’s store to investigate.
He found numerous irregularities. He contacted McCullough on her cell phone, told her that
they had discovered significant problems with the client files, and asked her to come to the
store to discuss the discrepancies. When McCullough told him that she could not come in,
Ballenger told her that he and Moore would meet her at the store the next day, when
McCullough was scheduled to work.

The next day, Ballenger testified, McCullough called the store and told Moore that she was
running late. Shortly after that, he said, McCullough called again and asked Moore if
Ballenger was there. Ballenger then took the telephone and told McCullough that they had
found multiple irregularities, that he had contacted the district attorney’s office, and that “we
were suspending her pending the results of her audit.” He also told her that she needed to
turn in her store keys. According to Ballenger, McCullough responded that “she wasn’t
concerned about the suspension, that she was S she intended to quit the following Saturday,
January 30th, anyway. So, she didn’t really care about the suspension.” Ballenger said he
considered this to be McCullough’s resignation. He said that she never came back to the
store or called after that exchange. McCullough never returned the Cash Fast store keys.

After that, Cash Fast completed the audit and police officers took sworn statements from
several Cash Fast customers. A warrant was issued for McCullough’s arrest and she was
arrested in late February 2010. Several charges of identity theft against McCullough were
later dropped, but at least one forgery count was held over for the grand jury to review.

2
Prior to the telephonic hearing, Cash Fast submitted a number of documents that were discussed at length
by the witnesses at the hearing. These documents were apparently not submitted into evidence.

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Moore testified next. She largely corroborated Ballenger’s testimony. Moore could not hear
McCullough’s end of the telephone conversation in which Ballenger told McCullough that
she was suspended because of the financial discrepancies, but Moore said she heard
Ballenger say to McCullough, “[Y]ou’re telling me that you’re quitting, that you was [sic]
planning on quitting this Saturday?” In testifying about her research into the irregularities
in McCullough’s financial reports, Moore described contacting customers who were listed
in McCullough’s report as having taken out loans. Some of the customers, Moore said, told
her they had no idea about the loans they were listed as having taken out. Moore testified
about numerous customer loans that she believed McCullough had falsified.

The hearing officer also heard testimony from Cash Fast’s lead store manager, Gloria Jones.
Jones assisted Ballenger and Moore in an audit of over 300 files at McCullough’s store
location. Jones said that audit revealed missing checks, altered checks, check numbers that
had been used twice, and missing folders. She said she spoke to a number of customers
herself, and many of them did not have outstanding loans as McCullough’s records indicated.
Jones testified that the audit results were out of the ordinary and “alarmed” her.

McCullough testified on her own behalf. She confirmed that she sent Ballenger the store
closing documents in question on the night of January 25, after she worked that day. The
closing documents included a cash flow sheet and a title loan daily report. The next day, the
26th, was her scheduled day off, and she was scheduled to be back at work on the 27th.
McCullough testified that Ballenger contacted her on the 26th to ask her to come in to work
“and assist Ms. Moore in my location, because she was having trouble.” She said that she
told Ballenger that she could not come in that day,3 but said that if Moore would “leave the
files there, I’d look through them in the morning.”

The next morning, McCullough said, she called the store and told Moore that she was
running late. She said that Ballenger then got on the phone. She described her conversation
with Ballenger:

Mr. Ballenger picked up the S I guess he picked up the other line when me and
Ms. Moore was on the line, and I was explaining to him that I’m running a
little late. He said, there’s S “there’s no need to come in.” He said, “You[r]
store is under investigation. I’m removing your security code.” He then went
to tell me that eight S the day before, Ms. Moore found a lot of, I guess,
discrepancies in my store, and that I was suspended until further notice after
he contacted [the] district attorney’s office. And then we hung up the phone,

3
McCullough said she was at her daughter’s medical appointment.

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 and then I called him back to ask about my final check, and he laughed in my
face and said I’ll get my check when he gets his key.

Asked about her response to Ballenger in that conversation, McCullough said:

. . .[H]e was yelling in the phone, I said S I said, “Gordon, I’m not concerned.”
I said, “I’m not worried because I know I did nothing wrong in your store.” I
said, “My daughter’s in the hospital. This is the last thing on my mind and you
can fire me if you want to, but I was planning on quitting anyway, but you
fired me first and I will wait to hear from you.” And that was the end of that
conversation.

The hearing officer then asked McCullough why she was planning to quit. McCullough
responded: “Well, because the hours that I was S my daughter was very sick and Mr.
Ballenger S you can’t work for him if you can’t be there. So, I was taking that time off so my
daughter S my daughter was going through surgery.” McCullough then addressed a number
of the financial irregularities that the Cash Fast witnesses had outlined, explaining why
certain documents looked like some customers had loans when in fact they did not. She
noted that, at that point, 16 of the 17 charges against her had been dropped. She claimed that
she believed that Ballenger was angry at her for refusing to come in to the store on her
scheduled day off.

On cross-examination, McCullough confirmed that, in their telephone conversation,
Ballenger told her only that she was suspended, not that she was terminated. McCullough
maintained that she considered the suspension to be a termination because Ballenger
“removed my alarm code and told me to bring S to get his keys to him. . . . That’s his
procedure when he’s terminating someone.” She added, “I even asked Mr. Ballenger on the
phone, are you firing me? He laughed.” That concluded the evidence at the hearing.

On October 29, 2010, the day after the telephonic hearing, the Appeals Tribunal mailed its
decision to the parties. The Appeals Tribunal reversed the prior denial of benefits and
determined that McCullough was eligible for unemployment benefits. The Appeals Tribunal
made the following findings of fact:

According to the employer’s policy, employees are suspended due to possible
theft at the store location. During the suspension, the employees are prohibited
from working and must return the employer’s property. The claimant
understood this procedure to mean termination of employment.

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 On January 25, 2010, the claimant sent her company reports to the owner. On
January 26, 2010, after the owner reviewed the reports, he attempted to speak
with the claimant about some book keeping discrepancies. When the owner
spoke to the claimant, he requested that she report to work on her day off. The
claimant refused because she was with her daughter at the hospital. The
claimant agreed to meet with the owner on the following day in order to talk
about her book keeping style. On January 27, 2010, the claimant was
scheduled to work, but she was not at her assigned work location on time. As
the claimant was driving into work, she called the employer’s personnel and
told her that she was running late. After the claimant made the comment, the
owner began to speak with the claimant. The owner informed the claimant
that he needed the store keys back and that she was suspended pending the
outcome of an investigation. The owner made the decision after speaking with
the district attorney’s office. When the owner finished explaining the
company’s position on the matter, the claimant informed him that she was
thinking about resigning on January 30, 2010 anyway.

Based on these factual findings, the Appeals Tribunal made the following conclusions of
law:

The Appeals Tribunal has determined that the claimant was constructively
discharged. The following facts helped the Appeals Tribunal to reach this
decision. The owner did not allow the claimant to work and requested the
return of the company’s property. The owner made this decision after
consulting with the district attorney’s office. Since the owner denied the
claimant the right to work first, the owner discharged the claimant. The
burden of proof rests with the employer to establish the claimant engaged in
work-related misconduct. The employer has provided insufficient proof. At
the time of separation, the claimant did not admit to any inappropriate conduct
and no witness[es]’ statements were gathered until after the separation.

Thus, the Appeals Tribunal found that Ballenger told McCullough that she was suspended
pending investigation of “book keeping discrepancies” and asked her to return her store keys.
It found that, in response, McCullough told Ballenger that she was thinking about resigning
the following Saturday anyway. Based on these factual findings, the Appeals Tribunal
concluded that McCullough was “constructively discharged.” It cited the fact that Ballenger
“denied [McCullough] the right to work first,” and concluded that this amounted to
discharging her. Once the Appeals Tribunal held that McCullough was discharged, it then
became incumbent on Cash Fast to prove work-related misconduct, and the Appeals Tribunal

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found the Cash Fast proof to be “insufficient.” For these reasons, the Appeals Tribunal
deemed McCullough eligible for unemployment compensation benefits.

Cash Fast appealed this decision to the Department’s Board of Review. In its appeal, Cash
Fast argued that McCullough was disqualified from receiving benefits because she quit her
employment or, in the alternative, she was discharged for work-related misconduct.

In its December 8, 2010, decision, the Board of Review stated the issue on appeal as
“whether claimant was discharged for misconduct under TCA §50-7-303(a)(2).” It affirmed
and adopted the findings and conclusions of the Appeals Tribunal. The Board of Review
explained its decision as follows:

This employer simply failed to meet its burden of proof. Despite submitting
numerous documents to the Tribunal and then again to the Board, none of
these documents were admitted into the record as evidence. . . . The employer
established that several discrepancies were found in the store while the
claimant was off work one day but failed to establish if the claimant was
involved or even why it was initially believed the claimant was involved.

The employer found discrepancies and contacted customers who confirmed
that they had not been into the store or initiated a loan since a certain date, but
that is the extend [sic] of the facts offered by the employer. The employer fails
to establish the claimant’s involvement in the events. . . . [T]he Board of
Review is not free to make a case for a party by assuming facts not entered in
the record and has no basis on which to assume the claimant was ever involved
in the wrongdoing. . . . Most testimony, if not all, offered by the employer was
without context and never tied back [into] the claimant.

Thus, the Board of Review addressed only whether Cash Fast had proven that McCullough
engaged in work-related misconduct. It did not address the issue of whether McCullough
quit or was discharged, other than to adopt the findings and conclusions of the Appeals
Tribunal. It agreed with the Appeals Tribunal that Cash Fast did not prove work-related
misconduct, so it agreed that McCullough was eligible for benefits.

In response, Cash Fast filed a petition to rehear in which it sought an evidentiary hearing and
an opportunity to present additional evidence on whether McCullough resigned her
employment and whether she breached Cash Fast corporate policies. This request was
denied.

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Cash Fast then filed a petition for judicial review in the Chancery Court of Shelby County,
Tennessee. In response, McCullough asked the trial court to dismiss the petition.

On January 24, 2013, the trial court held a hearing on the Cash Fast petition. The trial court
took no new evidence; the parties argued based on the evidence submitted in the hearing
before the Appeals Tribunal.4 The hearing focused on the Cash Fast contention that
McCullough was neither discharged nor “constructively discharged,” but instead voluntarily
quit. Cash Fast argued that this was a question of law to be decided by the trial court based
on the facts in the record.

On February 14, 2013, the trial court entered its order on the petition for judicial review. The
trial court’s order emphasized the standard of review of the Department’s administrative
decision, set forth in Tennessee Code Annotated § 50-7-304, and commented that the
standard mandated “substantial judicial deference” to the administrative decision. (Emphasis
removed). The order stated:

Based upon the record as a whole, the Court concludes that the decision of the
[Department] is supported by substantial and material evidence. The Court
finds that there is evidence to support the finding that the employee was
effectively terminated. Further, the Court holds that the decision of the
[Department] is not arbitrary or capricious. Finally, the Court finds that the
record contains insufficient evidence that the employee engaged in misconduct
that would disqualify her from eligibility for unemployment compensation
benefits.

Thus, the trial court held that the record supported the Department’s finding that Cash Fast
“effectively terminated” McCullough, and that Cash Fast had not shown disqualifying work-
related misconduct. From this order, Cash Fast now appeals.

ISSUES P RESENTED AND S TANDARD OF R EVIEW

On appeal, Cash Fast raises the following issues:

Whether the Board of Review acted arbitrarily and capriciously when it failed
to consider [Cash Fast’s] argument that [McCullough] voluntarily quit without
good cause?

4
The record includes a statement of the evidence for the Chancery Court hearing.

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 Whether the Agency erred in its interpretation and application of the “good
cause connected with the claimant’s work” standard under Tennessee Code
Annotated § 50-7-303(a)(1) when it concluded that suspension of an employee
pending an investigation into the employee’s potential misconduct constitutes
“good cause” justifying resignation?

Whether the Agency acted arbitrarily and capriciously in finding that “none of
the Employer’s documents were admitted into the record as evidence,” when
the administrative hearing transcript shows that everyone– including the
Hearing Officer– heavily relied on the Employer’s records throughout the
hearing?

On cross-appeal, the Department raises a single issue: “Whether the Chancery Court correctly
found substantial and material evidence in the record and reasonable basis in law affirming
the Department’s decision granting [McCullough] unemployment benefits.”

In an appeal from an agency decision regarding unemployment compensation benefits, both
the trial court and the appellate court apply the same standard of review, set forth in
Tennessee Code Annotated § 50-7-304(i)(2):

(2) The chancellor may affirm the decision of the commissioner or the
chancellor may reverse, remand or modify the decision if the rights of the
petitioner have been prejudiced because the administrative findings,
inferences, conclusions or decisions are:

(A) In violation of constitutional or statutory provisions;

(B) In excess of the statutory authority of the agency;

(C) Made upon unlawful procedure;

(D) Arbitrary or capricious or characterized by abuse of
discretion or clearly unwarranted exercise of discretion; or

(E) Unsupported by evidence that is both substantial and
material in the light of the entire record.

Tenn. Code Ann. § 50-7-304(i)(2). The task of the appellate court under this statute is to take
a “fresh look” at the Department's decision, not the decision of the lower court. See Sims
v. Culpepper, No. 01A01-9605-CH-00229, 1998 WL 32703, at *3 (Tenn. Ct. App. Jan. 30,

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1998) (citing Gilley v. Culpepper, No. 01A01-9611-CH-00521, 1997 WL 284625, at *2
(Tenn. Ct. App. May 30, 1997)). Accordingly, in this appeal, we confine our review to the
decisions of the Appeals Tribunal and the Board of Review.

In reviewing the agency’s decision, the appellate court must “review the entire record,
including any proof that fairly detracts from the agency’s decision, to determine whether it
is arbitrary, capricious, characterized by an abuse of discretion, or unsupported by substantial
and material evidence.” Newman v. Davis, No. W2013-00696-COA-R3-CV, 2014 WL
507100, at *7 (Tenn. Ct. App. Feb. 7, 2014) (quoting Armstrong v. Neel, 725 S.W.2d 953,
955 (Tenn. Ct. App.1986)); Tenn. Code Ann. § 50-7-304(i)(2)(D) and (E). “The court may
not substitute its judgment for that of the Commissioner’s Designee as to the weight of the
evidence on questions of fact, and the decision of the Commissioner’s Designee may not be
reversed, remanded or modified except for errors affecting the merits of the final decision
of the Commissioner’s Designee.” Newman, 2014 WL 507100, at *7; Tenn. Code Ann. §
50-7-304(i)(3).

Substantial and material evidence has been described as “ ‘something less than a
preponderance of the evidence, but more than a scintilla or glimmer.’ ” Dura Auto. Sys., Inc.
v. Neeley, No. M2009-00908-COA-R3-CV, 2010 WL 204090, at *2 (Tenn. Ct. App. Jan. 21,
2010) (quoting Dickson v. City of Memphis Civil Serv. Comm’n, 194 S.W.3d 457, 464
(Tenn. Ct. App. 2005); Wayne County v. Tenn. Solid Waste Disposal Control Bd., 756
S.W.2d 274, 280 (Tenn. Ct. App. 1988)). “[A] reviewing court should not apply Tenn. Code
Ann. § 4-5-322(h)(5)’s ‘substantial and material evidence’ test mechanically. Instead, the
court should review the record carefully to determine whether the administrative agency’s
decision is supported by ‘such relevant evidence as a rational mind might accept to support
a rational conclusion.’ ” Jackson Mobilphone Co., Inc. v. Tenn. Pub. Serv. Comm’n, 876
S.W.2d 106, 111 (Tenn. Ct. App. 1993) (citing Clay County Manor v. State Dep’t of Health
& Environment, 849 S.W.2d 755, 759 (Tenn. 1993)).

Broadly, the “arbitrary and capricious” standard requires the court to determine whether the
administrative agency has made a clear error in judgment. Jackson Mobilphone, 876 S.W.2d
at 110-11 (citing Amer. Paper Inst. v. Amer. Elec. Power Serv. Corp., 461 U.S. 402, 413;
103 S. Ct. 1921, 1928 (1983); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S.
402, 416; 91 S.Ct. 814, 823-24 (1971)). “An arbitrary decision is one that is not based on
any course of reasoning or exercise of judgment, or one that disregards the facts or
circumstances of the case without some basis that would lead a reasonable person to reach
the same conclusion.” Jackson Mobilphone, 876 S.W.2d at 111 (internal citation omitted).

Where the facts are undisputed, the issue of whether an unemployment compensation
claimant voluntarily quit his or her employment presents a question of law. McPherson v.

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Stokes, 954 S.W.2d 749, 751 (Tenn. Ct. App. 1997) (citations omitted). Questions of law
are reviewed on appeal de novo, with no presumption of correctness in the decision below.
Langschmidt v. Langschmidt, 81 S.W.3d 741, 744-45 (Tenn. 2002).

A NALYSIS

Tennessee’s unemployment statutes were enacted to ameliorate “the harsh economic effects
of involuntary unemployment on workers and their families.” Sims, 1998 WL 32703, at *2
(citing Tenn. Code Ann. § 50-7-102(a)). Consequently, the statutes governing unemployment
compensation “should be construed liberally in the employee’s favor and . . . the
disqualification provisions in the statutes should be construed narrowly.” Newman, 2014
WL 507100, at *7 (citing Armstrong, 725 S.W.2d at 955; Weaver v. Wallace, 565 S.W.2d
867, 869-70 (Tenn. 1978)); see also Cherry v. Suburban Mfg. Co., 745 S.W.2d 273, 275
(Tenn. 1988). However, this latitude is extended only to fulfill the legislature’s intent to
assist those who are involuntarily unemployed through no fault of their own. Accordingly,
“workers who leave their jobs ‘voluntarily without good cause connected with . . . [their]
work’ are not entitled to receive unemployment compensation benefits.” Sims, 1998 WL
32703, at *2 (citing Tenn. Code Ann. § 50-7-303(a)(1)).

We consider first Cash Fast’s argument that the Department erred in failing to find that
claimant McCullough is disqualified from receiving benefits under Tennessee Code
Annotated § 50-7-303(a)(1) because she “left [her] most work recent work voluntarily
without good cause connected to [her] work.” Tenn. Code Ann. § 50-7-303(a)(1)(A). Cash
Fast contends that the Board of Review acted arbitrarily in failing to address this issue in its
review of the decision of the Appeals Tribunal, and that McCullough voluntarily quit her
position without “good cause” within the meaning of the statute. Cash Fast asserts that
McCullough was obliged to participate in the investigation of the store’s financial
discrepancies, as a reasonable and necessary step to protect her employment, and she failed
to do so. Cash Fast also insists that the Department erred in finding that McCullough was
“constructively discharged.”

In its appellate brief, the Department argues: “On appeal, [Cash Fast] has not asserted that
the Department’s finding of effective termination was unsupported by substantial and
material evidence in the record. Accordingly, any such argument challenging the termination
finding is waived, pretermitting [Cash Fast’s] first and second issues for review.” We are
puzzled by the Department’s position; our review of the appellate briefs filed by Cash Fast
does not support the contention that these issues are waived. The Department chose not to
address the merits of the issue, so we proceed to analyze the issue without substantive input
from the Department.

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An initial observation is in order. The Appeals Tribunal held that McCullough was
“constructively discharged,” and this holding was adopted by the Board of Review. The
doctrine of constructive discharge first arose under the National Labor Relations Act and is
applicable under state and federal laws prohibiting discrimination on the basis of race, color,
religion, sex, or national origin. Campbell v. Florida Steel Corp., 919 S.W.2d 26, 33-34
(Tenn. 1996). Under the constructive discharge doctrine, an employer may be deemed to
have “discharged” an employee who resigned employment if the employee “resigns in order
to escape intolerable and illegal employment requirements to which the employee has been
subjected because of his race, color, religion, sex, or national origin.” Id. at 34. To prove
constructive discharge, the plaintiff employee must prove “that the employer knowingly
permitted conditions of discrimination in employment so intolerable that a reasonable person
subject to them would resign.” Id.

In a civil case alleging discrimination, the doctrine of constructive discharge presupposes that
the plaintiff resigned employment and the focus is on whether the employer caused the
resignation by allowing intolerable discriminatory conditions to exist. In contrast, in an
administrative proceeding in which a claimant resigns and seeks unemployment benefits, the
focus is on whether the claimant can show under the unemployment benefit statutes that he
quit for “good cause connected with the claimant’s work.” Tenn. Code Ann. § 50-7-
303(a)(1)(A). Thus, the legal theories for the two types of cases have different elements and
standards.5 The doctrine of constructive discharge is inapplicable in an administrative
unemployment compensation proceeding. As can be seen from our discussion below, use
of the term “constructive discharge” in an unemployment compensation administrative
proceeding muddies the analysis and should be avoided.

We now consider the Department’s holding. Initially, we have to determine whether the
Department held that McCullough “left [her] . . . work voluntarily” or was “discharged” by
Cash Fast. Tenn. Code Ann. § 50-7-303(a)(1) and (2). The Appeals Tribunal held that
McCullough was “constructively discharged,” and this holding was adopted by the Board of
Review. As noted above, the phrase “constructive discharge” is based on the premise that
the employee resigned from her employment, albeit under conditions that essentially left the
employee with little choice. The Appeals Tribunal also made the factual finding that, in her
January 27, 2010 conversation with Ballenger, McCullough “informed him that she was
thinking about resigning on January 30, 2010 anyway.” The Department’s use of the term
“constructive discharge,” taken together with the factual finding that McCullough told

5
In some situations, there may be overlap. For example, circumstances in which a unemployment
compensation claimant quits for “good cause connected with the claimant’s work” may on occasion also
constitute facts that would support a finding that the employee was “constructively discharged” under
discrimination statutes. Regardless, they involve separate statutes and should be analyzed as such.

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Ballenger that she was planning to resign anyway, indicates that the Department concluded
that McCullough quit her employment with Cash Fast. However, the Appeals Tribunal also
held that, because Cash Fast “denied [McCullough] the right to work first, [Cash Fast]
discharged the claimant.” (Emphasis added). It went on to hold that Cash Fast failed to carry
its burden of proving work-related misconduct, which is only required under the statute if the
employee is discharged from her employment. This indicates that the Department held that
Cash Fast discharged McCullough from her employment. Since the Department’s holding
is unclear, we will independently analyze the evidence on whether McCullough quit or was
fired.

From our review of the witness testimony, the salient facts are essentially undisputed. On
January 26, 2010, Ballenger contacted McCullough and asked her to come in to discuss
discrepancies in the store’s financial paperwork; McCullough was unable to do so and they
agreed to discuss the issues the next day at the store. In their January 27, 2010 conversation,
Ballenger told McCullough that Cash Fast was investigating irregularities in the store’s
financial reports and had been in contact with the local district attorney’s office. Ballenger
told McCullough that her store security code had been changed and that she was suspended
pending the outcome of the investigation. He told her that she needed to return her keys to
the store. In response, McCullough told Ballenger that she was “not concerned” about the
suspension, and that she had been planning to resign the following Saturday anyway. It is
undisputed that Ballenger and McCullough had no further contact outside of the legal
proceedings and that McCullough never turned in her store keys. The factual findings made
by the Appeals Tribunal6 and adopted by the Board of Review are in line with this outline
of the facts from the witnesses’ testimony.

As noted above, where the facts are undisputed, the issue of whether an unemployment
compensation claimant voluntarily quit his or her employment presents a question of law.
McPherson, 954 S.W.2d at 751. Consequently, we address this issue as a question of law,
based on these undisputed facts.

The Appeals Tribunal did not make a factual finding that Ballenger told McCullough on
January 27, 2010 that he was terminating her employment. It found only that Ballenger told
McCullough that she was suspended pending the outcome of the investigation. Black’s Law
Dictionary defines the term “suspend” as “[t]o interrupt; postpone; defer” or “[t]o temporarily
keep (a person) from performing a function [or] holding a job. . . .” See Black’s Law

6
The Appeals Tribunal referred to the financial irregularities Ballenger and Moore uncovered as “some book
keeping discrepancies” and said that Ballenger asked McCullough to come to the store to talk to him “about
her book keeping style.”

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Dictionary 1584 (9th ed. 2009) (“suspend”). The meaning of “discharge” was addressed by
our Supreme Court in the context of a claim of retaliatory discharge:

“Termination of employment” is defined as “[t]he complete severance of an
employer-employee relationship.” Black’s Law Dictionary 1482 (7th
ed.1999). “Discharge,” in the context of an employment relationship, is
defined as “[t]he firing of an employee.” Id. at 475. . . . Thus, the plain and
ordinary meaning of the words “discharged” and “terminated” is a complete
severance of the employment relationship.

Harman v. Univ. of Tenn., 353 S.W.3d 734, 738 (Tenn. 2011) (citing Howard v. Life Care
Ctrs. of Am., Inc., No. E2004-00212-COA-R3-CV, 2004 WL 1870067, at *5 (Tenn. Ct.
App. Aug. 20, 2004) (for an employee to be “terminated” “clearly require[s] an act on the
part of the employer to end the employment relationship.”).

The facts in this case do not support a finding that Ballenger discharged McCullough in their
January 27, 2010 conversation. The Appeals Tribunal pointed to the fact that Ballenger “did
not allow the claimant to work and requested the return of the company’s property.”
Explaining the basis for finding that Ballenger discharged McCullough, the Appeals Tribunal
said that Ballenger “denied the claimant the right to work first.” These facts, however, are
consistent with suspension, that is, temporarily keeping McCullough from performing her
work for Cash Fast.7 The facts do not support a holding that Ballenger’s actions on January
27, 2010 amounted to anything other than what he said, suspension of McCullough’s
employment.

On appeal, Cash Fast argues that an affirmance by this Court of the Department’s holding
that Ballenger discharged McCullough, where Ballenger told McCullough that her
employment was suspended pending the outcome of the company’s investigation and asked
her to return her store keys, would leave employers unable to suspend an employee under the
unemployment statutes. We agree. Suspension of employment is an appropriate response
where, as here, the employer discovers irregularities regarding an employee whose work
involves financial responsibilities and needs time to investigate. The reasoning of the
Appeals Tribunal – that Ballenger’s actions amounted to discharge because he “denied the
claimant the right to work first” – is at odds with common sense. McCullough’s job required
her to handle all of the financial transactions for her store location, and the majority of the

7
McCullough testified that she had seen Ballenger change the security code and ask for the return of store
keys in the course of terminating an employee, so she perceived on January 27, 2010 that Ballenger was
terminating her employment. This does not change the fact that she was told only that her employment was
suspended at that time, and Ballenger’s actions are consistent with suspension.

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time she was the sole employee at that store. To do anything less than suspend
McCullough’s employment, including changing her security code and requesting the return
of her store keys, would have been irresponsible under the circumstances. The choice to
suspend McCullough, instead of simply terminating her, gave Cash Fast the opportunity to
investigate and consider the matter, and it gave McCullough the opportunity to explain the
irregularities to Cash Fast and perhaps keep her job. If this Court were to affirm the
Department’s holding that Ballenger’s actions constituted termination of McCullough’s
employment, it would in effect remove suspension of employment from the arsenal of tools
available to employers. This we decline to do.

While the undisputed facts do not support a holding that Cash Fast discharged McCullough,
they do support a holding that McCullough voluntarily ended her employment. As discussed
in McPherson v. Stokes, an employee’s failure to take necessary and reasonable steps to
protect her employment amounts to a voluntary termination of employment:

An employee need not form a specific intent to quit his or her job to be
disqualified to receive unemployment compensation benefits under Tenn.
Code Ann. § 50-7-303(a)(1). Courts will find that an employee has voluntarily
terminated employment if the employee fails to take all necessary and
reasonable steps to protect his or her employment. Accordingly, a voluntary
act or failure to act with knowledge that termination may follow can be
considered a voluntary leaving.

McPherson, 954 S.W.2d at 751 (internal citations omitted). In this case, on January 26,
2010, Ballenger told McCullough that he wanted her to come to the store to explain the
irregularities that had been discovered. In the January 27, 2010 conversation between
Ballenger and McCullough, he suspended her employment pending the outcome of the
investigation into the irregularities and asked her to return her store keys. McCullough
could have responded by telling Ballenger that she would cooperate with the Cash Fast
investigation. Instead, she responded by telling Ballenger that the suspension did not concern
her because she was planning to resign the following Saturday anyway. After the January
27th telephone call, McCullough still could have reached out to Ballenger to provide Cash
Fast with the explanations of the financial irregularities that she gave in her testimony to the
Appeals Tribunal. With the benefit of hindsight, we can see that such efforts may not have
been successful.8 No matter. We view the facts from the perspective of the parties at the

8
An employee’s resignation, even if based on a reasonable belief that involuntary termination is imminent,
constitutes a voluntary quit without good cause attributable to the employer, which disqualifies the employee
from receiving unemployment compensation benefits. See Barner v. Phillips, No. M2013-01180-COA-R3-
(continued...)

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time, not with hindsight on whether the employee’s efforts to retain her job would have
ultimately succeeded. McCullough’s remark, that she was planning to resign in a few days
anyway, can be reasonably viewed as voicing a specific intent to quit her job.9 Regardless,
where she made no effort to cooperate with the employer’s investigation or explain the
irregularities brought to her attention, and indeed did not even return the store keys to the
employer as requested, her actions as a whole evince a choice not to “take all necessary and
reasonable steps to protect . . . her employment.” McPherson, 954 S.W.2d at 751.

Thus, we hold that the undisputed facts support a finding that McCullough voluntarily
terminated her employment. As such, we must conclude that the Department’s holding that
McCullough is eligible for unemployment compensation benefits is not supported by
substantial and material evidence and is arbitrary and capricious. For this reason, we must
reverse the trial court’s affirmance of the Department’s decision to award unemployment
compensation benefits to McCullough. All other issues raised on appeal are pretermitted by
this holding.

8
(...continued)
CV, 2014 WL 1852563, at *6-7 (Tenn. Ct. App. May 5, 2014) (citing Frogge v. Davenport, 906 S.W.2d 920,
924 (Tenn. Ct. App. 1995)); see also 76 Am. Jur. 2d Unemployment Compensation § 132 (2014).
9
McCullough did not contend in the administrative proceeding, and the Department does not contend in this
appeal, that she voluntarily quit for “good cause” connected with her work. Moreover, although McCullough
indicated in her testimony that she was planning to resign for reasons related to her daughter’s illness, she
did not testify that she had ever told Ballenger that the scheduling problems related to her daughter’s illness
would force her to resign, or made any effort to work out the issue with Cash Fast to enable her to remain
employed. “To be entitled to unemployment compensation benefits for voluntarily quitting a job for good
cause, the claimant must have explored all viable options before making the decision to quit.” 76 Am. Jur.
2d Unemployment Compensation § 102 (2014). “[I]n order for a claimant to recover benefits following a
voluntary termination, the claimant must, among other things, make a reasonable effort to preserve his
employment. The failure to attempt to resolve issues with an employer before quitting will preclude the grant
of benefits. Pastore v. Unemployment Compensation Bd. of Review, No. 1209 C.D.2012, 2013 WL
3960884, at *1 (Pa. Commw. Ct. Jan. 14, 2013) (citing Craighead-Jenkins v. Unemployment Comp. Bd.
of Review, 796 A. 2d 1031, 1033 (Pa. Commw. Ct. 2002) (footnote omitted). Under these circumstances,
even if McCullough claimed that she quit for good cause, the evidence in the record is insufficient to support
such a holding.

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 C ONCLUSION

The decision of the trial court is reversed. Costs on appeal are assessed against Appellee
Tennessee Department of Labor and Workforce Development, for which execution may issue
if necessary.

___________________________
HOLLY M. KIRBY, JUDGE

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