Employers and arbitration enthusiasts should take note of Richey v. AutoNation, Inc., 2012 Cal.App.LEXIS 1177, No. B234711 (2d Div., Nov. 13, 2012) (“Richey”). In Richey, the California Court of Appeal vacated an arbitration award and held that employers cannot interfere with an employee’s rights to leave under the California’s Family Rights Act (“CFRA”) based solely on an “honest belief” that the employee is abusing those rights. Given the expectations of extremely limited review of arbitration decisions (particularly an arbitrator’s legal or factual conclusions), and the dangers of navigating CFRA, Richey warrants attention.
The facts of the case: Mr. Richey, who signed an arbitration agreement with his employer AutoNation, went on CFRA leave due to a back injury. AutoNation then learned that Mr. Richey was working at a restaurant while on leave. AutoNation sent two of its employees to investigate. They observed Mr. Richey working at the restaurant in a manner AutoNation “honestly believed” (so the arbitrator found) was inconsistent with his CFRA leave rights. AutoNation then terminated Mr. Richey’s employment. Mr. Richey sued for interference with his CFRA leave rights, among other claims.
At arbitration, AutoNation invoked the “honest belief” defense, which provides: “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.” AutoNation argued that it did not violate CFRA because it “honestly believed” Mr. Richey had abused his leave rights based on the investigation it conducted. The arbitrator found the “honest belief” defense applicable and ruled in favor of the employer. The trial court affirmed the award. Mr. Richey appealed.
California Code of Civil Procedure section 1286.2 enumerates the limited grounds for vacating an arbitration award, which include findings that the arbitration award was procured through fraud, a corrupt arbitrator, an arbitrator’s prejudicial misconduct, or an arbitrator acting “in excess” of its powers. In Richey, the Court of Appeal acknowledged its limited role, including the notion that a court “may not review the merits of the controversy between the parties, the validity of the arbitrator’s reasoning or the sufficiency of the evidence supporting the arbitration award.” Despite these limitations, the Court noted that it can vacate awards if it finds that an arbitrator acts “in excess” of its powers by committing “clear legal errors.” Further, the Court stated that review is particularly likely where an arbitrator adjudicates “unwaivable statutory rights” such as those afforded by the Fair Employment & Housing Act and rights under CFRA.
Richey then held that the arbitrator committed “clear legal error” by allowing the “honest belief” defense. Thus, it found that an employer must prove that an employee is in fact abusing CFRA leave rights, not simply that it honestly believes this is the case.
The arbitration language at issue required the arbitrator to decide claims “solely upon the law governing the claims and defenses set forth in the pleadings” and barred the arbitrator from invoking “any basis (including, but not limited to notions of ‘just cause’) other than such controlling law.” The Court reasoned that this language favored judicial review because the arbitrator was required to apply the same law as would a judge. “While this provision does not authorize judicial review as a matter of course, ‘contractual limitations on the arbitrators’ powers can alter the usual scope of review.’” Richey, at *49 (citing Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1355-56).
There are important take-aways from Richey, both as to the use of arbitration agreements and related proceedings, and as to CFRA. With regard to arbitrations, Richey undermines the finality of arbitration awards even if the arbitration proceeding otherwise is conducted fairly. This is particularly the case in the employment setting where “unwaivable statutory rights” are at stake. It also forecasts that courts may be more willing to review arbitration awards when an arbitration agreement requires that an arbitrator apply the same law that would be applied in court.
Richey is also important in terms of what an employer should do if it suspects an employee is abusing his or her CFRA leave rights. Specifically, if an employer believes an employee on CFRA leave is lying about his or her need for leave, the employer should not stop there; rather, it should take careful steps to investigate and develop the evidence necessary to prove its defense. It is clear that good faith or honest belief is not enough.
We regularly provide litigation and counseling advice on these issues. If you would like to discuss the Richey case or these issues further, or have any questions about this blog, please contact us.