NJ Court Rules That Unemployment Benefits Do Not Offset Back Pay Awards

Seyfarth Synopsis: New Jersey’s Appellate Division determined that an award of unemployment compensation benefits will not offset an award of back pay in cases brought under the New Jersey Law Against Discrimination. 

Earlier this week, in Fornaro v. Flight Safety International, Inc., the Appellate Division modified a back pay award in a disability discrimination and retaliation case brought under the New Jersey Law Against Discrimination (LAD), finding that the court below had improperly reduced a jury award of back pay by half of the plaintiff’s award of unemployment benefits. In effect, the trial court below had tried to split the benefit of the unemployment benefits between the parties.  The Appellate Division remanded the case, instructing the trial court that no offset or deduction should have been made.

Background

In Fornaro, the plaintiff was a flight instructor at a flight safety school. After his employment was terminated based on attendance issues, the plaintiff filed suit in Essex County, New Jersey, under the LAD, alleging, among other things, a failure to engage in the interactive process and disability discrimination, as well as retaliation for his objection to a disciplinary write-up that he claimed was pretextual. Following a plaintiff’s verdict at trial, the jury awarded approximately $83,000 representing only back pay, as the jury rejected his claims for emotional distress.  The trial judge, however, reduced the back pay award by approximately $14,000 to represent 50% of the unemployment benefits that plaintiff had already received. 

Plaintiff appealed, in part, contending that the trial judge erred in offsetting his back pay award by fifty percent of his unemployment benefits.  Defendant cross-appealed, arguing that the judge actually should have offset the back pay award by the entire amount of plaintiff’s unemployment benefits.

Decision

The Appellate Division looked to New Jersey’s “collateral source” statute, N.J.S.A. 2A:15-97, which was designed to prevent duplicative recoveries from multiple sources (e.g., insurance policies) in civil actions brought for personal injury or death. The statute permits any party to the lawsuit to present evidence that the plaintiff recovered compensation from other sources, which the court can then offset from the damages award. 

The court analyzed the legislative history behind the collateral source statute and determined that neither the plain language or its history supported its application to the LAD cases, given its intent as remedial legislation meant to protect employees. The court found that “shifting the benefit of unemployment compensation front the wronged employee to the discriminating employer does not serve the LAD’s deterrent purpose.”  The court also noted that the Division on Civil Rights, the agency charged with enforcing the LAD, would routinely not deduct unemployment benefits from back pay awards, in any event.

The court expanded on precedent set by an older case from the trial-level court standing for the same proposition, Sporn v. Celebrity, Inc. In Sporn, the plaintiff sued for wrongful discharge, and the court held that the employer was not entitled to reduce a contract damage award by the amount of unemployment compensation former employee received.  Opponents of this rule felt that reducing recovery by the amount of the benefits received by plaintiff would be granting a windfall to defendant by allowing it an undeserved credit on its own wrongdoing from a source never so intended. There, the court decided to follow the majority rule that that receipt of benefits from a source collateral to the defendant, while lessening the effect of the financial losses of plaintiff, will not diminish damages otherwise recoverable from the wrongdoer in tort cases.

The Court also relied upon U.S. Supreme Court precedent set over a half-century ago in NLRB v. Gullett Gin Co., where the Court construed the National Labor Relations Act (NLRA) as providing that unemployment compensation is not to be deducted from back pay. 

Thus, because the claims in Fornaro were for discrimination and retaliation under the LAD, as opposed to personal injury claims, the Appellate Division held that New Jersey’s collateral-source statute did not apply.  Thus, unemployment benefits were improperly considered in offsetting a portion of Plaintiff’s damages award. The case was remanded for the trial court to enter a judgment in the full amount of the jury verdict.

Outlook

The Appellate Division’s decision in Fornaro confirms that in New Jersey, an award of unemployment benefits generally will not offset a back pay award.  Thus, private employers should be mindful that these offsets likely will not be available to reduce a jury verdict for a plaintiff alleging discrimination under New Jersey state law. 

Further, although the Appellate Division’s decision is in the context of a discrimination case brought under the LAD, it is likely to extend to other employment-related statutes in New Jersey, such as the Conscientious Employee Protection Act (CEPA), the Family Leave Act (FLA), and the Security and Financial Empowerment Act (SAFE Act), for example.

Employers facing litigation under the LAD or one of New Jersey’s other employment-related statutes should conduct a thorough exposure analysis. This analysis should be guided by the principles in Fornaro, unless and until such time that the New Jersey Supreme Court disagrees with this decision. Until then, employers will be well-served to consult counsel versed in the nuances of potential exposure under New Jersey’s remedial employment statutes.