Richey v. AutoNation: Cal. Supreme Court Does Not Address Honest Belief Defense in CFRA Leave Case

Many believed that the California Supreme Court would use Richey v. AutoNation (2/29/15) --- Cal.4th ---, address whether the "honest belief" defense applies to actions under California Family Rights Act (CFRA) (Gov. Code, §§ 12945.1, 12945.2). The Court has issued its opinion in Richey, but it did not decide the issue. 

Plaintiff Avery Richey worked as a sales manager at Power Toyota of Cerritos. Power terminated Richey while he was on medical leave under CFRA because it believed he was misusing his leave by working part time in a restaurant he owned. Richey sued a number of defendants (collectively "AutoNation"), alleging, inter alia, that they had violated his rights under the CFRA.

The trial court compelled arbitration, and the arbitrator denied Richey's CFRA claim based on what is known as the honest belief or honest suspicion defense. The trial court denied Richey's motion to vacate the arbitrator's decision and granted AutoNation's petition to confirm the award. Richey appealed, and the Court of Appeal reversed, holding: (1) the honest belief defense is incompatible with California law and "deprived Richey of his unwaivable statutory right to reinstatement" under the CFRA and (2) the arbitrator's "clear legal error" in adopting the defense abridged Richey's statutory rights under the CFRA.

The California Supreme Court reversed the Court of Appeal's decision, holding that even if the arbitrator committed legal error by adopting the honest belief defense, and even if such error could serve as the basis for reversing the arbitrator's award, Richey failed to show that the error was prejudicial. 

Here, the arbitrator found plaintiff was fired because he violated Power Toyota's employment policy against outside work while on approved CFRA medical leave, not because he was on approved leave. The evidence to support that finding, as reflected in the arbitrator's factual findings, was overwhelming. Power Toyota explicitly warned plaintiff that its policy prohibited any outside employment, including self-employment, while on leave. Plaintiff knowingly ignored the warnings. Power Toyota invited plaintiff to communicate regarding his outside employment, and he deliberately avoided any such communication.  

Even if Power Toyota's employment manual could have more clearly stated the rule about outside employment, the award indicates plaintiff blatantly ignored his superiors' clear instructions not to work at the restaurant while on CFRA leave. To ignore this fact and to hold that Power Toyota could not have fired plaintiff under any circumstances for violating company policy while on leave would ignore the rule that plaintiff had "no greater right to reinstatement or to other benefits and conditions of employment than if [he] had been continuously employed" during the statutory leave period. (29 C.F.R. § 825.216(a).) The arbitrator found plaintiff's firing was based on a clear violation of company policy — a legally sound basis for upholding the arbitrator's award — and would likely have made that finding regardless of the evidence or findings as to the employer's honest belief plaintiff was misrepresenting his medical condition. Thus, even if the arbitrator was mistaken in relying on an honest belief defense, plaintiff was not prejudiced thereby and the arbitrator's award in defendants' favor will stand. 

The opinion is available here.