In Richey v. Autonation, Inc., issued January 29, 2015, the California Supreme Court reinstated an arbitration award against the plaintiff and confirmed that employers retain the right to terminate employees who violate company policy even while they are on a leave of absence under the California Family Rights Act (CFRA).

At the start of his employment, the plaintiff received an employee manual stating that the company prohibited employees from performing outside work while on approved CFRA leave.  Further, it was well understood that others had been terminated for violating that policy.  Nonetheless, the plaintiff decided to ignore this prohibition, when he went on an extended CFRA leave after an injury purportedly left him unable to work.  He used his CFRA leave as an opportunity to work on his new business venture, and continued to do so even after his employer sent him a letter reminding him of the policy.  The employer terminated him after obtaining evidence that he had, indeed, violated the policy.  The plaintiff promptly sued, asserting multiple claims under the Fair Employment and Housing Act and the CFRA, but soon found himself in arbitration when the trial court granted his employer’s motion to enforce an earlier-signed arbitration agreement.

The arbitrator ultimately rejected all of the plaintiff’s claims.  Regarding the CFRA claim, the arbitrator relied upon the “honest belief” defense used in federal law and found that the evidence overwhelmingly showed that the employer discharged the plaintiff for non-discriminatory reasons that were unrelated to the CFRA.

The trial court confirmed the arbitrator’s award, but the court of appeal reversed, holding that the arbitrator’s application of a federal theory violated the plaintiff’s right to reinstatement under the CFRA.

The California Supreme Court then reversed the court of appeal.  The court’s opinion begins by noting that the CFRA grants eligible employees an unwaivable right to reinstatement, but that right is “not unlimited.”  Under the CFRA, “[a]n employee has no greater right to reinstatement or to other benefits . . . of employment than if the employee had been continuously employed during the CFRA leave period.”  Applying this principle, the court held that the arbitrator’s reliance on a federal theory—whether or not viable under California employment law—failed to prejudice the outcome.  The overwhelming evidence supported the arbitrator’s finding that the plaintiff was fired for violating the employer’s policy against outside work while on CFRA leave, and not for the mere reason of being on approved leave.  To overlook that the plaintiff ignored his employer’s written admonitions, and hold that the employer could not fire the plaintiff despite his violation of company policy while on leave, would contravene the principle that the 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.  The Supreme Court reasoned that the plaintiff was not deprived of an unwaivable statutory right, but rather, was fired due to an explicit violation of company policy from which he was not immune.

Though the decision is unpublished, the Supreme Court’s ruling nonetheless provides employers with some guidance in a complex area of law that has been a target of significant litigation.