In a ruling that will undoubtedly affect how employers choose to proceed with respect to unemployment claims, the Kentucky Court of Appeals held that employers must have counsel to represent them in referee hearings and before the Kentucky Unemployment Insurance Commission.  In Nichols v. Kentucky Unemployment Insurance Commission, et al., the Kentucky Court of Appeals reviewed a decision in which the claimant was denied unemployment benefits after his employment was terminated.  The claimant, Michael Nichols, was terminated by his employer, Norton Healthcare, Inc. (“Norton”), for failure to comply with instructions, falsification of records, and misfeasance of company resources.  After being fired, Nichols submitted an application for benefits saying that he had been terminated for lack of work.  Norton contested the claim.  The unemployment division determined that Nichols had been terminated for misconduct and had intentionally misrepresented this fact on his application for benefits.  Nichols appealed the decision to the referee.  An evidentiary hearing was conducted at which Norton was represented by a non-lawyer.  The referee affirmed and the decision was affirmed on appeal to the Commission and again at the Jefferson Circuit Court.

Nichols, who was represented by counsel, challenged the decision and claimed that the proceedings were unconstitutional because a non-attorney representative appeared on behalf of Norton at the evidentiary hearing.  The Court of Appeals considered the constitutionality of KRS 341.470(3), which expressly allows non-lawyer representatives to appear at unemployment hearings.  KRS 341.470(3) states that:

(a) Any employer in any proceeding before a referee or the commission may represent himself or may be represented by counsel or other agent duly authorized by such employer; and

(b) Any person appearing in any proceeding before a referee or the commission who is an officer of, or who regularly performs in a managerial capacity for, a corporation or partnership which is a party to the proceeding in which the appearance is made shall be permitted to represent such corporation or partnership and shall be afforded the opportunity to participate in the proceeding without restriction.

Nevertheless, relying on Turner v. Kentucky Bar Association, 980 S.W.2d 570 (Ky.1998), in which the Kentucky Supreme Court held that a similar statute authorizing non-attorneys to represent and advise workers’ compensation claimants encroached on the exclusive power of the judiciary to establish rules relating to the practice of law in Kentucky under Section 116 of the Kentucky Constitution, the Court of Appeals held that KRS 341.470(3) must fall victim to the same fate.  The Court of Appeals held that the legislature cannot establish rules regarding the practice of law and that the power to establish such rules rests exclusively with the judiciary.  Consequently, both KRS 341.470(3) and the provision of KRS 524.130(1) which excepts representation in unemployment proceedings from the unauthorized practice of law, were found to violate the separation of powers and were therefore unconstitutional.

While the Court was sympathetic to the “laudable goal” of simplifying proceedings before the Commission, it found that the legislature had no power to establish laws regarding the representation of employers before the Unemployment Commission.  With counsel now being required for employers to appear before a referee or the Commission, the cost to employers to challenge an unemployment claim will increase and may very well result in fewer challenges to unemployment applications.