Many employers have struggled with the issue of disciplining an employee for misconduct while he or she is on a leave of absence under the California Family Rights Act (“CFRA”) and federal Family Medical Leave Act (“FMLA”). Employers legitimately fear that the employee will claim that the discipline was taken because of the legally protected leave. In Richey v. AutoNation, the California Supreme Court provided some reassurance to employers who terminate employees on leave based on well-documented evidence of policy violations.

Background

Richey worked for Power Toyota, part of the AutoNation consortium of car dealers. At hire, he signed an arbitration agreement and received an employment manual prohibiting employees from working while on FMLA/CFRA leave. Power Toyota employees understood that outside employment of any kind during leave, including self-employment, violated company policy, and also knew the company had fired employees for violating this rule.

In February 2008, while still employed with Power Toyota, Richey opened his own restaurant. The next month, he injured his back at home. His physician declared him unable to work, and he requested FMLA/CFRA leave, which Power Toyota granted and extended several times.

In April 2008, Richey’s supervisor sent him a letter stating that employees could not pursue outside employment during leave, and instructing Richey to call the company if he had questions. Richey ignored the letter because he thought it misstated company policy, and because he did not believe it applied to working in his own business. Shortly thereafter, a Power Toyota employee sent to visit the restaurant reported seeing Richey sweeping, bending over and hanging a sign. Other employees also reported that Richey was working the counter. Based on this evidence, Power Toyota terminated Richey for violating its policy.

Richey sued, alleging multiple violations of the CFRA and other claims. After an 11-day arbitration hearing, the arbitrator ruled in Power Toyota’s favor. The arbitrator determined that Power Nation legally dismissed plaintiff based on an “honest belief” that he was abusing medical leave. (Under the “honest belief” doctrine recognized by some federal courts in FMLA cases, an employer who honestly, but mistakenly, relies on a non-discriminatory reason in making its challenged employment decision is not liable.) Richey sought to vacate the arbitrator’s award in court. The Court of Appeal ruled that the arbitrator had committed legal error, holding that Power Toyota violated Richey’s reinstatement rights under CFRA and that California courts had not recognized the “honest belief” defense.

The Supreme Court’s Decision

In a unanimous decision, the California Supreme Court reversed the Court of Appeal’s decision. Much of the Court’s opinion concerns when a court may overturn an arbitrator’s award. (Short answer: rarely.) The Court found it unnecessary to determine the viability of the “honest belief” defense in California. In the Court’s view, the arbitrator had correctly found that Power Toyota terminated Richey for violating its rule prohibiting employees from working during CFRA leaves. The Court pointed out that, under the CFRA regulations, an employee on leave has “no greater right to reinstatement . . . than if the employee had been continuously employed during the CFRA leave period.” Here, the arbitrator relied on “overwhelming” evidence that (1) Power Toyota “explicitly warned” Richey that its policy prohibited any outside employment, including self-employment, while on leave, and had invited him to respond; and (2) Richey “blatantly” ignored his superior’s “clear instructions” and continued working.

Practical Tips for Employers

The Richey decision offers a useful checklist for employers administering FMLA/CFRA leave programs. First, employers should develop clear leave policies, ensure that employees are aware of those policies, and uniformly enforce them. Second, when an employee leaves work on FMLA/CFRA leave, the employer should remind him or her of applicable company policies in writing, and invite the employee to raise any questions about them. Third, an employer considering disciplining an employee on leave must conduct a thorough investigation to determine whether the employee has indeed violated policy. Because the employer has the burden of showing that the employee would have been terminated regardless of his or her leave status, employers should not proceed without concrete evidence of the employee’s policy violation.

Finally, employers considering adopting a blanket policy like Power Toyota’s – prohibiting all outside employment during leave – should proceed with caution. In another California decision, Lonicki v. Sutter Health Central, the court ruled that an employee on CFRA leave may be precluded from working his or her regular job because of a serious health condition, but may be capable of working another, different job. Consistent with that decision, Richey argued that Power Toyota’s policy forbidding all employment was an illegal restraint on his FMLA/CRFA leave. Because Richey did not make that argument in arbitration or in the lower courts, the Supreme Court found no reason to address it. Until the Court addresses this issue, employers should consult with experienced counsel before enacting blanket “no work during leave” policies.