Richey v. AutoNation, Inc.

• Decision Date: 29 January 2015
• Docket Number: No. S207536.,S207536.
• Court: California Supreme Court
• Parties: Avery RICHEY, Plaintiff and Appellant, v. AUTONATION, INC., et al., Defendants and Respondents.

60 Cal.4th 909

341 P.3d 438

182 Cal.Rptr.3d 644

Avery RICHEY, Plaintiff and Appellant

v.AUTONATION, INC., et al., Defendants and Respondents.

No. S207536.

Supreme Court of California

Jan. 29, 2015.

Scott O. Cummings, Long Beach, for Plaintiff and Appellant.

Law Office of David J. Duchrow, Duchrow & Piano and David J. Duchrow, Santa Monica, for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiff and Appellant.

The deRubertis Law Firm David M. deRubertis, Studio City, Helen U. Kim ; Pine & Pine and Norman Pine, Sherman Oaks, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant.

Snell & Wilmer, Costa Mesa, Richard A. Derevan, Christopher B. Pinzon, Frank Cronin, Erin Denniston Leach and Todd E. Lundell for Defendants and Respondents.

Fred J. Hiestand, Sacramento, for The Civil Justice Association of California as Amicus Curiae on behalf of Defendants and Respondents.

Opinion

CHIN, J.

An employer terminated an employee who was absent on approved medical leave, but engaged in outside employment in violation of company policy. After an 11–day arbitration hearing, the arbitrator relied on the federal “honest belief” defense and rejected the employee's claim that the employer violated the employee's right to reinstatement under the Moore–Brown–Roberti Family Rights Act (CFRA) (Gov.Code, §§ 12945.1, 12945.2 ) and its federal counterpart, the Family and Medical Leave Act of 1993 (FMLA) (29 U.S.C. §§ 2601 –2654 ). The trial court confirmed the arbitrator's award, but the Court of Appeal vacated the award in the employer's favor.

We granted review to determine whether, in the absence of an express agreement between the parties, courts may review and vacate (or correct) an arbitration award involving both an employee's unwaivable statutory rights and an employer's written policy forbidding outside employment while on leave. We conclude that although the arbitrator may have committed error in adopting a defense untested in our court, any error that may have occurred did not deprive the employee of an unwaivable statutory right because the arbitrator found he was dismissed for violating his employer's written policy prohibiting outside employment while he was on medical leave. Accordingly, we reverse the Court of Appeal's judgment.

FACTS AND PROCEDURAL BACKGROUND

In 2004, defendant Power Toyota Cerritos (Power Toyota), part of the AutoNation, Inc., consortium of automobile dealerships, hired plaintiff Avery Richey (plaintiff) as an at-will employee. Plaintiff received an employment manual noting that outside work while on approved CFRA leave was prohibited. There was also a general understanding at Power Toyota that outside employment of any kind, including self-employment while on approved leave, was against company policy and that others had been fired for violating this rule.

As a condition of his hiring, plaintiff signed an agreement requiring that any employment dispute be settled by arbitration. All disputes between Power Toyota and its employees were decided this way. In relevant part, the arbitration agreement stated: “Resolution of [disputes] shall be based solely upon the law governing the claims and defenses set forth in the pleadings and the arbitrator may not invoke any basis (including, but not limited to notions of ‘just cause’) other than such controlling law.” The agreement did not include an express provision stating that courts could review any arbitration award for legal error. (See Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1355, 82 Cal.Rptr.3d 229, 190 P.3d 586 (Cable

Connection

) [parties to arbitration may agree that an award is reviewable for legal error].) The agreement did require the arbitrator to include a “written reasoned opinion” with his decision, which “shall be final and binding upon the parties.”

Around October 2007, plaintiff began work on plans to open a local seafood restaurant. He bought equipment and leased a site for the restaurant, which opened in February 2008. Plaintiff marketed his restaurant with sample menus and business cards while still working full time at Power Toyota. Plaintiff's supervisors at Power Toyota, concerned that the restaurant was distracting him, met with him in February 2008 to discuss performance and attendance issues. The supervisors testified that plaintiff had become distracted and was “a bit off his game.”

On March 10, 2008, plaintiff injured his back while moving furniture at his home. Plaintiff's physician informed Power Toyota that plaintiff was medically unable to work. On March 21, 2008, plaintiff filed for leave under the CFRA and FMLA. Power Toyota granted plaintiff's medical leave and extended it on multiple occasions.

On April 11, 2008, a supervisor sent plaintiff a letter stating that employees were not allowed to pursue outside employment while on leave and that plaintiff should call if he had any questions. Plaintiff ignored the letter, never called his employer, and thus never explained how his activity was consistent with his medical leave. Despite his employer's expression of concern, plaintiff claims that he chose to ignore the letter's invitation to communicate with his employer because he felt that it misstated company policy. Plaintiff also contends that the policy did not apply to him because he had not accepted employment with another company, but rather was working as the owner of his own business.

On April 18, 2008, in response to information that plaintiff was working at his restaurant while on leave, Power Toyota dispatched an employee to observe the restaurant. The employee testified seeing plaintiff sweeping, bending over, and hanging a sign using a hammer. Other Power Toyota employees testified that plaintiff was working the front counter. Plaintiff himself admitted to having handled orders and answering the phone at the restaurant while on leave, but claimed that these tasks were within the limited light duties his doctor authorized.

Power Toyota terminated plaintiff on May 1, 2008. Plaintiff's medical leave was set to expire on May 28, 2008. In its termination letter, Power Toyota stated that it dismissed plaintiff for engaging in outside employment while on a leave of absence, in violation of company policy.

After receiving a right-to-sue letter from the Department of Fair Employment and Housing, plaintiff filed a complaint in superior court against Power Toyota and its parent companies, including AutoNation, Inc., Webb Automotive Group, Inc., and Mr. Wheels, Inc., and his direct supervisor, Rudy Sandoval (defendants), alleging multiple claims under the California Fair Employment and Housing Act (FEHA) (Gov.Code § 12900 et seq. ) and the CFRA. The claims included racial discrimination, harassment, retaliation for taking approved leave under the CFRA, and failure to reinstate following CFRA leave. The trial court granted defendants' motion to compel arbitration.

The arbitrator, a retired judge with 20 years of experience on the bench, conducted an 11–day arbitration hearing. He rejected each of plaintiff's contentions in a 19–page written order. First, he denied plaintiff's claims of racial discrimination and harassment, finding the conditions of plaintiff's employment did not constitute a hostile work environment. Plaintiff did not appeal the arbitrator's decision as to those claims. With regard to the plaintiff's claims under the CFRA and the FMLA at issue here, the arbitrator framed the legal issue under both statutes as “whether the law provides a protective shell over [plaintiff] that bars his termination until he is cleared to return to work by his physician, or does the law allow an employer to let an employee go, while on approved leave, for other non-discriminatory reasons?” (Italics omitted.) The arbitrator found that although the employee manual was “poorly written,” “there was a general understanding at Power Toyota that outside employment was against company policy and others had been terminated for violating this rule.” He concluded that “case law ... allows Power Toyota to terminate Mr. Richey if it has an ‘honest’ belief that he is abusing his medical leave and/or is not telling the company the truth about his outside employment.” He also found that “the weight of the evidence is overwhelming that Power Toyota fired Mr. Richey for non-discriminatory reasons. His CFRA/FMLA status is not an absolute bar to termination. His medical leave status does not protect Mr. Richey from smart decisions, or bad ones, made by Power Toyota, so long as the basis for the decision is legally proper.”

Plaintiff sought to vacate the award in part. His asserted limited ground was that the arbitrator committed reversible legal error because he exceeded his powers when he accepted defendants' honest belief defense as to plaintiff's medical condition. Defendants moved to confirm the award. The trial court denied plaintiff's motion to vacate the award, finding that “[t]he fact that the arbitrator may have applied the wrong legal standard does not constitute grounds to vacate the Final Award.” Plaintiff appealed, alleging that Power Toyota violated his right to be reinstated in the same or a comparable employment position following his leave, as the CFRA required.

The Court of Appeal reversed the trial court's judgment, concluding that the arbitrator violated plaintiff's right to reinstatement under the CFRA when he applied the honest belief defense to plaintiff's claim. We granted defendants' petition for review.

DISCUSSION

California law favors alternative dispute resolution as a viable means of resolving legal conflicts. “Because the decision to arbitrate grievances evinces the parties' intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties' agreement to submit to arbitration.” ( Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10, 10 Cal.Rptr.2d 183, 832 P.2d 899 (Monc...