NO. 96-105
IN THE SUPREMECOURT OF THE STATE OF MONTANA
1996
GREGGA. HAFNER,
MONTANADEPARTMENT OF LABOR AND
INDUSTRY and DUBRAY LAND SERVICES, INC., ! : 5:~; .,
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Defendants and Respondents. @f&g & pd.,,;'$ j ::,+
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable G. Todd Baugh, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Michael G. Eiselein; Lynaugh, Fitzgerald, Eiselein
& Eakin, Billings, Montana
For Respondents:
Melanie A. Symons, Department of Labor & Industry,
Helena, Montana
Calvin J. Stacey; Stacey & Walen, Billings, Montana
Submitted on Briefs: August 9, 1996
Decided: December 10, 1996
Filed:
Justice W. William Leaphart delivered the Opinion of the Court.
Appellant, Gregg Hafner (Hafner), appeals from the decision of
the Thirteenth Judicial District Court, Yellowstone County,
affirming a Board of Labor Appeals' denial of unemployment
insurance benefits. We affirm the District Court.
We restate the issue raised by Hafner as follows:
Did Hafner's failure to notify his employer of a conflict
of interest constitute misconduct for purposes of
unemployment compensation benefits?
BACKGROUND
This case arises out of the Department of Labor's (the
Department) denial of unemployment benefits to Hafner. Hafner
appeals from the District Court's decision affirming the Board of
Labor Appeals' (the Board) denial of unemployment benefits on the
basis of misconduct.
Hafner was hired by respondent, DuBray Land Services, Inc.
(DuBray) as a Right-of-Way agent in March of 1990. As a Right-of-
Way agent for DuBray, Hafner's duties included purchasing easement
rights for various companies. In preparation of Hafner's position
as a Right-of-Way agent, DuBray sent Hafner to a training program.
As part of the training program, Hafner took courses in "Ethics and
the Right of Way Profession" and "Rules of Professional Conduct."
Additionally, Hafner was a member of the International Right of Way
Association. The Association adheres to a Code of Ethics, Ethical
Rules and Standards of Conduct. Ethical Rule No. 6 of the Code of
Ethics provides in part: "Members pledge to maintain a high
2
professional relationship with his/her client or employer."
Standard Two of the "Standards of Practice for the Right of Way
Professional" provides in part:
FULL DISCLOSURE
Full disclosure of all pertinent information requires,
without reservation, disclosure to the client, employer
or public, all relevant information a member possess
[sic] with regard to the member's employment.
Interpretation:
1. Full disclosure to the client/employer means
disclosure of:
(a) conflicts of interest (including, but not
limited to such items as personal, financial, emotional,
employment; prior or current, or others).
While employed by DuBray, Hafner applied for and was, on a
probationary basis, given a job with Conoco, Inc. (Conoco). As a
pre-requisite to employment with Conoco, Hafner underwent a
physical examination. After receiving the results of Hafner's
physical examination, Conoco decided to terminate Hafner's
employment before he began working. Hafner contended that Conoco's
decision to terminate him was discriminatory and he filed a claim
against Conoco with the Montana Human Rights Commission. Hafner's
civil suit against Conoco continued for several years while he
continued to work for DuBray.
In 1992, while the Human Rights Commission complaint was still
pending, DuBray assigned Hafner to work on the Conoco account.
Hafner did not advise DuBray that he had a Human Rights Complaint
pending against Conoco. In handling the Conoco account, Hafner had
access to Conoco's files and a Conoco checking account. Despite
his pending civil suit, Hafner continued to work on the Conoco
3
account without informing DuBray of this conflict of interest.
DuBray only became aware of the suit in December of 1994, when a
Billings newspaper reported that this Court had reversed the trial
court's granting of summary judgment for Conoco and remanded
Hafner's claim for trial. Hafner v. Conoco (1994), 268 Mont. 396,
886 P.2d 947. When it became aware of the suit, DuBray decided to
terminate Hafner by letter dated December 28, 1994, stating as
follows :
Gregg Hafner
This letter is your notice that you are terminated
for cause from your employment with DuBray Land Services,
Inc. effective today, December 28, 1994. You will be
given today two checks for your net pay for salary
through today andvacation pay accumulated through today.
The reason for your termination for cause is that
you are the Plaintiff in a lawsuit entitled Hafner v.
Conoco, Cause No. 93-552 in Yellowstone County District
Court, which lawsuit has only become known to this
company through a newspaper article published in The
Billings Gazette on Saturday, December 17, 1994, a copy
of which is attached. This newspaper article was first
delivered to me yesterday, December 27, 1994. In the
meantime, for approximately two years you have been
working on Conoco projects for DuBray Land Services, Inc.
without informing the company of your lawsuit against
Conoco. This is an untenable disregard for the interest
of your employer and cannot be tolerated.
By the end of work today you must have all of your
personal belongings removed from the premises of DuBray
Land Services, Inc. In addition, you must turn in the
company automobile and all sets of company car keys, all
company credit cards and telephone cards, all company
files in your possession (those for Conoco and
otherwise), the Conoco checkbook, all company equipment
and supplies, and your set of keys to the company office
building. When you have turned over this property and
cleaned out your personal property you will be given your
checks for salary and vacation pay.
Thank you.
4
Following his termination from DuBray, Hafner filed a claim
for unemployment benefits with the Department. Hafner's request
was denied on the basis that he was terminated for misconduct.
Hafner then filed an appeal with the Hoard. After determining that
Hafner had been discharged for "misconduct," the Board denied
Hafner's request for unemployment benefits pursuant to 5 39-51-
2303, MCA, and § 24.11.460, ARM. Next, Hafner filed a request for
judicial review with the Thirteenth Judicial District Courts,
Yellowstone County. The District Court affirmed the Board's
decision. Hafner has filed the instant appeal challenging the
decision of the District Court's decision to affirm the Board's
denial of unemployment benefits.
DISCUSSION
Did Hafner's failure to notify his employer of a conflict
of interest constitute misconduct for purposes of
unemployment compensation benefits?
A District Court's review of a decision of the Board is
limited by § 39-51-2410(5), MCA, which provides:
In any judicial proceeding under 39-51-2406 through 39-
51-2410, the findings of the board as to the facts, if
supported by evidence and in the absence of fraud, shall
be conclusive and the jurisdiction of said court shall be
confined to questions of law. . . .
In both Connolly v. Montana Bd. of Labor Appeals (1987), 226 Mont.
201, 734 P.2d 1211, and Stine v. Western Federal Savings Bank
(1994) I 266 Mont. 83, 87, 879 P.2d 53, 56, this Court held that the
determination of "misconduct" in the context of an application for
unemployment benefits "was a factual question, properly left to the
5
appeal's referee and the Board of Labor Appeals." Connollv, 734
P.2d at 1215. Having reviewed this issue in the present case, we
reverse Connollv and stine to the extent that they hold that
"misconduct" is a question of fact and, for the reasons stated
below, hold that the question of whether conduct rises to the level
of "misconduct" is a question of law which this Court reviews for
correctness.
Misconduct is defined by § 24.11.460(l), ARM, and includes:
(a) willful or wanton disregard of the rights,
title, and interests of a fellow employee or the
employer;
(b) deliberate violations or disregard of standards
of behavior which the employer has the right to expect of
an employee;
(c) carelessness or negligence that causes or would
likely cause serious bodily harm to the employer or
fellow employee; or
(d) carelessness or negligence of such degree or
recurrence to show an intentional or substantial
disregard of the employer's interest.
(Emphasis added.) In addition, § 24.11.461(1)(f), ARM, explains:
(1) The followings acts are considered misconduct
because the acts signify a willful and wanton disregard
of the rights, title, and interests of the employer or a
fellow employee. These acts include:
. . .
(f) violation of a company rule if the rule is
reasonable and if the claimant knew or should have known
of the existence of the ruleL.1
The question of whether an employee has disregarded standards of
behavior, been careless or negligent, or violated company rules is
a question of fact. Whether those "facts" then constitute
"misconduct" involves interpretation and application of the
6
Administrative Rules of Montana and is a legal conclusion
reviewable by this Court.
Hafner argues that he has a constitutional right to pursue his
discrimination claim against Conoco and that it is illegal for
DuBray or anyone else to interfere with this claim or retaliate
against him for exercising his right to sue. Section 49-2-301,
MCA. His characterization of the issue presented assumes that he
was terminated for having sued Conoco. He relies on the statement
in the letter of termination which states: "The reason for your
termination for cause is that you are the Plaintiff in a lawsuit
entitled Hafner v. Conoco . .'I When that statement, however,
is put in the context of the whole letter, it is apparent that he
was terminated not for suing Conoco, but for failing to advise
DuBray that he was suing Conoco while at the same time continuing
to work on Conoco files on behalf of DuBray. Hafner also
emphasizes that while the appeals referee labeled his conduct as a
conflict of interest, DuBray did not. Rather, DuBray's letter
states that Hafner's conduct was an "untenable disregard for the
interest of your employer and cannot be tolerated." This is not a
distinction of significance. Failing to advise an employer of a
conflict of interest can certainly constitute a disregard for the
interests of the employer.
As restated, the question presented by this appeal is whether
Hafner's failure to disclose his pending litigation against Conoco,
while working on Conoco files for DuBray, constituted "misconduct."
The ethical rules of a Right-of-Way agent require full
7
disclosure of all conflicts of interest. Hafner's failure to
advise his employer regarding his suit against DuBray's client,
Conoco, was a violation of company policy as well as a violation of
his ethical duty as a Right-of-Way agent.
The ethical rule imposed upon Hafner was reasonable. Hafner's
employer, DuBray, was justified in expecting to be informed of
conflicts of interest that arise between its employees and its
clients. In addition, Hafner's training in 1990 made him fully
aware of his obligation to reveal conflicts of interest. In
failing to inform DuBray of his pending litigation against Conoco
while continuing to work on the Conoco account on behalf of DuBray,
Hafner willfully disregarded the interests of DuBray. This
disregard of reasonable standards constitutes misconduct under
§ 24.11.460(l), ARM.
Hafner argues that there is no logic to holding that he could
be fired for failing to advise DuBray of the suit against Conoco
since:
Like it or not, DuBray is prohibited from doing anything
about Gregg's suit against his customer. He may not tell
Gregg to drop the suit. He may not "suggest" that Gregg
choose between his job and his lawsuit. We submit that
in the complete absence of even the suggestion of any
wrongdoing on the part of Gregg, DuBray could not even
take Gregg off the Conoco projects, because to do so
would seriously limit Gregg's usefulness as a DuBray
employee and could for that reason subject him to an
increased risk of layoff or termination. Such treatment
would "otherwise discriminate" against Gregg and would
amount to retaliation under the plain language of MCA 49-
2-301.
We agree that, if Hafner had advised DuBray of his claim against
Conoco in a timely fashion, DuBray would not have been justified in
firing Hafner or in having him choose between his job and his claim
against Conoco. We do not, however, agree that DuBray could not
have chosen to assign Hafner to non-Conoco accounts or, if he were
already working on the Conoco account, reassign him to other
accounts as DuBray had done with other employees.
Hafner points out that Conoco was aware of the situation from
the start and had no objection to his continuing to work the Conoco
file while pursuing his claim. That fact does not, however, change
the fact that DuBray, as the employer, had a reasonable expectation
that it would be advised if its employee had a conflict of interest
so that DuBray could decide how to handle the situation. Conflict
of interest rules are designed to work prospectively; to prevent
conflicts from causing harm to employer or client. As the District
Court stated, Hafner's argument misses the point. The fact that,
in retrospect, the client was not damaged or offended, does not
justify having kept the employer in the dark. Hafner should have
advised DuBray of this situation when it arose so that DuBray would
have been in a position to take appropriate in-house action to
defuse any conflict.
Hafner argues that denying him unemployment benefits amounts
to a denial of his constitutional right to pursue a discrimination
claim. Specifically, Hafner maintains that his termination for
violating an "ethical rule" infringed upon his inalienable right to
pursue and maintain employment; a right which this Court has held
to be necessary to enjoy one of "life's basic necessities" under
Article II, section 3 of the Montana Constitution. In support of
9
his argument, Hafner cites to Wadsworth v. State (1996), 275 Mont.
287, 911 P.2d 1165. In Wadsworth, the plaintiff claimed that a
Department of Revenue conflict of interest rule precluding outside
employment violated his right to pursue life's basic necessities
contained in the Montana Constitution. Wadsworth, 911 P.2d at
1173. This Court agreed with Wadsworth and held that the State did
not demonstrate a compelling interest for applying the conflict of
interest rule, thus his termination violated his constitutional
right to pursue life's basic necessities under Article II, section
3 of the Montana Constitution. Wadsworth, 911 P.2d at 1175.
In contrast to Wadsworth, Hafner was not terminated for
pursuing life's basic necessities nor is it accurate to say he was
terminated for pursuing a discrimination claim against Conoco.
Rather, Hafner was terminated because, without DuBray's knowledge,
he continued to work on the Conoco account while he pursued a civil
suit against Conoco. Hafner's access to a Conoco checking account
and other confidential information created a conflict of interest
of which DuBray had a right to be aware. Hafner's failure to
disclose this conflict created a legitimate reason for DuBray to
terminate him. We hold that DuBray had a legitimate expectation to
be informed of the conflict of interest. Hafner's failure to
inform DuBray of this conflict of interest constituted willful
disregard of the interests of his employer and of reasonable
standards of behavior which the employer had the right to expect of
an employee. Section 24.11.460(l), ARM, and 5 24.11.461(1)(f),
ARM. The District Court's determination that Hafner's conduct
10
amounted to misconduct under § 39-51-2303(l), MCA, was correct.
Stine, 879 P.2d at 56.
Accordingly, we affirm.
We concur: I
-. d
Justices
11
Justice William E. Hunt, Sr. dissenting.
I dissent. The majority opinion ignores the obvious and
clearly stated reason for Hafner's dismissal and, further,
countenances a result which the Department's own regulations would
not allow, if they were correctly followed.
1. The reason for Hafner's termination was his status as a
plaintiff in a case against Conoco.
This Court usually adheres to the general legal principle
that, in the absence of an ambiguity, a document should be presumed
to mean precisely what it says. We have repeatedly acknowledged
this principle when construing contracts and statutes. See, for
example, Carbon County v. Dain Bosworth, Inc. (19941, 265 Mont. 75,
874 P.2d 718; Farmers Alliance Mutual Insurance Co. v. Holeman
(Mont. 1996), 924 P.Zd 1315, 53 St.Rep. 904. Yet, for some reason,
the majority ignores this very sensible legal rule in this case.
The dismissal letter from DuBray to Hafner states,
unequivocally and in plain English, “‘It1 he reason for [Hafner's]
termination for cause is that [he is1 the Plaintiff in a lawsuit
entitled Hafner v. Conoco. " Nothing could be clearer. The
majority, however, goes to great lengths to attempt to show that,
while that may be what the letter says, that is not what the letter
means. The majority contends that "[wlhen that statement is put in
the context of the whole letter, it is apparent that [Hafner] was
terminated not for suing Conoco, but for failing to advise DuBray
that he was suing Conoco . . .'I Such a conclusion is not apparent
to me. The termination letter means no more, and no less, than
exactly what it says : Hafner was fired because he was the
12 .
plaintiff in a lawsuit against Conoco. Such a firing is plainly
illegal under § 49-z-301, MCA.
2. There is a significant difference between an actual conflict of
interest and a potential conflict of interest.
The majority opinion fails to distinguish between a potential
conflict of interest and an actual conflict of interest when the
recognition and application of this distinction is crucial to the
fair disposition of this case. Instead, the majority presumes the
existence of an actual conflict of interest throughout its opinion,
and this presumption dictates the opinion's obvious result.
In making such a presumption, the majority perpetuates an
error originally made by the hearings examiner, whose findings and
conclusions were accepted without question at every level. Like
the majority of this Court, the hearings examiner failed to
distinguish between an actual and a potential conflict of interest,
but instead proceeded under the erroneous assumption that the there
is no difference between the two
In contrast, Hafner himself distinguished between an actual
and a potential conflict of interest and has tried without success
to make those involved in the appeals process understand what he
was talking about. At the hearing, Hafner testified as follows:
Q: In any event you see and would agree with me
that at a minimum your claim against Conoco, Inc., could
be potentially a conflict of interest, is that correct?
Hafner: Potentially?
Q: Yes.
Hafner: Yes, I'll agree with potentially.
Q: Okay. And you don't think that it ever turned
into a conflict of interest because you governed yourself
so that you did the best work possible, you put to the
side your lawsuit against Conoco, Inc., and you did the
13
job well and satisfactory [sic], is that a fair
characterization?
Hafner: That's fair.
Hafner did not feel that his actions constituted misconduct because
the potential conflict of interest (which he freely acknowledged
existed) never ripened into an actual conflict of interest. As
noted above, this is a distinction that the hearings examiner never
addressed. Instead, the examiner found that Hafner was "discharged
from employment for failing to disclose a potential conflict of
interest to [his] employer." (Emphasis added). The examiner
further concluded that this failure to disclose a potential
conflict of interest constituted misconduct and that DuBray's
firing of Hafner was justified because of this misconduct.
But on its "claimant separation information" form, the
Department itself states that "[tlo justify a finding of misconduct
it must be shown that the matter was within the individual's
control and the behavior must have had a direct adverse effect on
the employer's business interests." (Emphasis added.) By this
definition, the Department implicitly recognizes the difference
between a potential conflict of interest, which does not directly
adversely impact the employer's interests, and an actual conflict
of interest, which does. In order for an employee's actions to
constitute misconduct, the employer must show the existence of an
actual conflict of interest which has a direct adverse effect on
his business.
DuBray was asked during the hearing to explain how his
business had been impacted by Hafner's actions. He replied that
14 .
"we haven't done a billable hour for Conoco since [Hafner] left our
employ." Yet there is no explanation for how or why Hafner was
responsible for this. Asked again what business interests Hafner's
actions affected, DuBray responded,
It affects my, the, my agent/client relationship that I
have, and the fact that Mr. Hafner was carrying a
checkbook that was Conoco's checkbook, and my checkbook
and that he had an obligation to me to notify me of any
potential conflicts of interest that he had. To notify
Dubray Land Services. He did not.
(Emphasis added.) DuBray's response does not reveal any direct
adverse effect on his business; rather, it reveals his belief that
his firing of Hafner for a potential conflict of interest was
justified. The fact is, however, that neither DuBray's testimony
nor any other evidence presented demonstrated the direct adverse
effect on the employer's business which is a prerequisite for a
finding of misconduct.
Hafner's potential conflict of interest did not rise to the
level of an actual conflict of interest. It did not have a direct
adverse impact on DuBray's business and therefore did not
constitute misconduct. Without a finding of misconduct, DuBray's
firing of Hafner was not justified, and the hearings examiner's
findings to the contrary are clearly erroneous. For these reasons,
I dissent from the majority opinion. .
2(/J&
Justice
Justice Terry N. Trieweiler concurs in the foregoing dissent.
15