Richey v. AutoNation: Court of Appeal Vacates Arbitration Award Based on "Honest Belief Defense" in CFRA Action

Richey v. AutoNation, Inc. (11/13/12, mod. 12/12/12) is interesting for its discussion of CFRA and FMLA rights, as well as its discussion of standards for reviewing arbitration awards.

Avery Richey, a sales manager for defendant, was terminated four weeks before the expiration of his approved CFRA medical leave because his employer believed he was misusing his leave by working part time in a restaurant he owned. Richey sued for violation of the CFRA, and his case went to arbitration under an agreement that provided, in part, “[r]esolution of the dispute shall be based solely upon the law governing the claims and defenses set forth in the pleadings.” 

The arbitrator denied Richey’s CFRA claim based on the "honest belief" or "honest suspicion" defense. The trial court denied Richey’s motion to vacate the arbitrator’s award and granted AutoNation’s petition to confirm the award. The Court of Appeal reversed: 

The honest belief defense accepted by the arbitrator is incompatible with California statutes, regulations and case law and deprived Richey of his unwaivable statutory right to reinstatement under section 12945.2, subdivision (a). This clear legal error abridged Richey’s statutory rights under CFRA—rights based on, and intended to further, an important public policy. Accordingly, under the principles set forth in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 and Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, the award must be vacated.

Slip op. at 2. 

After discussing a review court's limited authority to vacate an arbitrator's award (Slip op. at 7-10), the Court held that the arbitrator committed clear legal error by relying solely on the employer's belief that Richey had abused his medical leave. Focusing on the employee's reinstatement rights under the CFRA and FMLA (slip op. at 10-13), the Court then held that the arbitrator improperly shifted the burden of proof to Richey by holding for the employer based solely on his finding that Richey’s supervisor held an “honest belief” that Richey had violated company policy barring outside employment. Slip op. at 14-24. 

[Lonicki v. Sutter Health Central (2008) 43 Cal.4th 201] necessarily stands for the proposition that an employer may not, in terminating or failing to reinstate an employee who has been granted CFRA leave, defend a lawsuit from that employee based on its honest belief the employee was abusing his or her leave. Instead, the employer must demonstrate evidentiary facts sufficient to carry the burden of proof imposed by CFRA and FMLA.

Slip op. at 23. 

The Court then held that these errors of law required that the award be vacated. Slip op. at 24-28. 

Here, where the parties have agreed the arbitrator will resolve any claim “solely upon the law” and the purported legal error goes to both express, unwaivable statutory rights (the guarantee of reinstatement) and the proper allocation of the burden of proof, judicial review is essential to ensure the arbitrator has complied with the requirements of CFRA. In this instance, and on these facts, “‘granting finality to [the] arbitrator’s decision would be inconsistent with the protection of [Richey’s] statutory rights.’” 

Slip op. at 25, citing Pearson Dental, supra, 48 Cal.4th at 680. 

The Court of Appeal modified its opinion without changing the result on December 12, 2012. The order modifying and the modified opinion are here.  I assume that the employer will seek review in the California Supreme Court and I will let you know what happens there.