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The Continuing Danger of Terminating Employees on Leave: An Honest Belief That Leave is Being Misused is Not Always Enough (Richey v. Autonation, Inc.)

Posted in FMLA and Other Leaves of Absence, Labor Law, Wage & Hour

By:  Chelcey E. Lieber

Avery Richey, a sales manager at Power Toyota of Cerritos (“Toyota”), went on medical leave under the California Family Rights Act (“CFRA”) due to a back injury. While on leave, Toyota learned Richey was working at a restaurant he owned. Toyota dispatched an employee and a supervisor to Richey’s business, where they observed him sweeping, bending over, using a hammer to hang a sign, taking orders, and acting as a cashier. Toyota’s employee handbook provided: “You are not allowed to accept employment with another company while you are on approved [CFRA] leave.” Toyota believed Richey was violating this policy and misusing his leave and terminated Richey’s employment four weeks before the expiration of his approved medical leave.

Richey sued alleging his CFRA (and FMLA) rights had been violated. The matter was submitted to arbitration (pursuant to the mandatory employment arbitration agreement). The arbitrator denied Richey’s claim on the basis of the “honest belief” or “honest suspicion” defense, concluding that an employer who honestly believes that it is discharging an employee for misusing FMLA leave is not liable, even if the employer is mistaken. This type of defense frequently comes into play in discrimination and retaliation cases, which employ the McDonnell Douglas burden shifting scheme. Under that scheme, employers can defend against a prima facie case of discrimination or retaliation if they establish they had a legitimate, non-discriminatory (or non-retaliatory) reason for the employment action (e.g., a honest belief that the employee violated a company policy). Importantly, it does not matter if the reason was unwise or mistaken. The employee must then demonstrate the employer’s stated reason is mere pretext to cover up the true discriminatory or retaliatory motive.

In Richey v. Autonation, Inc. (full opinion found here: http://www.courts.ca.gov/opinions/documents/B234711.PDF), the trial court confirmed the arbitrator’s award, but the award was reversed by the 2nd District Court of Appeal. The 2nd District reasoned that the “honest belief” defense is not applicable in an interference of CFRA/FMLA rights case where the employer’s intent is not a factor and the McDonnell Douglas burden-shifting scheme is not applied. The 2nd District wrote: “The honest belief defense accepted by the arbitrator is incompatible with California statutes, regulations and case law and deprived Richey of his unwaivable statutory right to reinstatement under [CFRA]. This clear legal error abridged Richey’s statutory rights under CFRA—rights based on, and intended to further, an important public policy.”

The Court noted that “[a]lthough an employer is permitted to terminate an employee and deny reinstatement when the employee’s employment otherwise would have ceased, it bears the burden of establishing the employee would not otherwise have been employed at the time of reinstatement.” Here, Toyota’s evidence of misconduct came solely from the brief observations by the Toyota employees the company sent to his restaurant to observe him, and the Court called Toyota’s investigation “superficial.”

Among issues unresolved by the arbitrator, were “whether Richey was given adequate notice of Power Toyota’s policies regarding CFRA leave…; whether Power Toyota’s policy barring secondary employment during an employee’s CFRA leave differed from the policy pertaining to secondary employment held by employees who were not on CFRA leave; whether, as a result, the policy itself violated CFRA; whether Richey’s activities at the restaurant exceeded the limitations imposed by his physician, thus rising to a level of activity that could be found to constitute abuse of his leave; and whether Power Toyota carried its burden of proof on these issues.”

Other circuits, including the 3rd and 7th Circuits, have held that misuse of leave can be a defense to an interference claim. However, the employers in such cases have had more substantial evidence of the employee’s misconduct, including video surveillance from a private investigator of an employee not leaving his house although he claimed he had to take care of his mother at a nursing home and evidence of an employee working another job despite a doctor’s note that indicated the employee could not work at all.

Perhaps the outcome in the Richey case would have been different had Toyota questioned Richey and his doctor to determine whether the work he was performing at his restaurant actually violated his doctor’s orders. Or, had Toyota’s policy against working while on leave been more clear, the outcome also might also have been different (Richey testified he did not think this applied to him because he was simply the owner of a restaurant.)

So, what is an employer to do if they think an employee is misusing or abusing their leave?

  • It is always dangerous to terminate an employee who is on an approved leave, and this case demonstrates the dangers when an employer relies on its “honest suspicion” that the employee was misusing leave or violating company policy.
  • To reduce the risks, employers should validate the accuracy of any suspicions before taking adverse action through an independent investigation before jumping to conclusions (e.g., use a neutral third-party to investigate, not an employee or supervisor).
  • Finally, employers are advised to seek the advice of legal counsel when undertaking an investigation and before terminating an employee on an approved leave.