Supreme Court of Iowa Decision
This opinion is presented AS IS. The opinion is subject to change; there is also the possibility of introduction of error in the posting process. This database is not yet complete. Reliance on this opinion should be tempered by sound legal advice from licensed counsel.

Case Title: SHIRLEY FREELAND, Appellant, vs. EMPLOYMENT APPEAL BOARD and HAWKEYE INSTITUTE OF TECHNOLOGY, Appellees.
Date: 10/21/92
Bound Citation:
Summary: No. 296 / 91-616
Decision: On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Black Hawk
County, George L. Stigler, Judge.

Employee appeals from district court affirmance of the
decision of the employment appeal board denying the
employee unemployment benefits due to misconduct. DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.

C.A. Frerichs and Thomas P. Frerichs, Waterloo, for appellant.
William C. Whitten, Des Moines, for appellee Employment Appeal Board.
Jaki K. Samuelson of Whitfield, Musgrave & Eddy,
Des Moines, for appellee Hawkeye Institute of Technology.

Considered en banc.

ANDREASEN, J.
As a result of agency action, Shirley Freeland was
denied unemployment benefits. She petitioned the district
court for judicial review. The court found Freeland had
been afforded procedural due process in the administrative
proceedings and that her misconduct had been sufficiently
established. The court entered judgment affirming the
agency action. On appeal, the court of appeals reversed.
We granted further review and now vacate the decision of
the court of appeals and affirm the district court.
I. Background.
Freeland was employed as a secretary by Hawkeye
Institute of Technology (Hawkeye Tech). In January 1990
she worked for Dr. Glen Pedersen, Vice President of
Vocational Technical Education Division. At Pedersen's
request, she collected money from coworkers and ordered
flowers from Design Studios for two Hawkeye Tech employees
who had been hospitalized. In February 1990, the florist
mailed a statement for the flowers to Freeland at the
Hawkeye Tech office address. The flower bill was not
paid. The florist mailed a statement each month thereafter
to Freeland in care of Hawkeye Tech. After three or four
months the florist called Freeland at work and inquired
about payment. Freeland said she would take care of it but
no payment was made.
On June 18, 1990, Dr. John Hawse, president of Hawkeye
Tech, was told by his secretary that Hawkeye Tech had a
flower bill that had not been paid. He called Design
Studios and talked to the owner Joan Kerns. Kerns told him
two flower arrangements had been ordered by Freeland to be
billed to Hawkeye Tech, attention to her. Hawse then
requested Pedersen and Ron Kuhlman, director of personnel,
to investigate the matter.
Pedersen asked Freeland to come to his office. When
asked about the flower fund money Freeland admitted she had
used the money to purchase prescription drugs for her
husband. Pedersen suggested he considered the conversion
of money entrusted to her as theft. When faced with the
possibility of theft charges, termination of her
employment, or resignation, Freeland submitted her written resignation.
The following day Freeland, by letter, advised Pedersen
that she was withdrawing her resignation. The letter was
referred to the president. Hawse notified Freeland that
the resignation had been accepted and her request to
withdraw would not be honored. Freeland then filed her
claim for unemployment insurance benefits with Job Service.
The Job Service claims representative found Freeland
had been compelled to resign when given the choice of
resigning or being discharged. Under these circumstances,
her resignation would not be considered a voluntary
leaving. No disqualification was imposed; Freeland's claim
for unemployment compensation was allowed.
Hawkeye Tech appealed from this initial determination.
Following a contested case hearing, an administrative law
judge (ALJ) found Freeland's acts and omissions constituted
misconduct justifying denial of unemployment benefits.
On appeal, the Employment Appeal Board affirmed the
decision of the ALJ. The decision, with its findings of
fact and conclusions of law, were incorporated into the
agency's decision. Freeland's application for rehearing
was denied by the agency.
Freeland then filed a petition for judicial review in
district court. Following the district court's judgment,
which affirmed the agency action, Freeland appealed. We
transferred the case to the court of appeals.
The court of appeals reversed, finding the agency's
determination of misconduct was not supported by
substantial evidence. The agency and employer sought, and
we granted, further review.
There are two primary issues raised on appeal. First,
was Freeland given sufficient notice that her misconduct
was an issue in the contested case hearing before the ALJ.
Second, was there substantial evidence to support the
agency's finding of misconduct.
II. Notice.
Freeland claims it was a denial of due process for the
ALJ to inject the issue of "disqualifying misconduct" into
the hearing without prior notice. When constitutional
issues are raised in a judicial review proceeding, we make
an independent evaluation of the totality of the evidence;
our review is de novo. Consumer Advocate v. Commerce
Comm'n, 465 N.W.2d 280, 281 (Iowa 1991).
Parties to an administrative hearing are entitled to
notice and the opportunity to defend. Carr v. Iowa
Employment Sec. Comm'n, 256 N.W.2d 211, 214 (Iowa 1977).
The hearing before the ALJ must be conducted pursuant to
the provisions of Iowa Code chapter 17A relating to
hearings for contested cases. Iowa Code Sec. 96.6 (1989). In
such contested cases, all parties shall be afforded an
opportunity for hearing after reasonable notice in
writing. Iowa Code Sec.17A.12. The notice must include a
reference to the particular sections of the statutes and
rules involved and a short and plain statement of the
matters asserted. Iowa Code Sec. 17A.12(2)(c) and (d).
Here, Job Service gave notice to the parties that
Hawkeye Tech had appealed the action taken by Job Service.
The notice identified the involved statutes as sections
96.5-1 and 96.5-2A. The notice also stated: "The
following matters have been asserted . . . 1. WHETHER THE
CLMT. WAS COMPELLED TO RESIGN BY THE EMPLOYER." The notice advised the parties that the hearing would be conducted by
an ALJ and that the purpose of the hearing is to receive
evidence from the parties to enable the ALJ to determine if
the action taken by Job Service was correct. Both Freeland
and Hawkeye Tech were represented by legal counsel at the hearing.

Prior to receiving evidence the ALJ stated:

As I make my decision in this case I'll be
concerned with the provisions of Iowa Code section
96.5-1 and subsection 2-A. The important language
in subsection 1 is that an individual shall be
disqualified for benefits if the individual has
left work voluntarily without good cause
attributable to the individual's employer; while
in subsection 2-A the pertinent language is that
an individual shall be disqualified for benefits
if the individual has been discharged for
misconduct in connection with the individual's employment.

The employer called Kerns, Pedersen, Hawse, and Kuhlman
as witnesses. Freeland testified on her own behalf.
Evidence relating to Freeland's misconduct was received.
After all evidence had been taken, Freeland's counsel
raised, for the first time, that his client would be denied
due process of law if the ALJ considered any issue other
than whether there was a voluntary quit.
The due process issue was addressed by the ALJ. In his
decision it is stated:

He [Freeland's attorney] argued that the narrative
of the matter asserted on the hearing notice
listed only the issue of whether the claimant was
compelled to resign. This argument fails to take
into account the fact that both the law section
concerned with quits and that concerned with
discharges was listed on the notice. Furthermore,
Iowa Administrative Code section 345-6.2(5)(d)
(1) Iowa Administrative Code 545-6.14(4) now
provides: "The hearing shall be confined to the
evidence relevant to the issue or issues stated on the
notice of hearing. . . . Notwithstanding, voluntary
quits and discharges generally shall be construed to
constitute the single issue of separation from
employment so that evidence of either or both types of
separation may be received in a single hearing."
terms of a voluntary leaving or discharge shall be
construed generally to be a single issue
concerning the separation from employment so that
evidence on either both kinds of separation may be
received." Considering these factors and
considering that the claimant has been represented
by licensed attorney since at least the latter
part of July 1990, the denial of due process
argument is rejected.

The agency denied Freeland's application for rehearing
that again raised the due process issue. On judicial
review, the district court found Freeland was adequately
advised of the claimed misconduct and was able to, and in
fact did, defend against that claim at the time of the
hearing before the ALJ. Upon our de novo review we reach
the same conclusion.
III. Misconduct.
Iowa law disqualifies employees from receiving
unemployment compensation for various reasons. See Iowa
Code Sec. 96.5. Misconduct is specifically listed as a cause
for disqualification. Iowa Code Sec. 96.5(2).
The term misconduct is not defined in the statute.
However, misconduct is defined by agency rules. It is
defined, in part, as a deliberate violation or disregard of
standards of behavior that the employer has the right to
expect of employees. 345 Iowa Admin. Code 4.32(1)(a). We
have held the agency rule definition is an accurate
reflection of legislative intent. See, e.g., Kleidosty v.
Employment Appeal Bd., 482 N.W.2d 416, 416-17 (Iowa 1992); Larson v. Iowa Dep't of Job Serv., 474 N.W.2d 570, 571-72 (Iowa 1991).
Our review is on error, and the agency's decision is
binding on us if it is supported by substantial evidence
and not based upon incorrect conclusions of law. Iowa Code
Sec. 17A.19(8)(e), (f); Larson, 474 N.W.2d at 572. Evidence
is substantial when a reasonable mind could accept it as
adequate to reach the same findings. Sallis v. Employment
Appeal Bd., 437 N.W.2d 895, 896 (Iowa 1989). We look only
to the final agency decision and determine whether the
record supports the agency's ruling. Aluminum Co. v.
Employment Appeal Bd., 449 N.W.2d 391, 394 (Iowa 1989). In
reviewing a district court decision on the validity of
agency action, we decide whether the district court has
correctly applied the law. The district court itself acts
in an appellate capacity to correct errors of law on the
part of the agency. Henry v. Iowa Dep't of Transp., 426
N.W.2d 383, 385 (Iowa 1988).
Freeland argues, and the court of appeals concluded,
there was not substantial evidence to support a finding
that Freeland's termination was a result of misconduct.
The court of appeals found:

While Freeland was asked by her supervisor to
collect for the flowers, it was not a duty as an
employee. The flowers were not sent by the
employer, but were paid for from personal funds of
fellow coemployees. Freeland used her personal
credit for the purchase of the flowers. She was
responsible for payment of the bill and ultimately paid it.

In contrast, the agency, by incorporating the ALJ's
findings and conclusions, found:

The claimant established the flower fund upon
the instruction of her supervisor. The fund was
for the benefit of her coworkers. The money
collected for the fund was from other coworkers.
Ms. Freeland took the money for her own use
without notice and without permission. She
withheld this information from her supervisor and
coworkers until denial was futile.

Considering especially the length of the
deception, the administrative law judge finds that
the claimant's acts and omissions constitute
misconduct. While short-term use of the funds so
entrusted to her with prompt repayment may have
constituted merely an isolated instance of poor
judgment, the claimant's continued failure to
rectify the situation created a continuing act of
misconduct extending from early 1990 until the
date of her separation. This constitutes
misconduct to the degree justifying the denial of
job insurance benefits.

The claimant was compelled to resign
effective June 18, 1990, under circumstances
constituting job related misconduct.

Upon judicial review, the district court found Hawkeye
Tech maintained a policy of sending flowers to employees
who were hospitalized to promote good personnel relations.
The court concluded it did not matter whether the flower
bill was personal in nature to Freeland or the obligation
of Hawkeye Tech. The image of Hawkeye Tech was damaged by
allowing the bill to remain unpaid for six months. It was
in Hawkeye Tech's interest to promote good interpersonal
relationships between its employees. Dissension and
mistrust could easily set in if an individual such as
Ms. Freeland could collect money that was to be used for
one purpose and then convert it to her own personal use.
In determining if there is substantial evidence to
support the agency finding, the question is not whether the
evidence might support a different finding, but whether
there is substantial evidence to support the finding
actually made by the agency. Aluminum Co., 449 N.W.2d at
394. Where the evidence is in conflict or where reasonable
minds might disagree about the conclusions to be drawn from
the evidence, the court is bound to accept the board's
findings. Id. We take all record evidence into account in
our review and grant appropriate deference to the board's
expertise. Id. The court must broadly and liberally apply
the board's findings in order to uphold rather than defeat
the decision. Id. The board's factual findings are
binding on appeal unless a contrary result is demanded as a
matter of law. Id.
Freeland urges the flower fund incident was personal
and was not job related. There is substantial evidence in
the record that Pedersen directed Freeland to collect money
from coemployees to purchase the flowers. The card that
was delivered with the flowers stated the flowers were from
vocational technical office department heads. Freeland
testified that at the time she collected the money they
gave her, she had no intention of using it for the purchase
of prescriptions for her husband. When Hawse called the
florist, he was told there was a bill for Hawkeye Tech from
some time in January and that the bills had been sent to
Hawkeye Tech to the attention of Freeland. The florist
told Hawse that she was surprised that Hawkeye Tech would
have a bill outstanding so long because they are more
prompt in paying their bills. Other flowers ordered by
Freeland for personal use were billed to her home address.
Freeland argues the delay in payment did not cause any
harm to her employer. We have recognized an employee's
misconduct may justify termination and the denial of
unemployment benefits where the employee's conduct had not
caused any immediate harm to the employer. Flesher v. Iowa
Dep't of Job Serv., 372 N.W.2d 230, 234 (Iowa 1985). The
agency's conclusion that the misconduct of Freeland was job
related is supported by evidence. The agency can
reasonably infer that the use of money received from fellow
employees would constitute a breach of trust that would
affect interpersonal employee relationships and the
reputation of the employer.
We therefore vacate the decision of the court of
appeals and affirm the district court judgment.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.

All justices concur except Schultz, J., who dissents
and is joined by Carter and Snell, JJ.

SCHULTZ, J. (dissenting).

I would agree with the court of appeals' conclusion
that there was not substantial evidence to support the
agency's conclusion of misconduct. I cannot agree there
was substantial evidence that this area public college had
its image tarnished by the appellant or that appellant
created dissension and mistrust among employees.
Rather, appellant was assigned a task outside her
responsibility as an employee and she assumed a debt for
flowers rather than promptly pay the bill. This does not
amount to a willful or wanton disregard of her employer's
interest. See Flesher v. Iowa Dep't of Job Serv., 372 N.W.2d 230, 233 (Iowa 1985). I would affirm the court of appeals' decision.

Carter and Snell, JJ., join this dissent.