Unemployment Insurance Code §1256 disqualifies an employee from receiving unemployment compensation benefits if he or she has been discharged for "misconduct," as opposed to an error in judgment. Unemployment Insurance Code §1256 defines "misconduct" as a willful or wanton disregard of the employer's interests or such carelessness or negligence as to manifest equal culpability. Misconduct does not include a good faith error in judgment. See, Amador v. Unemployment Ins. Appeals Bd. 35 Cal.3d 671, 678 (1984). In Paratransit, Inc. v. Unemployment Insurance Appeals Board, 206 Cal.App.4th 1319 (2012), after multiple hearings before the EDD, the California Unemployment Insurance Appeals Board, and even the Superior Court, the California Court of Appeals held that an employee's refusal to sign a discipline warning constitutes "misconduct," and not just "a good faith error in judgment" thus justifying the denial of unemployment insurance benefits. This case (which is pending review by the California Supreme Court), and the various court's interpretation of the law, is discussed below.

In Paratransit, the EDD initially denied an employee's claim for unemployment insurance benefits where a union employer terminated the employee for refusing to sign and acknowledge receipt of a written disciplinary warning that stated below the signature line, "Employee Signature as to Receipt." The employee appealed, but an administrative law judge upheld the EDD's decision holding that the employee's acts were a "deliberate disobedience of a reasonable and lawful directive of the employer, to sign the memorandum notifying him of disciplinary action, where obedience was not impossible or unlawful and did not impose new or additional burdens upon [him], constituted misconduct . . . ." The employee then filed a second appeal with the California Unemployment Insurance Appeals Board, and the Board this time reversed finding that the employee's refusal to sign was "a simple mistake or an instance of poor judgment" and therefore the employee is entitled to unemployment insurance benefits. The Board based its ruling that the employee merely exercised poor judgment on the facts that: (1) the employer's disciplinary form did not contain a clause stating neither the employer or employee is admitting fault, (2) the union president told the employee not to sign, and (3) the employee's request for union representation at that time was denied. Following the Board's decision, the employer filed a petition for writ of administrative mandamus with the Superior Court. The Superior Court granted the Petition concluding that the employee was not entitled to unemployment insurance benefits because the employee "deliberately disobeyed a lawful and reasonable directive of his employer and under the totality of the circumstances this amounted to misconduct rather than a good faith error in judgment." This time the employee appealed.

Here it must be noted that the Appellate Court granted review merely to determine whether the decision reached by the Superior Court was supported by "substantial, credible and competent evidence." Lozano v. Unemployment Ins. Appeals Bd., 130 Cal.App.3d 749, 754 (1982). The Court of Appeals reviewed the Trial Court's decision based on the law below giving all deference to the Superior Court's findings on fact [when two or more inferences can be reasonably deduced from the facts, the appellate court may not substitute its deductions for those of the superior court." Lacy v. California Unemployment Ins. Appeals Bd., 17 Cal.App.3d 1128, 1134 (1971)].

According to the Court of Appeals Title 22 of the California Code of Regulations §1256-30(b) and California Labor Code §2856 address set forth the law on employee misconduct.

Title 22 of the California Code of Regulations §1256-30(b), in pertinent part, states: "Implicit in the agreement of hire is the concept that an employee is subject to some degree of authority exercised by the employer or the employer's representative. An employee is insubordinate if he or she intentionally disregards the employer's interest and willfully violates the standard of behavior which the employer may rightfully expect of employees in any of the following ways: (1) Refuses, without justification, to comply with the lawful and reasonable orders of the employer or the employer's representative." It aslo sets forth a 4-prong test to establish employee misconduct:

1. The claimant owes a material duty to the employer under the contract of employment.
2. There is a substantial breach of that duty.
3. The breach is a willful or wanton disregard of that duty.
4. The breach disregards the employer's interests and injures or tends to injure the employer's interests."

Similarly, California Labor Code §2856 states: "An employee shall substantially comply with all the directions of his employer concerning the service on which he is engaged, except where such obedience is impossible or unlawful, or would impose new and unreasonable burdens upon the employee."

Based on the law above and the standard of review, the Third District Court of Appeals affirmed the Trial Court's decision holding that the employee's failure to sign the disciplinary memo violated his obligations to the employer under both Labor Code §2856 and Lacy v. California Unemployment Ins. Appeals Bd., supra., 17 Cal.App.3d at p. 1133 [employee must comply unless the employer's directive imposes a duty that is both new and unreasonable]. The Court of Appeal went on to reason that the employer's directive to sign the warning was a reasonable instruction, the employee's refusal (insubordination) was in fact "misconduct," and not just "a good faith error in judgment," and consequently unemployment insurance benefits should be denied.

Although this case is pending review by the California Supreme Court, California employers should in the interim review their practices to ensure that written discipline warnings, performance reviews, and similar documents requiring an employee's acknowledgement of receipt contain a clause that the employee is not admitting the truth of the assertions contained in the document, but by his or her signature is merely acknowledging receipt of the document.