Tennessee Credit Union v. Wanda Powell

06/19/2019
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs March 1, 2019

TENNESSEE CREDIT UNION v. WANDA POWELL ET AL.

Appeal from the Chancery Court for Davidson County
No. 17-1158-III Ellen H. Lyle, Chancellor
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No. M2018-01384-COA-R3-CV
___________________________________

This is an appeal of an employer’s Petition for Judicial Review, which challenged a
ruling by the Tennessee Department of Labor and Workforce Development that the
employer’s former employee was entitled to unemployment benefits. The employer
contended the employee was ineligible for benefits because she was terminated for
“misconduct,” as defined in the Tennessee Employment Security Act, for violating a
policy known to the employee by using the employer’s property for a non-business-
related purpose. The Department found that the employee’s frequent use of the
employer’s internal instant message system to “chat” with co-workers was an error in
judgment or discretion but did not rise to the level of “misconduct,” which Tenn. Code
Ann. § 50-7-303(b)(3) defines as excluding “good faith errors in judgment or discretion.”
The chancery court affirmed the agency’s decision. The employer appeals, contending
the “good faith exception” never applies when an employee is discharged for violating an
employer’s policy or rule. The Department counters, insisting the good faith exception
applies regardless of the employer’s reason for termination. Construing the statute
according to the natural, ordinary meaning of the language chosen by the legislature, we
have determined that an employee’s violation of an employer’s policy that is due to good
faith errors in judgment or discretion does not constitute “misconduct” as that term is
defined in Tenn. Code Ann. § 50-7-303. Accordingly, we affirm.

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

FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which THOMAS
R. FRIERSON II and KENNY W. ARMSTRONG, JJ., joined.

Charles Stephen Michels, II, and L. Gino Marchetti, Jr., Nashville, Tennessee, for the
appellant, Tennessee Credit Union.

Jeffrey O. Powell, Hendersonville, Tennessee, for the appellee, Wanda Powell.
Herbert H. Slatery, III, Attorney General and Reporter, and Amber L. Seymour, Assistant
Attorney General, Nashville, Tennessee, for the appellee, Tennessee Department of
Labor & Workforce Development, and Wanda Powell.

OPINION

FACTUAL AND PROCEDURAL HISTORY

Wanda Powell (“Ms. Powell”) worked for the Tennessee Credit Union
(“Employer”) as a member services representative for five years until Employer
terminated her employment on December 12, 2016, along with the employment of three
other employees, for excessive, non-business-related use of Employer’s recently installed
instant message system.

The instant message system was installed in July or August 2016 and was to be
used by employees to communicate with each other regarding business matters.
Employer had a long-standing Information System policy (“the Policy”) that “employees
should use any information system for business purposes only.”

In December 2016, an assistant branch manager noticed that Ms. Powell was using
the instant message system frequently. The manager retrieved and provided Ms. Powell’s
messaging logs to Employer’s human resources generalist, who provided the logs to
Employer’s Chief Executive Officer. After reviewing up to six of the approximately 35
pages of messages, the CEO decided to terminate Ms. Powell and the other three
employees for excessively using the instant message system for non-business purposes.

On January 8, 2017, Ms. Powell filed an application for unemployment benefits
with the Tennessee Department of Labor and Workforce Development (“the
Department”). On May 4, 2017, the Department issued a Disqualifying Separation
Determination, finding that Ms. Powell did not qualify for unemployment benefits under
Tenn. Code Ann. § 50-7-303. The Department explained that Ms. Powell’s actions
constituted work-related “misconduct” under § 303 because she was discharged for
violating Employer’s rule against improper internet usage.

On May 19, 2017, Ms. Powell filed an appeal with the Department’s Appeals
Tribunal. Ms. Powell contended that Employer’s stated reason for her discharge was false
and pretext for retaliatory animus. In response, Employer filed, inter alia, a copy of the
Policy, a transcript of the instant message conversations, and a copy of a previous
reprimand Ms. Powell received for violating the Policy in October 2015 by using a

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company computer to browse the internet. The 2015 reprimand required a review of the
Policy “with special attention to the Procedure and Restrictions section,” which outlined
“the proper usage of the [i]nternet”1 and warned, “Any further violation will lead to
termination.” The Policy provided that “employees should use any information system
for business purposes only.” The Policy’s Procedures and Restrictions section stated that
it was “strictly forbidden to receive, send, publish, transmit, disseminate, republish,
retransmit, store or redisseminate sexually-oriented messages, information or images of
any kind.” In her testimony before the Appeals Tribunal, Ms. Powell conceded that she
knew about the Policy but explained that she understood it applied to personal use of the
internet, not the instant message system.

The transcript of the instant message conversations was comprised of 35 pages of
messages that Ms. Powell and three of her co-workers sent to each other in a “group
chat.” The conversations occurred on fifteen days during the period of September to
December 2016. In total, the four employees sent approximately 1,200 messages to each
other, of which Ms. Powell sent approximately 600. Most of the messages concerned
office gossip, complaints about Employer, personal matters, and lunch plans. None of
them pertained to or included “sexually-oriented messages, information or images of any
kind.” Although Employer’s human resources generalist characterized Ms. Powell’s use
of the instant message system as “excessive,” she acknowledged that the content of the
messages was not inappropriate. Similarly, Employer’s CEO testified that Ms. Powell
was terminated because of the frequency and volume of messages sent.

On August 9, 2017, the Appeals Tribunal Hearing Officer entered an order
concluding that Employer failed to prove it terminated Ms. Powell for a material breach
of duty. The Hearing Officer found that Ms. Powell was terminated “simply for the
volume of messages” she sent, and there was insufficient evidence to conclude the
messages caused Ms. Powell to neglect her obligations. Accordingly, the Hearing Officer
found Ms. Powell was entitled to receive unemployment benefits.

On August 22, 2017, Employer filed an appeal of the Hearing Officer’s decision to
the Tennessee Office of Administrative Review but did not request an additional
evidentiary hearing. In its decision of September 19, 2017, the Commissioner’s Designee
found Ms. Powell was entitled to unemployment benefits because Employer had
presented insufficient evidence to show Ms. Powell’s use of the instant message system
rose to the level of work-connected “misconduct” under Tenn. Code Ann. § 50-7-

1
The 2015 reprimand pertained to Ms. Powell’s use of Employer’s computers to view an internet
article entitled “Sex Talk: 6 Erogenous Zones in Men.”

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303(a)(2)(A). The Designee reasoned that the definition of “misconduct” in § 303(b)(3)
does not include “a good faith error in judgment or discretion.”

On October 25, 2017, Employer filed a Petition for Judicial Review in the
Davidson County Chancery Court. Employer maintained that the Department’s decision
was not supported by the weight of the facts, which showed that it terminated Ms. Powell
for misconduct because she knowingly violated company policy. On November 27, 2017,
the Department filed an answer to the Petition, generally denying that Employer was
entitled to relief.2 In its brief to the court, the Department argued there was no evidence
Ms. Powell knew she was violating the Policy or neglected her duties while doing so.

On June 29, 2018, the trial court affirmed the decision of the Commissioner’s
Designee, finding, inter alia, that Ms. Powell’s conduct fell within the good faith
exception to “work-related misconduct” under Tenn. Code Ann. § 50-7-303(b)(3)(D)(3).
This appeal followed.

Employer presents two issues for review, and the Department presents one.3
Having considered their issues, we have determined the dispositive issue is whether
termination of employment for violation of an employer’s rule or policy, when the
employee’s violation was a good faith error in judgment or discretion, disqualifies the
employee for unemployment benefits under Tenn. Code Ann. § 50-7-303(a)(2)(A).

STANDARD OF REVIEW

In an appeal from an agency decision concerning unemployment compensation,
trial and appellate courts apply the same standard of review. Ford v. Traughber, 813
S.W.2d 141, 144 (Tenn. Ct. App. 1991); Armstrong v. Neel, 725 S.W.2d 953, 955 n.1
(Tenn. Ct. App. 1986). That standard is set forth in Tenn. Code Ann. § 50-7-304(i)(2):

The [court] may affirm the decision of the commissioner or the [court] may
reverse, remand or modify the decision if the rights of the petitioner have

2
Ms. Powell did not participate in the judicial-review proceedings.
3
Employer’s issues read: “Whether the Trial Court erred when it ruled that Appellee’s conduct
did not constitute misconduct pursuant to Tenn. Code Ann. § 50-7-303(b)(3)(A)(vi)” and “Whether the
Trial Court erred when it ruled that conduct that violates Tenn. Code Ann. § 50-7-303(b)(3)(A)(vi) and
constitutes misconduct is nevertheless not misconduct if the act also falls into Tenn. Code Ann. § 50-7-
303(b)(3)(D).” The Department’s issue reads: “Whether substantial and material evidence in the record
supports the Commissioner’s Designee’s determination that Ms. Powell was not discharged for
misconduct connected to her work.”

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 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.

The court may not reweigh the evidence and may reverse, remand, or modify the decision
only “for errors that affect the merits of the final decision of the commissioner’s
designee.” Id. § 304(i)(3).

The court need not find the decision was the only reasonable one or that it was the
decision that the court would have reached had the issue been presented to it for the first
time in the judicial proceedings. Cawthron v. Scott, 400 S.W.2d 240, 242 (Tenn. 1966).
To the contrary, the function of the reviewing court is limited. Id. All that is needed to
support the decision is a finding that it was warranted by the record and had a reasonable
basis in the law. Id. “Where the facts are essentially undisputed, the question of whether
the employee’s actions constitute ‘misconduct’ under the statute is a question of law that
we review de novo.” Sparkman v. Phillips, No. M2013-01235-COA-R3-CV, 2014 WL
3058443, at *5 (Tenn. Ct. App. July 7, 2014).

ANALYSIS

Relying on the definition of “misconduct” in Tenn. Code Ann. § 50-7-
303(b)(3)(A)(vi) [hereinafter “subdivision (A)(vi)”], Employer contends that Ms. Powell
was disqualified for unemployment benefits because she was aware of the Policy, which
prohibited the use of Employer’s computers for personal purposes, and she frequently
used her computer for personal purposes by chatting with her co-workers. Employer also
asserts that, as a matter of law, the good faith exception in § 303(b)(3)(D)(3) [hereinafter
“subdivision (D)(3)”] does not apply if an employee’s conduct falls under the definition
in subdivision (A)(vi). Conversely, the Department insists, regardless of whether an
employee’s violation of an employer’s policy is misconduct under the definition in
subdivision (A)(vi), it is statutorily excluded from the definition of misconduct, as
subdivision (D)(3) clearly states, if the violation was due to good faith errors in judgment
or discretion.

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 Under Tenn. Code Ann. § 50-7-303, claimants are disqualified for unemployment
benefits if the Department “finds that a claimant has been discharged from the claimant’s
most recent work for misconduct connected with the claimant’s work.” Id.
§ 303(a)(2)(A). Section 303(b)(3)(A) defines “misconduct” as including, but not limited
to, a “violation of an employer’s rule.” Section 303(b)(3)(D), however, defines
“misconduct” as excluding “[g]ood faith errors in judgment or discretion.”

Courts must “interpret a statutory section reasonably in light of the context of the
entire statute, construing it according to the natural, ordinary meaning of the language
chosen by the legislature and in a ‘manner which avoids statutory conflict and provides
for harmonious operation of the laws.’” In re Conservatorship of Wade, 484 S.W.3d 151,
156 (Tenn. Ct. App. 2015) (quoting Baker v. State, 417 S.W.3d 428, 433 (Tenn. 2013)).

Having reviewed the two subsections at issue pursuant to the above standard, it is
readily apparent that an employee’s violation of a known policy constitutes “misconduct”
unless the violation is the result of “[g]ood faith errors in judgment or discretion.” Stated
another way, and as phrased by the Commissioner’s Designee in his conclusions of law,
“work connected misconduct is not a good faith error in judgment or discretion.” This is
evident from the natural, ordinary meaning of the language chosen by the legislature that
“‘[m]isconduct’ does not include . . . [g]ood faith errors in judgment or discretion.” Tenn.
Code Ann. § 50-7-303(b)(3)(D). Moreover, our determination is supported by Pavement
Restorations Inc. v. Ralls, No. W2016-01179-COA-R3-CV, 2017 WL 657775 (Tenn. Ct.
App. Feb. 17, 2017), which is the only other Tennessee decision to interpret the
relationship between the definitions in § 303(b)(3)(A) and the exclusions in
§ 303(b)(3)(D).

In Pavement Restorations Inc., the employer advocated for an interpretation of
§ 303 that required the court to “define misconduct pursuant to subdivision (A) to the
complete exclusion of the language provided in subdivision (D).” Id. at *6. We rejected
that interpretation, finding that the statute “provides both a provision defining misconduct
as, inter alia, a violation of an employer’s rules and an exemption from the definition of
misconduct when the complained-of misconduct resulted from, inter alia, ‘[i]nadvertence
or ordinary negligence in isolated [instances].’” Id. (quoting Tenn. Code Ann. § 50-7-
303(b)(3)(D)(2)). We reasoned that § 303(b)(3)(D) was “the more narrow provision” and,
therefore, “the general provision providing for the definition of misconduct must give
way to the more specific provision providing for the exemptions.”4 Id. at *7.

4
As we explained in Pavement Restorations Inc., § 303(b)(3)(A) provides a non-exhaustive list
of what misconduct may include, whereas § 303(b)(3)(D) “provides for a very narrow and limited list of
(continued . . .)

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 Our conclusion is also consistent with that in Armstrong v. Neel, wherein we
adopted the following definition of misconduct:

[C]onduct evincing such wil[l]ful and wanton disregard of an employer’s
interests as is found in deliberate violations or disregard of standards of
behavior which the employer has the right to expect of his employee, or in
carelessness or negligence of such degree or recurrence as to manifest equal
culpability, wrongful intent or evil design, or to show an intentional and
substantial disregard of the employer’s interests or of the employee’s duties
and obligations to the employer. On the other hand[,] mere inefficiency,
unsatisfactory conduct, failure in good performance as the result of inability
or incapacity, inadvertences or ordinary negligence in isolated instances, or
good faith errors in judgment or discretion are not to be deemed
“misconduct” within the meaning of the statute.

725 S.W.2d at 956 (emphasis added) (quoting Boynton Cab Co. v. Neubeck, 296 N.W.
636, 640 (Wis. 1941)).

Therefore, as we explained in Pavement Restorations Inc., two determinations
must be made before disqualifying an applicant for unemployment benefits on the
statutory ground of “misconduct” under Tenn. Code Ann. § 50-7-303(a)(2): the first is
that the employee’s conduct constitutes misconduct under § 303(b)(3)(A), and the second
is that the employee’s conduct is not excluded under § 303(b)(3)(D). See 2017 WL
657775, at *8. Accordingly, and contrary to Employer’s contentions, if an employee’s
violation of a known policy of an employer is due to good faith errors in judgment or
discretion, then the employee’s violation of company policy does not constitute
“misconduct” as that term is defined in Tenn. Code Ann. § 50-7-303.

It is undisputed that Ms. Powell was aware of the Policy and that she violated the
Policy by using the instant message system for personal purposes. Thus, her conduct
constituted misconduct under subdivision (A)(vi). Nevertheless, there is substantial and
material evidence in the record to support the Commissioner’s Designee’s determination
that Ms. Powell’s violation of the Policy was due to good faith errors in judgment or
discretion. Because Ms. Powell’s violation of the Policy was due to good faith errors in
judgment or discretion—which subdivision (D)(3) expressly excludes from the definition

what actions are specifically exempt from the definition of misconduct, allowing three—and only three—
exemptions from the rule.” 2017 WL 657775, at *7. Thus, read in context, § 303(b)(3)(D) is more specific
and takes precedence over § 303(b)(3)(A).

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of misconduct—her violation of the Policy does not provide grounds for termination
based on misconduct, as that term is defined under Tenn. Code Ann. § 50-7-303.

Therefore, we affirm the determination that Ms. Powell was entitled to
unemployment benefits.

IN CONCLUSION

The judgment of the trial court is affirmed, and this matter is remanded with costs
of appeal assessed against the appellant, Tennessee Credit Union.

________________________________
FRANK G. CLEMENT JR., P.J., M.S.

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