Richey v. Autonation, Inc.

Filed 1/29/15

IN THE SUPREME COURT OF CALIFORNIA

AVERY RICHEY, )
)
Plaintiff and Appellant, )
) S207536
v. )
) Ct. App. 2/7 B234711
AUTONATION, INC., et al., )
) Los Angeles County
Defendants and Respondents. ) Super. Ct. No. BC408319
____________________________________)

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. DIRECTTV, Inc. (2008) 44 Cal.4th 1334, 1355 (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,

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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.

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 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

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―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

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Cal.4th 1, 10 (Moncharsh).) Generally, courts cannot review arbitration awards
for errors of fact or law, even when those errors appear on the face of the award or
cause substantial injustice to the parties. (Id. at pp. 6, 28.) This is true even
where, as here, an arbitration agreement requires an arbitrator to rule on the basis
of relevant law, rather than on principles of equity and justice. (Cable Connection,
supra, 44 Cal.4th at p. 1360 [―A provision requiring arbitrators to apply the law
leaves open the possibility that they are empowered to apply it ‗wrongly as well as
rightly.‘ ‖]; see City of Richmond v. Service Employees Intern. Union, Local 1021
(2010) 189 Cal.App.4th 663, 669, fn.1 [―The arbitration provision here, reciting
generally that the arbitrator ‗shall . . . make no decisions in violation of existing
law‘ is a standard arbitration provision that does not provide for [judicial]
review.‖].)
The California Arbitration Act (Code Civ. Proc., § 1280 et. seq.) and the
Federal Arbitration Act (9 U.S.C. § 10 et seq.) provide limited grounds for judicial
review of an arbitration award. Under both statutes, courts are authorized to
vacate an award if it was (1) procured by corruption, fraud, or undue means; (2)
issued by a corrupt arbitrator; (3) affected by prejudicial misconduct on the part of
the arbitrator; or (4) in excess of the arbitrator‘s powers. (Code Civ. Proc.,
§ 1286.2, subd. (a); 9 U.S.C. § 10 (a).) An award may be corrected for (1) evident
miscalculation or mistake; (2) issuance in excess of the arbitrator‘s powers; or (3)
imperfection in the form. (Code Civ. Proc., § 1286.6; 9 U.S.C. § 11.) Our
analysis concerns whether the arbitrator acted in excess of his powers when he
rejected plaintiff‘s claim. (Code Civ. Proc., § 1286.2, subd. (a)(4).)
Arbitrators may exceed their powers by issuing an award that violates a
party‘s unwaivable statutory rights or that contravenes an explicit legislative
expression of public policy. (See, e.g., Board of Education v. Round Valley
Teachers Assn. (1996) 13 Cal.4th 269, 272-277 [arbitrator exceeded powers by

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giving effect to collective bargaining provisions that violated statutory rights in
Ed. Code]; California Dept. of Human Resources v. Service Employees Internat.
Union, Local 1000 (2012) 209 Cal.App.4th 1420, 1434 [arbitrator lacked power to
make an award that violated explicit public policy favoring legislative oversight of
state employee contracts when he interpreted a memorandum of understanding
between union and state to require salary increases the Legislature did not
approve].) However, ― ‗[a]rbitrators do not ordinarily exceed their contractually
created powers simply by reaching an erroneous conclusion on a contested issue of
law or fact, and arbitral awards may not ordinarily be vacated because of such
error . . . .‘ ‖ (Cable Connection, supra, 44 Cal.4th at p. 1360.)
We first explored ―narrow exceptions‖ to the ―general rule that . . . an
arbitrator‘s decision cannot be reviewed for errors of fact or law‖ in Moncharsh,
supra, 3 Cal.4th at page 11. Moncharsh noted that judicial review may be
warranted when a party claims that an arbitrator has enforced an entire contract or
transaction that is illegal. (Id. at p. 32, citing Loving & Evans v. Blick (1949) 33
Cal.2d 603, 609 [arbitrator could not enforce contract that otherwise would have
been void under state law because contractor was unlicensed] and All Points
Traders, Inc. v. Barrington Associates (1989) 211 Cal.App.3d 723, 738 [holding
that arbitrator could not enforce contract awarding commission to unlicensed real
estate broker in violation of state law].) Moncharsh observed that in the absence
of an express written accord in the arbitration agreement, arbitrators may decide
cases based on ― ‗broad principles of justice and equity.‘ ‖ (Moncharsh, supra, 3
Cal.4th at p. 10.) The court acknowledged that there may be ―exceptional
circumstances justifying judicial review of an arbitrator‘s decision when a party
claims illegality affects only a portion of the underlying contract. Such cases
would include those in which granting finality to an arbitrator‘s decision would be

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inconsistent with the protection of a party's statutory rights.‖ (Moncharsh, supra,
3 Cal.4th at p. 32.)
In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24
Cal.4th 83 (Armendariz), we considered the judicial review of arbitration awards
involving parties‘ unwaivable statutory rights. An employee seeking to avoid
arbitration argued that the limited scope of judicial review of arbitration awards
rendered the vindication of rights under the FEHA illusory because ―the arbitrator
is essentially free to disregard the law.‖ (Armendariz, supra, 24 Cal.4th at p. 106.)
Because Armendariz arose from a Court of Appeal decision compelling the parties
to arbitrate, and not from an actual arbitration award, we decided that it was not
the ―occasion to articulate precisely what standard of judicial review is ‗sufficient
to ensure that arbitrators comply with the requirements of [a] statute.‘ [Citation.]‖
(Id. at p. 107.) We simply stated that ―for such judicial review to be successfully
accomplished, an arbitrator . . . must issue a written arbitration decision that will
reveal, however briefly, the essential findings and conclusions on which the award
is based.‖ (Ibid.)
Most recently, we revisited the standard of review for arbitration awards
involving unwaivable statutory rights in Pearson Dental Supplies, Inc. v. Superior
Court (2010) 48 Cal.4th 665 (Pearson Dental). There, an arbitrator committed a
―clear error of law‖ by misapplying a relevant tolling statute and incorrectly
holding that an employee‘s claim was time-barred, thus depriving the plaintiff of a
hearing on the merits. (Id. at p. 670.) Pearson Dental recognized that the tolling
provision of Code of Civil Procedure section 1281.12 applied to the case. We held
that when ―an employee subject to a mandatory employment arbitration agreement
is unable to obtain a hearing on the merits of his FEHA claims, or claims based on
other unwaivable statutory rights, because of an arbitration award based on legal

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error, the trial court does not err in vacating the award.‖ (Pearson Dental, at p.
680.)
Pearson Dental, however, recognized its limited application. Despite being
―faced precisely with the question that was prematurely posed in Armendariz, i.e.,
the proper standard of judicial review of arbitration awards arising from
mandatory arbitration employment agreements that arbitrate claims asserting the
employee‘s unwaivable statutory rights‖ (Pearson Dental, supra, 48 Cal.4th at p.
679), we observed that the legal error that occurred actually denied the plaintiff a
hearing on his claim‘s merits. The arbitrator ―misconstrued the procedural
framework under which the parties agreed the arbitration was to be conducted,
rather than misinterpreting the law governing the claim itself‖ (id. at pp. 679-680),
a distinction that explained the narrow application of our holding and one that also
guides the scope of our review here. Pearson Dental emphasized that its legal
error standard did not mean that all legal errors are reviewable. (Id. at p. 679.)
The arbitrator had committed clear legal error by (1) ignoring a statutory mandate,
and (2) failing to explain in writing why the plaintiff would not benefit from the
statutory tolling period. The error addressed in Pearson Dental therefore kept the
parties from receiving a review on the merits. Its narrow rule was sufficient to
resolve the case. (Ibid.) Plaintiff here has not advocated for a greater scope of
judicial review in cases involving unwaivable statutory rights, and thus, there is no
reason to go beyond the framework Pearson Dental established. Before
discussing the arbitrator‘s decision, however, we first provide background on the
right plaintiff seeks to vindicate under the CFRA. 1

1 As the Court of Appeal recognized, the question whether the arbitrator
exceeded his powers and thus whether we should vacate his award on that basis is
generally reviewed on appeal de novo. (Reed v. Mutual Service Corp. (2003) 106
(Footnote continued on next page.)

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 1. The CFRA
The CFRA was enacted in 1991 as a state counterpart to the FMLA. Its
purpose is to allow employees to take leave from work for certain personal or
family medical reasons without jeopardizing their job security. (See Nelson v.
United Technologies (1999) 74 Cal.App.4th 597, 606.) The CFRA has two
principal components: a right to leave of up to 12 weeks in any 12-month period
to care for a family member or for the employee‘s own medical condition (Gov.
Code, § 12945.2, subds. (a), (c)(2)(A)), and a right to reinstatement in the same, or
a comparable, position at the end of the leave. (Gov. Code, § 12945.2, subd. (a).)
The right to reinstatement is unwaivable but not unlimited. Employers
must not deny employees reinstatement ―unless the refusal is justified by the
defenses stated in section 11089(c)(1) and (c)(2).‖ (Cal. Code Regs., tit. 2,
§ 11089, subd. (a).) Section 11089, subdivision (c)(1) states in part : ―An
employee has no greater right to reinstatement or to other benefits . . . of
employment than if the employee had been continuously employed during the
CFRA leave period.‖ This defense is qualified, however, by the requirement that
―[a]n employer has the burden of proving, by a preponderance of the evidence,
that an employee would not otherwise have been employed at the time
reinstatement is requested in order to deny reinstatement.‖ (Cal. Code Regs., tit.

(Footnote continued from previous page.)

Cal.App.4th 1359, 1365 [whether arbitrator exceeded contractual powers in
making award is a question of law].) We decline to rule on defendants‘ suggestion
that this court adopt the ―manifest disregard‖ standard of review recognized by
some federal courts in reviewing arbitration awards, given the limited nature of
our holding here. (See, e.g., Collins v. D.R. Horton, Inc. (9th Cir. 2007) 505 F.3d
874, 879-880 [manifest disregard of the law means that arbitrator recognized
applicable law and ignored it].)

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2, § 11089, subd. (c)(1).) Section 11089, subdivision (c)(2), relating to ―key
employees,‖ does not apply here.
These provisions mirror the FMLA. (See 29 U.S.C. § 2614 (a)(1)
[providing employees with right ―to be restored‖ to same or comparable position];
29 C.F.R. § 825.216 (a) [stating that employee has no greater right to
reinstatement or to other benefits than if employee had been continuously
employed during leave period, and that ―[a]n employer must be able to show that
an employee would not otherwise have been employed at the time reinstatement is
requested in order to deny restoration to employment.‖].) Like the parties and the
Court of Appeal here, courts use language from the FMLA and the CFRA
interchangeably. (Xin Liu v. Amway Corp. (9th Cir. 2003) 347 F.3d 1125, 1132,
fn. 4 [―CFRA adopts the language of the FMLA and California state courts have
held that the same standards apply‖]; see Pang v. Beverly Hosp., Inc. (2000) 79
Cal.App.4th 986, 993 [CFRA incorporates federal regulations interpreting the
FMLA ―to the extent they are not inconsistent with [CFRA] or other state
laws‖].)2
In addition, courts have distinguished between two theories of recovery
under the CFRA and the FMLA. ―Interference‖ claims prevent employers from
wrongly interfering with employees‘ approved leaves of absence, and ―retaliation‖
or ―discrimination‖ claims prevent employers from terminating or otherwise
taking action against employees because they exercise those rights. (See Smith v.

2 For the first time in his answer brief, plaintiff claims that defendants‘ policy
on leave did not give him sufficient notice that it applied to CFRA leave, because,
at one point, it used the term ―FMLA leave‖ instead of ―CFRA leave.‖ However,
plaintiff‘s complaint and his other briefing throughout this case assume the
opposite, and he uses the terms interchangeably. In any event, because this issue
was not previously raised, and is not necessary to decide the question presented,
we do not address it here. (Cal. Rules of Court, rule 8.516(b)(1).)

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Diffee Ford-Lincoln-Mercury, Inc. (10th Cir. 2002) 298 F.3d 955, 960; 29 U.S.C.
§ 2615 (a)(1), (a)(2).)
2. The Arbitration Award
The Court of Appeal here vacated the arbitration award because it believed
the arbitrator had committed legal error by adopting the honest belief equitable
defense that is available mostly in federal Seventh Circuit interference cases.
(See, e.g., Kariotis v. Navistar Intern. Transp. Corp. (7th Cir. 1997) 131 F.3d 672,
677 [providing FMLA defense to employer who honestly, but mistakenly, relies
on a nondiscriminatory reason in making its challenged employment decision].)
However, we need not decide whether that defense is viable in California
employment law. Even if the arbitrator erred, and even if such an error could
serve as a basis for vacating an arbitration award, plaintiff has not shown that the
error was prejudicial.
Here, the arbitrator found plaintiff was fired because he violated Power
Toyota‘s employment policy against outside work while on approved CFRA
medical leave, not because he was on approved leave. 3 The evidence to support
that finding, as reflected in the arbitrator‘s factual findings, was overwhelming.
Power Toyota explicitly warned plaintiff that its policy prohibited any outside
employment, including self-employment, while on leave. Plaintiff knowingly
ignored the warnings. Power Toyota invited plaintiff to communicate regarding
his outside employment, and he deliberately avoided any such communication.

3 Plaintiff argues that Power Toyota‘s employment provision forbidding
outside employment in this context is an illegal restraint on his CFRA leave. He
has forfeited the argument, however, for failing to raise it in the trial court.
(Delaney v. Dahl (2002) 99 Cal.App.4th 647, 660.) We express no opinion in this
case on the employment provision‘s legality in other contexts.

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 Even if Power Toyota‘s employment manual could have more clearly stated
the rule about outside employment, the award indicates plaintiff blatantly ignored
his superiors‘ clear instructions not to work at the restaurant while on CFRA leave.
To ignore this fact and to hold that Power Toyota could not have fired plaintiff
under any circumstances for violating company policy while on leave would
ignore the rule that plaintiff had ―no greater right to reinstatement or to other
benefits and conditions of employment than if [he] had been continuously
employed‖ during the statutory leave period. (29 C.F.R. § 825.216(a).) The
arbitrator found plaintiff‘s firing was based on a clear violation of company
policy — a legally sound basis for upholding the arbitrator‘s award — and would
likely have made that finding regardless of the evidence or findings as to the
employer‘s honest belief plaintiff was misrepresenting his medical condition.
Thus, even if the arbitrator was mistaken in relying on an honest belief defense,
plaintiff was not prejudiced thereby and the arbitrator‘s award in defendants‘ favor
will stand.

CONCLUSION
Whether the honest belief defense applies when an employer terminates an
employee based on a reasonable belief that the employee is violating company
policy while on CFRA or FMLA leave is an unsettled question of law. We need
not resolve that question in finding that the arbitrator here made no legal error that
deprived the plaintiff of an unwaivable statutory right when it relied upon the
substantial evidence that plaintiff violated company policy.

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 For this reason, we reverse the Court of Appeal‘s judgment.

CHIN, J.

WE CONCUR:

CANTIL-SAKAUYE, C. J.
WERDEGAR, J.
CORRIGAN, J.
LIU, J.
BAXTER, J.*
DUARTE, J.**

_____________________________
* Retired Associate Justice of the Supreme Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.

** Associate Justice of the Court of Appeal, Third Appellate District, assigned
by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Richey v. AutoNation, Inc.
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 210 Cal.App.4th 1516
Rehearing Granted

__________________________________________________________________________________

Opinion No. S207536
Date Filed: January 29, 2015
__________________________________________________________________________________

Court: Superior
County: Los Angeles
Judge: Malcolm H. Mackey

__________________________________________________________________________________

Counsel:

Scott O. Cummings for Plaintiff and Appellant.

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

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

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

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

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Scott O. Cummings
1025 W. 190th Street, Suite 200
Gardena, CA 90248
(310) 295-2195

David J. Duchrow
Duchrow & Piano
501 Santa Monica Boulevard, Suite 505
Santa Monica, CA 90401-2443
(310) 395-5511

Todd E. Lundell
Snell & Wilmer
600 Anton Boulevard, Suite 1400
Costa Mesa, CA 92626
(714) 427-7000

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