California Supreme Court Leaves Employer’s “Honest Belief Defense” Unsettled.
This case fits under the rubric “no harm, no foul.”
Plaintiff Richey sued his employer AutoNation, Inc., for terminating his employment after he went out on sick leave, thereby violating his right to reinstatement under the California Family Rights Act (CFRA). While on sick leave, Mr. Richey worked to start up a restaurant, in violation of his employer’s policy that employees must not seek outside employment.
The arbitrator rejected Richey’s claims, concluding the employer could terminate Mr. Richey if it had an “an ‘honest’ belief that he is abusing his medical leave and/or is not telling the company the truth about his outside employment.” The trial court confirmed the award. The Court of Appeal reversed, concluding the arbitrator violated plaintiff’s right to reinstatement by applying an “honest belief” defense of the employer to the employee’s claim, thereby eliminating the employee’s unwaivable statutory right to reinstatement. The employer appealed. Richey v. AutoNation, Inc., S207536 (Cal. S. Ct. Jan. 29, 2015) (Chin, J., author).
In fact, “[a]rbitrators may exceed their powers by issuing an award that violates a party’s unwaivable statutory rights or that contravenes an explicit legislative expression of public policy.” And the interesting question in this case is whether the arbitrator exceeded his powers by adopting the employer’s “honest belief” defense that it can terminate an employee based on a reasonable belief the employee is violating company policy while on sick leave under the California Family Rights Act or its federal counterpart.
The Court acknowledges this is “an unsettled question of law.” Unsettled it remains, for the Court concluded that the question need not be resolved here, because 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 . . . “As for the employee’s argument that the company policy “forbidding outside employment in this context is an illegal restraint on his CFRA leave”, that had been forfeited by a failure to raise it in the trial court.
An interesting case for the narrow issue it resolves, as well as for the important issues it leaves unresolved.