California Supreme Court Backs Employer in Medical Leave Case

Author: David B. Weisenfeld, XpertHR Legal Editor

February 4, 2015

The California Supreme Court has handed a victory to employers in a case involving an employee's alleged misuse of medical leave. In Richey v. AutoNation, Inc., the Court found that an employee out on leave is not entitled to a greater right to reinstatement than other employees.

AutoNation had fired an employee while he was absent on company-approved medical leave. As a result, the employee claimed that his termination violated the California Family Rights Act (CFRA) and its federal counterpart, the Family and Medical Leave Act (FMLA).

However, AutoNation countered that it took action only upon learning that the employee was engaging in outside employment while on his leave of absence, in direct violation of company policy.

In ruling unanimously for the employer, the California High Court held that CFRA/FMLA status is not an absolute bar to termination. The Court said, "The right to reinstatement is unwaivable but not unlimited." The Court also endorsed the case arbitrator's finding that medical leave status does not protect an employee "from smart decisions, or bad ones, made by [the employer] so long as basis for the decision is legally proper."

The decision is an important reminder that being out on medical leave does not automatically shield an employee from termination or other disciplinary action for violations of company policy.

The Court stopped short of deciding a separate issue involving a court's power to vacate an arbitrator's decision. As a condition of his hiring, the employee had signed a mandatory arbitration agreement of all employment disputes. The trial court had granted AutoNation's motion to compel arbitration.

The arbitrator found the employer had the right to terminate an employee 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." However, the California Court of Appeal disagreed and concluded the arbitrator had violated the employee's right to reinstatement.

While the California Supreme Court reversed that ruling, it did not address the validity of the honest belief defense.