A California court in Richey v. AutoNation, Inc. held that an employer's "honest belief" that its employee abused a leave of absence, without an investigation and/or supportive facts, was insufficient to bar the employee's California Family Rights Act ("CFRA") interference claim.

Richey opened a family restaurant while working as a sales manager for one of the respondents' car dealerships, Power Toyota. Richey injured his back at home resulting in a CFRA leave of absence. During Richey's leave, Power Toyota discovered that he was working at his restaurant, in violation of company policy prohibiting other employment while on leave. The company ordered various employees to surveil Richey, and they observed him allegedly taking orders, sweeping, and performing other tasks. Power Toyota then terminated Richey for working at his restaurant while on leave, in violation of company policy.

Through arbitration, Richey sued Power Toyota's parent companies for, among other claims, interference with his right to take CFRA leave. In defense, respondents asserted an honest belief, whether or not mistaken, that Richey was abusing his leave of absence by working at his restaurant. The arbitrator found in favor of respondents, despite finding that the company's outside employment policy was poorly written and its investigation "superficial."

A court of appeals reversed, holding that the arbitrator committed legal error by barring Richey's CFRA claim based solely on respondents' "honest belief." It emphasized that the respondents bore the burden to prove by actual evidence – something more than an "honest belief" – that their failure to reinstate Richey was justified, since CFRA generally guarantees reinstatement following a covered leave. Thus, it was incumbent on respondents to have investigated and proven to the arbitrator that they refused to reinstate Richey because he violated his CFRA leave, rather than just rely on their policy and "honest belief."

This decision highlights the importance of a thorough investigation of employee misconduct, especially where it will serve as the basis for termination of an employee on a protected leave.