In Richey v. Autonation, Inc., Case No. S207536 (January 29, 2015), the California Supreme Court confirmed that an employee who is on medical leave does not have a greater right to reinstatement or to other benefits and conditions of employment than if they were continuously employed, and they must comply with existing company policies regardless.

In Richey, a sales manager at Power Toyota Cerritos (“Power Toyota”), part of the AutoNation, Inc., consortium of automobile dealerships, was terminated while out on approved leave under the California Family Rights Act (“CFRA”) for violating company policy. Power Toyota’s policy prohibited employees from engaging in other employment while on a leave of absence, and Toyota found out he was working at a restaurant he owned during this time.

Richey filed suit, alleging his termination violated CFRA and the case was ordered to arbitration. The arbitrator denied Richey’s claim, finding that the employer was allowed to terminate if it had an “honest belief” that Richey was violating the policy, even if mistaken. The trial court denied Richey’s request to vacate the arbitration award and Richey appealed. The California Court of Appeal reversed the trial court’s decision, taking issue with the arbitrator’s reliance the “honest belief” defense because it had not yet been tested in the California Supreme Court and viable in California.

The California Supreme Court reversed, holding that Richey failed to show any prejudice from the arbitrator’s alleged error. The Court explained that, regardless of whether this “honest belief” defense was a viable defense in California, the arbitrator nevertheless reached the correct conclusion. The arbitrator expressly found that Richey was fired because he violated Power’s employment policy against outside work while on approved CFRA medical leave, not because he was on approved leave. The award indicated Richey blatantly ignored his superiors’ clear instructions not to work at his restaurant while on CFRA leave.

The Court explained that, if it held that Power Toyota could not have fired Richey under any circumstances for violating company policy while on leave, it would be ignoring the rule set forth at C.F.R. §825.216(a) that an employee has no greater right to reinstatement or to other benefits and conditions of employment during medical or family leave than he or she would have if continuously employed during the same period.

The Court’s decision is significant because it confirms that employers are entitled enforce their existing policies and discipline employees for failing to follow them, regardless of whether their employees are out on a protected leave. In addition, it underscores the importance of documented communications with employees regarding suspected violations. In this case, the Court relied heavily on the fact that the employer explicitly warned the employee and tried to communicate with him about his outside employment and the employee ignored the employer’s overtures. Finally, the Court provided an instructive explanation of the narrow grounds upon which an arbitrator’s decision can be reversed – decisions on the merits will be given significant deference and reversal will be limited to situations where procedural error results in the denial of a party’s opportunity to vindicate an otherwise unwaivable statutory right.

Of note, the Court did not address whether an employer’s honest belief that an employee was misrepresenting his or her medical condition is a viable defense to claims of disability discrimination in California, leaving issue open to be resolved in another case.