In a recent case in the State of New York, the Supreme Court heard an appeal from a decision of the Unemployment Insurance Appeal Board which ruled, among other things, that the claimant was disqualified from receiving unemployment insurance benefits because her employment was terminated due to misconduct.

The claimant who was employed by an alarm company was discharged for failing to follow the employer’s procedures for responding to alarms, despite being given prior warnings. After hearing the evidence, the administrative law judge upheld the initial determination disqualifying claimant from receiving unemployment insurance benefits on the basis that she lost her employment through misconduct. The Unemployment Insurance Appeal Board affirmed, whereby the claimant appealed to the Supreme Court of New York.

One of my subscribers called and said he was told that it was not necessary to have a third-party indemnification agreement in my contract. Is that correct? When the customer wants it removed, should I remove it? 


There is a reason for the third-party indemnification agreement in your contract.  If a third party files an action against you because the system was inoperative or did not work properly, the third-party indemnification provides you with the opportunity to seek indemnification against your subscriber for actions brought by a third party.  Keep in mind that the third party is not a signatory to your agreement, so that the defenses you have against your subscriber will not be applicable to the third party who filed the action.  Is that fair?  Yes, it’s fair because your subscriber will or should have either liability or homeowners insurance to cover whatever the loss may be.  You are not an insurer and the amount of money that your subscriber pays to you does not warrant your taking on a defense of this type of action. 

If, in fact, the subscriber insists on removal of the third-party indemnification provision, then I would definitely contact your insurance carrier and get their permission before eliminating the provision.  Keep in mind, however, that even if your insurance carrier agrees to the removal of the provision, if your insurance carrier should at any time cancel your policy, then you are at risk, as you no longer will have the insurance coverage, and will have lost the benefit of the third-party indemnification in your contract.

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In making its decision, the court held that “a knowing violation of an employer’s established policy or reasonable request may constitute disqualifying misconduct, particularly where, as here, the claimant had received prior warnings about similar behavior.” It pointed out that the record indicated that during the 90-day probationary period imposed by the employer due to claimant’s past difficulties with following alarm procedures, claimant failed to, among other things, notify the police after an alarm was triggered and the client could not be contacted. The court pointed out that in light of the serious potential consequences for violating this policy, including possible liability for the employer, that substantial evidence exists in the records supporting the board’s ruling that the claimant’s employment ended under disqualifying circumstances. Therefore the court ordered the decision of the Employment Insurance Appeal Board affirmed.

Bottom line: if you plan on terminating an employee for cause, make sure you create a reliable paper trail and make sure you notify the employee and keep a record of the problem(s) when they occur. Terminating an employee in today’s business climate can be very difficult as there are many defenses, which the employee can raise that will generally get a great deal of support from the local unemployment office or the courts.

The most important thing is, of course, to do the necessary due diligence and scrutiny before hiring a new employee. Normally an employee’s characteristics can be determined at the outset of the employment. Watch closely and keep a record of any missteps that the employee engages in at the outset. The longer the employee is employed, the more difficult it is to terminate the services of the employee.

If the employee is not doing his or her job, continuously shows up late for work, is constantly absent, or has a bad attitude with customers or suppliers, it is important to discuss these issues with the employee at the time the problem is first observed.

After notifying the employee of the problem, a note should be inserted in the employee’s file so that a proper record is maintained. When an employee is terminated and the employee goes to the unemployment office or files a lawsuit, the usual defense is to say, “My employer never advised me that I was doing anything wrong.” Conversations with the employee are fine, but a paper trail is exceedingly important.

In the case discussed, the court determined that “…a knowing violation of an employer’s established policy or reasonable request may constitute disqualifying misconduct, particularly where, as here, the claimant has received prior warnings about similar behavior.”

If the company has an employment manual, always make sure that all new employees receive a copy and encourage them to read it. If the company does not have a manual, but has particular procedures in place when conducting its business, these procedures should be specifically explained to incoming employees with a follow-up in writing.

Violation of listed procedures should be adequately documented to make sure that the company is properly protected in the event a claim for wrongful termination or for unemployment compensation is made by the terminated employee.