[author: Karen L. Moore]
Avery Richey v. AutoNation, Inc. et al.
Court of Appeal, Second District (November 13, 2012)
This case discusses an employer’s burden of proof to set forth a legitimate reason for denying reinstatement to an employee on leave under the California Family Rights Act (“CFRA”).
Plaintiff Avery Richey was hired as a sales associate at Power Toyota of Cerritos (“Power Toyota”) in 2004 and was subsequently promoted to sales manager. Upon employment, he signed an arbitration agreement covering claims against Power Toyota, its parent companies, employees and agents. In 2007 he made the decision to start his own restaurant while continuing to work full-time at Power Toyota. The restaurant opened in 2008. Richey’s managers met with him, expressing concern that the restaurant was distracting him from his job duties.
In March 2008, Richey suffered a back injury while moving furniture at home. His physician certified that he was unable to perform his duties at Power Toyota. He filed a claim for leave under the CFRA. The leave was granted and provided for a return to work date of May 28, 2008. Richey’s supervisor sent a letter advising him of the company’s policy barring other employment, including self-employment, while on a leave of absence. Richey did not respond to the letter because he believed that the policy did not apply to him as a restaurant owner.
During Richey’s leave, one of his supervisors parked near the restaurant and observed Richey sweeping, bending over and using a hammer to hang a sign. Several coworkers also observed Richey taking orders and acting as cashier. On May 1, 2008, before his return to work, Power Toyota terminated Richey for engaging in outside employment while on leave. Richey sued, alleging multiple claims including a violation of the CFRA. Power Toyota moved to compel the arbitration agreement which required the arbitrator to base his decision on controlling law.
The arbitrator issued a written order denying Richey’s CFRA claim. In rendering his decision in favor of Power Toyota, the arbitrator conceded that Power Toyota’s investigation of Richey’s restaurant activities was “superficial” and its policy barring secondary employment while on leave was poorly written. It was also unclear whether Richey’s activities at his restaurant were beyond his doctor’s restrictions. Despite many factual issues, the arbitrator decided Richey’s CFRA claim based on a single issue of law and fact. He relied on the “honest belief defense” adopted by a minority of federal circuits (but rejected by the Ninth Circuit). As stated in Smith v. Chrysler Corp. (6th Cir. 1998) 155 F.3d 799, 806, the “honest belief defense” provides that “so long as the employer honestly believed in the proffered reason given for its employment action, the employee cannot establish pretext even if the employer’s reason is ultimately found to be mistaken, foolish, trivial, or baseless.”
Richey moved the trial court to vacate the award, arguing that the arbitrator committed an error of law by improperly allowing Power Toyota the honest belief defense, resulting in waiver of Richey’s CFRA rights. The trial court disagreed, ruling that there was no evidence that Richey could not perform his job duties and Power Toyota’s suspicion of fraud, even if untrue, was enough to justify Richey’s discharge.
The Court of Appeals reversed the trial court judgment and directed it to grant Richey’s petition to vacate the arbitration award and allow a new arbitration. The Court of Appeals examined federal court rulings regarding the federal Family & Medical Leave Act (“FMLA”) upon which CFRA is based and determined that the arbitrator committed legal error in applying the honest belief defense. The Court of Appeal reasoned that both CFRA and FMLA guarantee reinstatement to an employee following certified leave, and the burden of proof is on the employer to set forth particularized facts showing a legitimate reason to deny reinstatement.
California courts are in accord with federal law. Under CFRA an employer has the burden of proving by a preponderance of the evidence that a legitimate reason renders an employee ineligible for reinstatement. In Faust v. California Portland Cement Co. (2007) 150 Cal.App.4th 864, 878-879, the court held that “[a]n interference claim under the FMLA (and thus CFRA) does not involve the burden-shifting analysis articulated by the United States Supreme Court in McDonnell Douglas….A violation of the FMLA ‘simply requires the employer deny the employee’s entitlement to FMLA leave.” Citing to Avila v. Continental Airlines, Inc. (2008) 165 Cal.Appp.4th 1237, 1259, the Court of Appeals noted that allowing an employer to rely on a good faith but erroneous belief about the legitimacy of its actions toward an employee would be inconsistent with the antidiscrimination provision of CFRA.
In this case, the arbitrator improperly imposed the burden of proof on Richey - as opposed to his employer - by basing his decision on Power Toyota’s “honest belief” that Richey violated company policy barring outside employment during his leave. Power Toyota could not rely on a poorly-worded and inconsistently applied company policy to terminate Mr. Richey while on leave. The arbitrator’s failure to apply the correct burden of proof effectively denied Richey a hearing on the merits of his CFRA claims. Necessary findings of fact and conclusion of law sufficient to ensure that the decision complied with the statutory requirements of CFRA include: whether Richey was given adequate notice of Power Toyota’s policies regarding CFRA leave; whether the policy barring secondary employment during leave differed from the policies governing secondary employment for employees not on leave; whether the secondary employment policy violated CFRA; whether Richey’s restaurant activities exceed limitations imposed by his physicians in violation of his leave; and whether Power Toyota carried its burden of proof on these factual issues.
This case illustrates the burden of proof employers must meet to support any decision to deny reinstatement to employees who take leave under CFRA. An employer’s mere “honest belief” that an employee violated the terms of their leave in the absence of factual support will not shield an employer from CFRA liability.
For a copy of the complete decision see: