Supreme Court of Iowa Decision
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Case Title: JOHN K. O'BRIEN, Appellee, vs. EMPLOYMENT APPEAL BOARD and DAVE BALLSTAEDT FORD, INC., Appellants.
Date: 01/20/93
Bound Citation:
Summary: No. 422 / 91-1054
Decision: On review from the Iowa Court of Appeals.

Appeal from the Iowa District Court for Linn County,
Thomas M. Horan, Judge.

Further review of district court decision reversing and
remanding Employment Appeal Board decision denying
unemployment benefits. DECISION OF COURT OF APPEALS
VACATED; DISTRICT COURT JUDGMENT AFFIRMED.

William C. Whitten and Joe E. Smith, Employment Appeal
Board, Des Moines, and Amanda Potterfield of Joe Johnston
Law Firm, P.C., Cedar Rapids, for appellants.

Matthew Glasson of Glasson, Grove, Sole & McManus,
Cedar Rapids, for appellee.

Considered by Larson, P.J., and Carter, Lavorato,
Neuman, and Andreasen, JJ.

ANDREASEN, J.
John O'Brien was hired as an assistant service manager
at Dave Ballstaedt Ford, Incorporated. He was eventually
promoted to service manager. On June 7, 1989, O'Brien quit
his job following an argument with his employer, Dave
Ballstaedt. He then applied for unemployment benefits.
O'Brien admitted he voluntarily quit, but claimed he did so
with good cause. He claimed Ballstaedt Ford subjected him
to detrimental working conditions and required him to
engage in illegal and unethical activities. His claim for
benefits was denied.
After exhausting his administrative remedies, O'Brien
petitioned for judicial review. The district court
reversed and remanded the case for the purpose of taking
further evidence of the alleged illegal or unethical
activities at Ballstaedt Ford. At the hearing, O'Brien
presented evidence by affidavit that during his employment
at Ballstaedt Ford he observed:

Fraud, internal thefts, employment practices, EPA
violations, unsafe working conditions, fraud in
the sale of new vehicles, contract violations in
employment, discrepancies in reporting sales of
service department repair work, mis-use of
dealership plates, use of employees for personal
work on company payroll, improper reporting of
income, fraud to Ford Motor Company, (5/50
emission claims, power train claims, not reporting
in-service dates of new vehicles, bogus warranty
claims, etc.), violations of the Clean Water Act
. . . solvents[,] . . . gas, oil, chemicals, and
thinners being washed down the drain regularly[,]
. . . leaking barrels of herbicide, oil,
anti-freeze, and solvents[,] . . . [[f]loor drains
. . . pumped into creek[,] . . . [s]ludge and
sediment . . . piled in the creek bed[,] . . .
[and] altered mileages on demo cars.

O'Brien also stated he had complained to his employer about
some of the activities, contacted various federal and state
agencies before and after he quit, and cooperated with the
agencies by providing them with evidence. Affidavits of
other employees corroborated some of O'Brien's claims. The
Employment Appeal Board (EAB), however, again denied
O'Brien's claim, finding no merit in his allegations.
O'Brien again petitioned for judicial review. The
district court again reversed the EAB's denial of benefits
and remanded the case to the EAB with directions to make
findings of fact using the proper legal standard. The EAB
and Ballstaedt Ford appealed this decision.
We transferred the case to the court of appeals. In a
2-1 decision, the court of appeals determined that neither
the findings of the Administrative Law Judge (ALJ) adopted
by the EAB nor the legal standards applied were erroneous.
We granted O'Brien's petition for further review.
The sole issue is whether the EAB applied the proper
legal standard in determining if O'Brien had good cause to
quit his job at Ballstaedt Ford. Our review of the
district court's decision, determining the validity of the
EAB action, is on error. Iowa Code Sec. 17A.20 (1989). We
must decide if the district court, in its appellate
capacity to correct errors of law on the part of the
agency, has correctly applied the law. Freeland v.
Employment Appeal Bd., Sec. N.W.2d Sec. , Sec. (Iowa 1992);
Aluminum Co. of Am. v. Employment Appeal Bd., 449 N.W.2d
391, 394 (Iowa 1989).
Under Iowa law, an individual who has left work
voluntarily without good cause attributable to the employer
is disqualified for unemployment compensation benefits.
Iowa Code Sec. 96.5(1). O'Brien alleges unlawful,
intolerable, and detrimental working conditions constituted
"good cause" for his quitting work. See 345 Iowa Admin.
Code 4.26(3) and (4). Ordinarily, "good cause" is derived
from the facts of each case keeping in mind the public
policy stated in Iowa Code section 96.2. Wiese v. Iowa
Dep't of Job Serv., 389 N.W.2d 676, 680 (Iowa 1986).
In Aalbers v. Iowa Department of Job Service, 431
N.W.2d 330 (Iowa 1988), when faced with a claimant's
"good-faith" defense, we adopted an objective reasonable
belief standard. Id. at 335-36. While we recognized that
the employee's subjective understanding and intent were
relevant on the issue of misconduct, we found they were not
controlling. We concluded the "key question is what a
reasonable person would have believed under the
circumstances." Id. at 336; see Hill v. Department of
Employment Servs., 442 N.W.2d 128, 133 (Iowa 1989); cf. 82
Am. Jur. 2d Wrongful Discharge Sec. 60 (1992) (the
reasonableness of the whistleblower's belief that illegal
activity is occurring is measured by a "good faith" standard).
This same standard should be applied in determining
whether a claimant left work voluntarily with good cause
attributable to the employer. See In re Clark, 266 S.E.2d
854 (N.C. App. 1980). Under the reasonable belief
standard, it is not necessary to prove the employer
violated the law, only that it was reasonable for the
employee to believe so. The parties do not contest the
application of the reasonable belief standard.
With the appropriate legal standard identified, we next
examine what standard was actually employed by the EAB.
O'Brien alleged he was asked to engage in illegal
activities, such as altering mileage on cars, falsifying
records and warranties, and improperly allocating personal
expenses as business expenses. The EAB, by incorporating
the findings and conclusions of the ALJ, suggested there
were numerous complaints by O'Brien of wrongdoing by his
employer. The EAB concluded, "[t]he record abounds with
numerous complaints by the claimant of wrongdoing by the
employer, which various governmental agencies have found to
be without merit."
The district court concluded the EAB did not make
findings of fact using a reasonable belief standard. We
agree. The EAB's decision clearly rests upon the
conclusion that O'Brien had not proven Ballstaedt Ford
violated the law. This is not the proper inquiry. As we
stated previously, the proper inquiry is whether a person
of reasonable prudence would believe, under the
circumstances faced by O'Brien, that improper or illegal
activities were occurring at Ballstaedt Ford that
necessitated his quitting.
The district court was correct in finding the EAB did
not use the appropriate legal standard. Accordingly, we
vacate the decision of the court of appeals. We affirm the
district court's reversal of the EAB decision and remand to
the EAB with directions to make findings of fact using the
proper legal standard.
DECISION OF COURT OF APPEALS VACATED; DISTRICT COURT JUDGMENT AFFIRMED.