Supreme Court of New Jersey Holds that Striking Workers Can Collect Unemployment Compensation

February 2009Alerts Labor & Employment Alert

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A recent Supreme Court of New Jersey decision may tilt the balance of power in labor disputes in favor of unions and striking employees. In Lourdes Medical Center of Burlington County v. Board of Review, the Court held that striking workers are entitled to unemployment compensation unless the strike results in a "substantial curtailment of operations" for the employer. This means that even if the employer suffers substantial economic losses due to a strike, the strikers could still be entitled to collect unemployment compensation. The facts of Lourdes illustrate this in disturbing detail for employers.

Lourdes Medical Center (LMC) is a nonprofit hospital with 2,000 employees. In April 2004, approximately 240 of LMC’s registered nurses went on strike over scheduling and economic issues. The striking nurses were members of a labor union and had been without a contract for two months at the time of the strike. During the strike, LMC continued to operate and offered full medical services to its community. Still, the strike caused LMC significant financial distress. Specifically, due to the cost of replacement nurses, security guards (necessary because the nurses picketed the hospital) and other associated costs, the strike cost LMC about $1 million per month.

While on strike, 97 of the striking nurses filed for unemployment compensation. LMC opposed their applications for unemployment benefits, arguing that the striking nurses should not be entitled to unemployment benefits because they were unemployed due to a "labor dispute." Indeed, under New Jersey law, individuals are specifically excluded from unemployment compensation eligibility if their "unemployment is due to a stoppage of work which exists because of a labor dispute."

Based on this law, many New Jersey employers, unions and lawyers believe that striking workers are never entitled to collect unemployment. Additionally, when a company’s former employees collect unemployment, the company must pay a share of the cost through potentially increased payroll taxes. Thus, LMC also argued that it would be unfair to force it to subsidize striking workers that were causing LMC significant financial damage.

The Division of Unemployment Insurance and its Board of Review were not persuaded by LMC’s arguments and strained financial position. Instead, they relied on a regulation that defines "stoppage of work" as a "substantial curtailment of work which is due to a labor dispute" and further states that a "substantial curtailment of work" is a drop of 20 percent or more in the "normal production of goods or services." Accordingly, because LMC remained open and provided its normal services despite the strike, the Division of Unemployment Insurance and its Board of Review found there was no "work stoppage," and awarded unemployment compensation to the striking nurses. In short, because LMC stayed open during the strike – even at a significant additional cost – the striking nurses could collect unemployment compensation.

LMC appealed the Board of Review’s decision to the Appellate Division. There, the Court found in favor of LMC and held that the Board of Review should have considered the impact of the financial expense of continuing operations during the strike in determining if a "stoppage of work" had occurred. On appeal, the Supreme Court of New Jersey, in a 6-1 decision, reversed the Appellate Division and agreed with the Board of Review, holding that a loss of revenue due to the strike does not result in a "substantial curtailment of work," and therefore the striking nurses were entitled to unemployment compensation.

Typically, when a worker voluntarily decides not to work, that person is not entitled to unemployment benefits. Lourdes clarifies that strikers who voluntarily leave work will be entitled to unemployment compensation unless the strike results in a 20 percent or more reduction in the employer’s output of goods or services. This is significant to the economics of a strike. Generally speaking, during a strike, the employer loses part of its workforce and incurs costs to continue operations, while the striking employees suffer from a loss of income. This is the normal balance. Under the Lourdes decision, however, striking employees may gain additional staying power through the receipt of unemployment compensation, which at the same time adds an additional cost on the employer attempting to withstand a strike.

Unionized employers would be well advised to revisit their strike contingency plans in light of this decision. Non-unionized employers may wish to reexamine their union avoidance strategies in order to prevent this issue from arising.

For more information about this topic, contact Ian D.Meklinsky at 609.895.6756 or [email protected] or LukeWright at 609.895.6738 or [email protected] , or any member of Fox Rothschild’s Labor & Employment Department.