Two Lessons for Employers from Richey v. AutoNation

Yesterday the California Court of Appeal issued an opinion with two valuable lessons for employers. First, if you use arbitration to limit a court’s involvement in employment disputes, make sure the agreement is carefully thought out and drafted. Second, an employer may not use a “good faith mistaken belief” defense in California defeat the claim that an employee’s FMLA or CRFA rights have been denied.

In the case, the employer used a mandatory arbitration agreement which provided that the arbitrator was required to resolve disputes “based solely upon the law governing the claims and defenses set forth in the pleadings.” The court used this language as a wedge to apply judicial review which would otherwise not be available. The language eliminated the possibility that the arbitrator’s decision was based upon quasi-legal principles which could have been beyond the court’s reach. The net impact: the case went through two levels of court review before being sent back for a redo of the original arbitration.

The case is also important because the court held that the “good faith mistaken belief” defense that has been recognized by some courts is not a valid defense in California. The court stated, “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.” The felt that permitting the defense changed the burdens of proof and it wanted to emphasize that in the context of an interference claim, the employer bears the burden of proving that an employee misused the leave. The employer in the case terminated the employee on leave because it had a policy which prohibited employees from working at other jobs while on a leave, and the employer believed that the employee violated the policy.

Unfortunately, it appears that the employer conducted only a marginal investigation and failed to seek competent legal advice. The pre-termination advice would have alerted the employer to the fact that the California Supreme Court previously ruled that working at a second job does not automatically mean that an employee is not eligible for a medical leave of absence from the first job. It is the burden of the employer to establish that the work performed on the second job demonstrates that the employee was not entitled to FMLA/CFRA leave from the employer.

The case can be reviewed at http://www.courts.ca.gov/opinions/documents/B234711.PDF