NO. 96-105 INTHESUPREME

COURTOFTHESTATEOFMONTANA 1996

GREGG A. HAFNER,

MONTANADEPARTMENT OFLABORAND INDUSTRYandDUBRAYLANDSERVICES, INC., ! : 5:~; .,

Defendants and Respondents. ~L,T;i>~;. c>s: '"I,,:;'$<;: ,,,,:~;r:~':,:w @f&g&pd.

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APPEALFROM: District Court of the Thirteenth Judicial District,

In andfor the County of Yellowstone, TheHonorable G. ToddBaugh, Judge presiding.

COUNSELOFRECORD:

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

Filed: Submitted onBriefs: August 9, 1996 Decided: December 10, 1996Justice W.William Leaphart delivered the Opinion of the Court.

Appellant, GreggHafner (Hafner), appeals from the decision of the Thirteenth Judicial District Court, Yellowstone County, affirming a Board of Labor Appeals' denial of unemployment insurance benefits. Weaffirm the District Court. Werestate the issue raised by Hafner asfollows: Did Hafner's failure to notify his employer of aconflict 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 onthe basis of misconduct. Hafner was hired by respondent, DuBray Land Services, Inc. (DuBray) asaRight-of-Way agent in March of 1990. AsaRight-ofWayagent for DuBray, Hafner's duties included purchasing easement rights for various companies. In preparation of Hafner's position
asaRight-of-Way agent, DuBray sent Hafner to atraining program. Aspart of the training program, Hafner took courses in "Ethics and the Right of WayProfession" and "Rules of Professional Conduct." Additionally, Hafner wasamemberof the International Right of Way Association. TheAssociation adheres to aCodeof Ethics, Ethical Rules andStandards of Conduct. Ethical Rule No. 6of the Codeof Ethics provides in part: "Members pledge to maintain a high
2professional relationship with his/her client or employer."

Standard Twoof the "Standards of Practice for the Right of Way Professional" provides in part: FULLDISCLOSURE 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 aspersonal, financial, emotional, employment; prior or current, or others). While employed by DuBray, Hafner applied for and was, on a probationary basis, given ajob with Conoco, Inc. (Conoco). Asa 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 hebeganworking. Hafner contended that Conoco's decision to terminate himwasdiscriminatory and hefiled aclaim against Conocowith the Montana HumanRights Commission. Hafner's civil suit against Conoco continued for several years while he continued to work for DuBray. In 1992, while the HumanRights Commission complaint wasstill pending, DuBray assigned Hafner to work on the Conoco account. Hafner did not advise DuBray that hehadaHumanRights Complaint pending against Conoco. In handling the Conocoaccount, Hafner had
access to Conoco's files and a Conoco checking account. Despite his pending civil suit, Hafner continued to work on the Conoco 3account 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 hadreversed the trial court's granting of summary judgment for Conoco and remanded Hafner's claim for trial. Hafner v. Conoco (1994), 268Mont. 396, 886P.2d 947. Whenit becameaware 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 LandServices, Inc. effective today, December 28, 1994. Youwill be given today two checks for your net pay for salary through today andvacation payaccumulated through today. The reason for your termination for cause is that you are the Plaintiff in a lawsuit entitled Hafner v. Conoco, CauseNo. 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 onSaturday, December 17, 1994, acopy of which is attached. This newspaper article wasfirst delivered to meyesterday, December 27, 1994. In the meantime, for approximately two years you have been working onConocoprojects for DuBray LandServices, Inc. without informing the company of your lawsuit against Conoco. This is anuntenable disregard for the interest of your employer andcannot betolerated. Bythe endof 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 companyautomobile andall sets of companycar keys, all company credit cards and telephone cards, all company files in your possession (those for Conoco and otherwise), the Conoco checkbook, all companyequipment andsupplies, andyour set of keys to the companyoffice building. Whenyou have turned over this property and cleaned out your personal property youwill begiven your checks for salary andvacation pay. Thank you.
4Following 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 anappeal 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 arequest 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 aconflict 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 byevidence andin the absence of fraud, shall beconclusive andthe jurisdiction of said court shall be confined to questions of law.

. . . In both Connolly v. Montana Bd. of Labor Appeals (1987), 226Mont. 201, 734 P.2d 1211, and Stine v. Western Federal Savings Bank (1994)I 266Mont. 83, 87, 879P.2d 53, 56, this Court held that the determination of "misconduct" in the context of anapplication for unemployment benefits "wasafactual question, properly left to the
5appeal's referee andthe 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 aquestion 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 hasthe 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) Thefollowings acts are considered misconduct because the acts signify awillful andwanton disregard of the rights, title, andinterests of the employer or a fellow employee. These acts include:

. . . (f) violation of a company rule if the rule is reasonable andif the claimant knewor 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

6Administrative Rules of Montana and is a legal conclusion

reviewable bythis Court. Hafner argues that hehasaconstitutional 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
wasterminated for having sued Conoco. Herelies onthe statement in the letter of termination which states: "The reason for your termination for cause is that you are the Plaintiff in alawsuit entitled Hafner v. Conoco

. .'I Whenthat 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 hewassuing Conocowhile at the sametime continuing to work on Conoco files on behalf of DuBray. Hafner also emphasizes that while the appeals referee labeled his conduct asa 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 andcannot betolerated." This is not a distinction of significance. Failing to advise an employer of a conflict of interest can certainly constitute adisregard for the interests of the employer. Asrestated, the question presented bythis appeal is whether Hafner's failure to disclose his pending litigation against Conoco, while working onConocofiles for DuBray, constituted "misconduct." The ethical rules of a Right-of-Way agent require full
7disclosure of all conflicts of interest. Hafner's failure to

advise his employer regarding his suit against DuBray's client, Conoco, wasaviolation of companypolicy aswell asaviolation of his ethical duty as aRight-of-Way agent. Theethical rule imposed uponHafner wasreasonable. 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 madehim 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 onthe Conocoaccount onbehalf 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 nologic to holding that hecould 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. Hemaynot tell Gregg to drop the suit. Hemaynot "suggest" that Gregg choose between his job andhis lawsuit. Wesubmit that in the complete absence of even the suggestion of any wrongdoing onthe 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. Suchtreatment would "otherwise discriminate" against Gregg andwould amount to retaliation under the plain language of MCA49- 2-301. Weagree that, if Hafner had advised DuBray of his claim against Conocoin atimely fashion, DuBraywould not havebeenjustified infiring Hafner or in having him choose between his job andhis claim

against Conoco. Wedonot, however, agree that DuBray could not have chosen to assign Hafner to non-Conoco accounts or, if hewere already working on the Conoco account, reassign him to other accounts as DuBray had donewith other employees. Hafner points out that Conocowasaware of the situation from the start andhadnoobjection to his continuing to work the Conoco file while pursuing his claim. That fact doesnot, however, change the fact that DuBray, asthe employer, hadareasonable expectation that it would beadvised if its employee hadaconflict of interest
sothat DuBray could decide howto handle the situation. Conflict of interest rules are designed to work prospectively; to prevent conflicts from causing harmto employer or client. Asthe District Court stated, Hafner's argument misses the point. Thefact 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 whenit arose sothat DuBraywould have been in a position to take appropriate in-house action to defuse any conflict. Hafner argues that denying him unemployment benefits amounts to adenial of his constitutional right to pursue adiscrimination claim. Specifically, Hafner maintains that his termination for violating an"ethical rule" infringed uponhis inalienable right to pursue andmaintain employment; aright which this Court has held to be necessary to enjoy one of "life's basic necessities" under Article II, section 3of the Montana Constitution. In support of
9his argument, Hafner cites to Wadsworth v. State (1996), 275Mont.

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 andheld that the State did not demonstrate acompelling 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 3of 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 hewas terminated for pursuing a discrimination claim against Conoco. Rather, Hafner wasterminated because, without DuBray's knowledge, hecontinued to work onthe Conocoaccount while hepursued acivil suit against Conoco. Hafner's access to aConoco checking account and other confidential information created aconflict of interest of which DuBray had a right to be aware. Hafner's failure to disclose this conflict created alegitimate reason for DuBray to terminate him. Wehold that DuBray hadalegitimate 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 hadthe right to expect of
an employee. Section 24.11.460(l), ARM, and 524.11.461(1)(f), ARM. The District Court's determination that Hafner's conduct

10amounted to misconduct under § 39-51-2303(l), MCA,was correct.

Stine, 879P.2d at 56. Accordingly, weaffirm.

Weconcur: I

-. Justices d

11Justice William E. Hunt, Sr. dissenting.

I dissent. The majority opinion ignores the obvious and clearly stated reason for Hafner's dismissal and, further, countenances aresult which the Department's ownregulations 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 anambiguity, adocument should bepresumed to meanprecisely what it says. Wehave repeatedly acknowledged this principle when construing contracts and statutes. See, for example, Carbon County v. Dain Bosworth, Inc. (19941, 265Mont. 75,
874 P.2d 718; Farmers Alliance Mutual Insurance Co. v. Holeman (Mont. 1996), 924P.Zd 1315, 53St.Rep. 904. Yet, for somereason, 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 showthat, while that maybewhat the letter says, that is not what the letter

means. Themajority 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 hewassuing Conoco

. . .'I Suchaconclusion 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
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.plaintiff in a lawsuit against Conoco. Such a firing is plainly

illegal under §49-z-301, MCA. 2. There is asignificant difference between an actual conflict of interest and a potential conflict of interest. The majority opinion fails to distinguish between apotential 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 anactual 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 anactual and apotential 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 apotential 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 aminimum your claim against Conoco, Inc., could be potentially aconflict 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 aconflict 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
13job 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 hefreely acknowledged existed) never ripened into an actual conflict of interest. As noted above, this is adistinction that the hearings examiner never addressed. Instead, the examiner found that Hafner was"discharged from employment for failing to disclose apotential 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 wasjustified because of this misconduct. But on its "claimant separation information" form, the Department itself states that "[tlo justify afinding of misconduct it must be shown that the matter was within the individual's control andthe behavior must have had adirect adverse effect on the employer's business interests." (Emphasis added.) By this definition, the Department implicitly recognizes the difference between apotential conflict of interest, which does not directly adversely impact the employer's interests, and anactual conflict of interest, which does. In order for an employee's actions to constitute misconduct, the employer must showthe existence of an actual conflict of interest which has adirect adverse effect on his business. DuBray was asked during the hearing to explain how his business had been impacted by Hafner's actions. Hereplied that
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."wehaven't doneabillable hour for Conocosince [Hafner] left our

employ." Yet there is no explanation for howor why Hafner was responsible for this. Asked again what business interests Hafner's actions affected, DuBray responded, It affects my, the, myagent/client relationship that I have, and the fact that Mr. Hafner was carrying a checkbook that wasConoco's checkbook, andmycheckbook andthat hehad anobligation to meto notify meof any potential conflicts of interest that hehad. Tonotify Dubray Land Services. Hedid not. (Emphasis added.) DuBray's response does not reveal any direct adverse effect onhis business; rather, it reveals his belief that his firing of Hafner for a potential conflict of interest was justified. Thefact 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 anactual conflict of interest. It did not have adirect adverse impact on DuBray's business and therefore did not constitute misconduct. Without afinding of misconduct, DuBray's firing of Hafner was not justified, and the hearings examiner's findings to the contrary are clearly erroneous. Forthese reasons, I dissent from the majority opinion.

. 

# 2(/J& Justice
Justice Terry N. Trieweiler concurs in the foregoing dissent.

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